Texas American Energy Corporation v. Citizens Fidelity Bank & Trust Company

Supreme Court of Kentucky, 1987.

736 S.W.2d 25.

Johnson, pp. 23-27

Facts: Texas American bought Western Kentucky Gas. Western Kentucky Gas buys gas and pipes it into underground storage in Kentucky. Texas American wanted to use these gas reserves as collateral for loans. They claimed it was personal property requiring only a “security interest”, but the bank said it was part of the real estate, which would require a “mortgage interest”.

Issue: Is the natural gas the personal property of Texas American, or is it part of the real estate?

Rule: NEW RULE! Once natural gas is extracted from the ground and thus converted to personal property, it will remain so even if it is stored in underground reservoirs (so long as they don’t leak).

Analysis: The court notes that Hammonds is the controlling case, but chooses to limit its application. In Hammonds, leaking gas under a woman’s property was found not to be a trespass because it was considered not to be private property, but rather sort of wild gas.

Eventually, the court rejects this analogy.

Conclusion: The stored gas is private personal property!

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