State Regional Consensus on gas royalties possible

DANIEL GILBERT
MEDIA GENERAL NEWS SERVICE
Published: January 24, 2010

Behind closed doors, Southwest Virginia legislators, state energy officials and natural gas industry lobbyists appear to be reaching a consensus that state law must be changed to release from state custody $25 million in natural gas royalties to the rightful owners.

Most of the money has been accumulating in escrow accounts because of lingering disputes over ownership of coalbed methane after the passage of a state law in 1990. The law opened that gas to commercial production.

Three Southwest Virginia lawmakers are working on bills to make it easier for people entitled to the royalties in escrow to collect them, and to ensure that they receive accurate payments.

The Virginia Division of Gas and Oil recently estimated that 15,000 people have money in escrow. Most, but not all, would be affected by the proposed changes.

The bills seek to clarify ownership of the coalbed methane, a lucrative gas that remains in dispute; establish accounting standards to audit the funds in escrow; and create an arbitration mechanism to expedite the release of royalties.

"We had a frank, sit-down meeting [Wednesday] with gas industry lobbyists, interested parties, and the [Virginia] Department of Mines, Minerals and Energy," Del. Clarence E. Phillips, D-Dickenson, said Thursday. "I think out of the meeting comes a consensus that something has to be done, and that we will do something."

Phillips and Sen. Phillip P. Puckett, D-Russell, have introduced twin bills declaring that landowners own all gases beneath their property's surface, unless they have sold those rights. The bills also would require the Virginia Auditor of Public Accounts to conduct an extensive audit of all individual accounts in the escrow fund which is undergoing its first audit in a decade.

Overseeing the escrow fund is the Virginia Gas and Oil Board, which determines when energy corporations must pay royalties into the accounts.

Del. Terry G. Kilgore, R-Scott, on Friday introduced legislation that would require the board to order a third-party arbitrator -- appointed by a circuit court -- to resolve conflicting claims over coalbed methane upon the request of the landowner whose gas is being drained by an energy corporation.

The centerpiece of the proposed changes in the Virginia Gas and Oil Act would put into law the presumption that the original landowners own the rights to coalbed methane a gas that is produced by fracturing and stimulating the coal seam, and which accounts for 80 percent of all gas produced in Virginia.

Disputes over coalbed methane ownership cover 83 percent of all royalties in escrow, according to a recent state estimate; the rest belongs to people whose gas is being produced but who cannot be found.

The legislation would make state law reflect a 2004 Supreme Court of Virginia ruling that landowners who grant away only their coal rights retain the rights to coalbed methane.

Despite that ruling, landowners seeking to retrieve royalties from escrow still must sue to prove ownership, or agree to split the money with the company that bought their coal.

Maurice Royster, vice president of the Virginia Oil and Gas Association, said there was a "misconception" that gas producers are holding money belonging to landowners in escrow. The Gas and Oil Board requires companies to pay royalties from coalbed methane into escrow accounts whenever different people own the gas and coal rights for the same tract of land.

"We're doing everything we can so that we can change the laws if necessary, and get a system so that the money that's in escrow that folks have a claim to -- they can get it out," Royster said.

Asked if he believed it was necessary to change the law, Royster demurred. The $25 million in escrow, and the underlying mineral ownership questions that have fueled the fund's expansion, have attracted the attention of Virginia's new attorney general, Ken Cuccinelli.

"I'm aware of the problem," Cuccinelli, a Republican and former state senator who sponsored a bill changing Virginia's eminent domain statute, said in an interview Thursday.

"It strikes a sensitive nerve for me because of the property rights issue, and the fact that government is essentially sitting on citizens' money," he said.


Daniel Gilbert is a staff writer at the Bristol Herald Courier.
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