Meeting in Grundy Underscores Tensions

Comment: The article below is about mineral rights in Virginia. Beware of people coming to your house and promising you the moon; do not sign anything pertaining to mineral rights (uranium) unless a lawyer is present. The state of VA takes the sides of the Corporations!

Underscores Tensions

By Daniel Gilbert
Reporter / Bristol Herald Courier
Published: June 14, 2009

GRUNDY, Va. – The temperature was rising in the stuffy lecture hall of the Appalachian School of Law, where state officials, gas industry representatives and individual mineral owners gathered uneasily last Tuesday.

Tension was palpable in the room, with speakers urging those present to engage in a civil dialogue – a well-worn plea at meetings on the thorny topic of gas ownership in the region’s mineral-rich fields.

The forum at the law school was the third of its kind in 10 days – part of an educational initiative born of a long-simmering controversy and failed legislation in the Virginia General Assembly.

Legislators, state oil and gas officials and industry representatives presented at all three meetings – in the state’s largest gas-producing counties of Wise, Dickenson and Buchanan – leaving time at the end for citizens to ask questions and make comments.

The trio of meetings was ostensibly dedicated to the controversy over the practice of forced pooling – in which a gas company operates a well on a unit of land against the will of a mineral owner – and the deductions gas operators take out of the royalties they are required to pay owners who are involuntarily pooled.

In presentations by the Virginia Oil and Gas Association, such controversies were brushed with an industry-crafted polish. In one PowerPoint slide, forced pooling became “Majority Rule: Cornerstone of our Democracy;” in another, deductions from royalties to market the gas were rendered as “Post Production = Adding Value.”

“There’s been a little bit of a question as to whose meeting this is,” state Sen. Philip Puckett, D-Lebanon, said at the outset of the third meeting, in Grundy, after several attendees complained they were being short-changed on the public comment time.

“This is your meeting,” he said, addressing his comments to the individual gas owners who have railed against the industry practice of taking post-production charges out of royalty payments.

Puckett, with Delegate Bud Phillips, D-Castlewood, sponsored ultimately unsuccessful legislation earlier this year that would have amended state law to prohibit companies from taking such deductions from owners who have been force-pooled.

Puckett and Phillips also have requested an opinion from the Virginia attorney general as to whether the state Gas and Oil Act is constitutional, whether the Gas and Oil Board has overstepped its authority in allowing post-production charges, and whether individual owners are receiving adequate due process. They expect a response within 30 to 45 days, they said. (I bet he say something, Dillion Rule State!)

In spearheading the educational meetings, Puckett said, “We decided that we at least owed you an explanation as to what’s going on, where we are and what the future might look like” of mineral extraction in the region’s gas-producing counties.

At each of the meetings, VOGA and the Virginia Department of Mines, Minerals and Energy provided a panorama of the region’s history through the present gas issues. The presentations gave detailed explanations of how the Virginia Gas and Oil Board operates, and complex legal procedures such as how owners can extract their money from a state-administered escrow account.

The future, however, remains clouded by legal and philosophical questions on ownership rights, and is further roiled by trust that has eroded over time.

“What do I own?”

Mineral rights in the coal and gas fields come down to an odd assortment of mismatched deeds – someone owns the surface, but has sold the coal underneath; another owns the coal estate, but has sold the gas rights. The hottest mineral dispute centers on a gas that is mined from within a coal seam – the so-called coalbed methane gas – which in the past two decades has grown from industry afterthought to account for 80 percent of natural gas production in the state.

The stakes of coalbed methane ownership have risen in line with its growing profits, and though the Virginia Supreme Court has weighed in on the issue, the dispute remains far from resolved.

“What do I own?” David Asbury, director of the state’s Division of Gas and Oil, asked the audience at the Grundy meeting. “That is one of the most important questions. Legal counsel is your best option, for those who are not used to doing title searches.”

That option rankles gas owners like Jamie Hale, a Buchanan County resident who pointed to the precedent the Virginia high court set in 2004 in the Ratliff v. Harrison-Wyatt LLC case. That ruling upheld the decision of a Buchanan County Circuit Court judge to give the gas owners 100 percent rights to the coalbed methane over the coal owner.

“Why should we have to hire a lawyer to prove what already belongs to us?” Hale asked, as other individual owners applauded.

Puckett chimed in on this point as well.

“If I’m a gas owner in Buchanan County, I don’t think I ought to be the one to prove I own [the coalbed methane],” the legislator said.

But the Ratliff ruling has not settled the conflict, with some coal and gas owners claiming that the Ratliff case revolved on language specific to their deeds, and is not a blanket precedent.

“That’s where good legal counsel comes into play,” Asbury said.

A question of trust

Cooperation, according to some individual owners, is hampered by their mistrust of the gas companies they’ve dealt with over the years.

“A lot of landowners have been given a raw deal by gas companies,” Hale said.

