Zuckerman

—In this appeal we are called upon to determine a variation on the theme of the “rule of capture” as it applies to recovered gas. Plaintiff Pacific Gas and Electric Company (PGandE) acquired storage rights to an exhausted gas reservoir on an island in the San Joaquin delta. It also entered into an oil and gas agreement with the owners of the island to operate a nearby well on a parcel adjacent to the reservoir and to pay royalties for gas extracted from the well. PGandE then purchased gas from suppliers in Texas and Canada and injected it into the reservoir for use in periods of high demand. Meantime, it operated the nearby well. As fate would have it, the injected gas migrated to the adjacent parcel and PGandE found itself paying royalties on its own gas. This inevitable lawsuit eventually followed. The trial court entered a judgment requiring PGandE to pay over $6.5 million in royalties on its own gas. One of the questions on appeal is whether the owner loses its ownership of recovered gas when it injects that gas into a natural reservoir and the gas migrates. We hold that once gas has been reduced to personal possession, the owner is not thereafter divested of…