Kenai adds money for outside lawyers as it claims gas storage space under its airport

The Kenai City Council on Oct. 21 approved keeping an outside law firm, at up to $30,000, to help the city in a dispute over who owns underground gas storage space beneath the Kenai Airport.

The state has proposed leasing that space to ENSTAR Natural Gas. The city's attorney says the state is doing so without recognizing that the city owns it.

The space in question is pore space, the tiny gaps in underground rock where natural gas can be stored. ENSTAR and Hilcorp applied for state leases on three Cook Inlet gas storage sites, and both sought the Kenai Loop field.

On Oct. 13, the state Division of Oil and Gas issued a preliminary finding proposing to lease the Kenai Loop gas storage formation to ENSTAR. It found Hilcorp's competing application lacked a required agreement with the field's existing leaseholder and enough technical data. The finding says gas storage rights beneath parts of the airport belong exclusively to the state, through a 1986 federal patent. It names the city as the exclusive surface owner, with "every right to negotiate reasonable commercial arrangements" with ENSTAR.

City Attorney Scott Bloom disagrees. In an Oct. 28 memo, he wrote that the finding "purports to lease pore space to ENSTAR" without recognizing the city's ownership, and that "failure to recognize the City's interests may lead to significant project delays." The council was scheduled to consider approving comments to the state on the city's ownership Wednesday. Comments on the finding are due Nov. 13.

Bloom had already retained Pioneer Law LLC for under $15,000, and the council's resolution adds another $15,000 from the Legal Department and City Manager budgets. Bloom wrote that the firm has experience in oil and gas transactions and tax law, and that many other firms in the state are unavailable to the city because of ties to the other parties. At the meeting, he said the firm would also give an outside legal opinion on who owns the pore space under the city.

The council met behind closed doors Oct. 7 and Oct. 21 to discuss "Competing Applications for Gas Storage Space."

The city has gone to court over pore space before. In 2016, the Alaska Supreme Court ruled that the state and Cook Inlet Region Inc., not the city, owned the pore space and gas storage rights in a different reservoir, the Cannery Loop Sterling C, a limestone formation about a mile underground.