“I’ve been dealing with the gas companies since 1993,” said Shirley Keen at the Grundy meeting. “Don’t sign anything,” she said to a spasm of applause. “Or if you do, make sure you have an attorney there.”

In Clintwood, Brenda McClellan was open-minded but skeptical about the prospect of participating in a gas company well. The Abingdon resident was considering whether to participate as an investor in production from a unit where she owns gas rights. An individual owner, who shares fully in the costs of operating a well, can share in the profits after the gas operator recovers either 200 percent or 300 percent of their investment, depending on whether the owner is leased or unleased.

It was this last part – leaving it to the company to inform her when the capital had been recovered – that worried her.

“What the gas companies pay is a pittance,” she said. “People really feel like they’ve been taken advantage of.”

So deep-seated is the mistrust that some residents who attended the meetings complained about incidents that occurred more than a decade ago.

What concerned Barney Reilly, at the June 4 Clintwood meeting, stretched back to the presidency of Bill Clinton, who happened to be giving a televised address after 9 p.m. one night when Reilly heard blasting from a local mine.

This was not supposed to occur after dark, he explained, and half a dozen local residents noted the incident on their calendars. When a DMME inspector came out to investigate the complaints, “he didn’t bother talking to anyone about the thing,” Reilly said. “He looked at the blasting logs. The blasting logs were taken as gospel, while our complaints were just dismissed.”

Reilly wanted to know if it was still the policy of the Gas and Oil Board to ignore residents’ complaints; Asbury assured him it was not.

But an air of suspicion still colors the way individual owners view their occasional disputes with energy companies and the state. On the night of the Clintwood meeting, rain deluged the area, and a sludge of water and rock-studded mud slammed into the house and garage of Doug and Vickie Fleming, knocking down steel doors and flooding the property.

Doug Fleming, an automotive mechanic who has lived in the area for 37 years, said he had never experienced such flooding, and blamed it on the operations of EQT Corp. – until recently known as Equitable – which is putting in a gas pipeline some distance above his property. Specifically, he believes those operations have clogged a drain pipe – 5 feet in diameter – that channels water beneath his property.

But DMME inspector Jay Henderson found no evidence that pointed to EQT’s responsibility, according to a DMME report filed five days later. “The watershed above Mr. Fleming’s house is not impacted by the pipeline construction,” Henderson wrote.

Said EQT spokesman Wayne Desbrow: “There’s absolutely no way we could have caused that. At best, it’s a real stretch.”

A global issue?

No one who spoke at the meetings questioned or diminished the importance of gas operations to the local economy. Perhaps a dozen rank-and-file gas company workers spoke at the meetings, and they, too, were applauded.

For the industry’s part, Jerry Grantham, president of VOGA, argued that the current law allowing companies to involuntarily pool gas owners and harvest their gas is the fairest, most democratic way of maximizing resources and distributing profit.

He highlighted a scenario in which owners holding 20 percent of the acreage in a unit did not want to be pooled, while the rest favored harvesting the gas. “Should 20 percent of the people keep the other 80 percent from drilling the well and getting paid?” he asked.

As to the industry practice of deducting fees from royalties for compressing and transporting the gas to market – the “post-production charges” – Grantham pointed out that all involved reap the benefits of taking the gas to the market of highest demand.

In other words, the individual owner – forced-pooled or not – gets more money when the gas operator ships it through a pipeline to where it will receive the highest price. And they should contribute to the cost, he said.

“Clearly, we heard back that a pretty sizeable portion of people recognize the importance of gas and mineral resources in general,” Grantham said later in an interview.

As to residents’ complaints and comments, Grantham said, “We can always do better.” But most of the issues raised dealt with individual matters and rather broad policy.

“We didn’t hear a whole lot about post-production costs – which was really sort of the impetus for the whole thing,” Grantham said. “What that tells me is that if it were a more global issue, then we probably would have heard more about it.”

Grantham, Puckett and Asbury will hear more about resident concerns in Clintwood, where they have agreed to return after some at the June 4 meeting complained that the presentations crowded out public comment time.

Puckett was enthusiastic about the outcome of the meetings, and said later he believes he’s closer to a compromise with the gas industry than when his legislation seeking to ban post-production charges to forced-pooled owners sputtered and stalled.

The key, as Puckett described it, is building trust through greater transparency.

“People just don’t trust the gas companies, the coal companies, and that creates a problem for them,” he said. “We’ve got to get to a point where we believe what they charge us is fair.”

The way to do that, Puckett believes, is for gas companies to provide royalty recipients with detailed statements, including what they are deducting to get their gas to market.

“I’m sort of convinced that if there were transparencies in what we’re doing, I would want [the gas] sold at the highest point of sale, and I personally would be willing to consider paying a post-production charge,” Puckett said.

dgilbert@bristolnews.com (276) 645-2558

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