In three minutes, the Virginia Gas and Oil Board can force a property owner to lease his mineral rights to a private energy company.
The state regulatory body exercises this power more than a hundred times a year, converting Southwest Virginia’s vast underground pools of natural gas into the fuel that heats homes and businesses, and tipping millions of dollars to the companies that harvest it.
But for the mineral owner forced to lease, the monetary rewards come far less easily – or not at all. By the time Earl Whited, of Russell County, Va., died in 2006, more than a dozen gas wells on his property had sucked up over 2.5 billion cubic feet of gas in five years. The former bus driver never saw a penny.
People like Whited, forced by the state to lease their mineral rights, are supposed to be compensated by the corporations that drain their nonrenewable resource. But ongoing conflicts over who owns the gas mean that millions of dollars in royalties are funneled into an opaque escrow account that the state does not routinely monitor for compliance. Getting royalties out of the $24 million escrow account requires “sticks of dynamite,” in the words of one attorney who has spent years trying.
Jamie Hale, a 37-year-old truck driver in Buchanan County, Va., wants his royalties for his ailing mother.
Graham Tiller, 77, a retired chemical plant worker in Chester, Va., wants his royalties to help send his grandson to college.
Shirley Keene, 60, a disabled diabetic from Keen Mountain, Va., wants her royalties to take the edge off her insurance premiums.
Theresa Brents, a retired librarian in Stuarts Draft, Va., had never heard of the escrow fund where her royalties are held.
The plight of the force-pooled landowner sometimes pricks the conscience of one of the seven board members who enable the system.
“I don’t always feel comfortable about what I’m doing,” Bill Harris, a public member from Wise County, said in a November interview. “It’s the whole ‘industry-versus-citizen’ thing where the industry always wins, and to me, it’s just real disturbing.”
Harris, who taught physics, math and photography at Mountain Empire Community College before retiring in June, votes to force-pool mineral owners because state law leaves him few alternatives.
“The state says that if certain things are in place, we have to have a really good reason not to approve that,” he said. “I’d love to see the laws rewritten to give citizens more power. I just don’t think people get enough money.”
The methane gas that inhabits the coal seams of Southwest Virginia is now big money – and the subject of a legal tug-of-war between people who own the gas beneath their land, and the coal companies that purchased their coal. Despite a 2004 Supreme Court of Virginia ruling in favor of gas owners, coal companies have shown their willingness to spend years in court fighting for their share of coalbed methane royalties.
Unless a gas owner sues or agrees to split such royalties with a coal company, the funds will accumulate in escrow, and Ferrell Whited is resigned to this third option.
Whited and his siblings – the heirs of Earl Whited – went through four years of litigation with a coal company over coalbed methane royalties and emerged with 50 percent – half of what they sought. The former coal miner has lost his appetite for lawsuits and split agreements; he’ll deed his remaining mineral interests to his grandchildren and leave it to them to extract royalties from escrow.
Except that by that time, Whited’s money may no longer be in escrow. Once an individual account in escrow ceases to receive payments from gas production, it is considered unclaimed property and may have to be surrendered to the state treasury, throwing up a new series of bureaucratic barriers to collecting the money.
In June, David Asbury, the state official who oversees the escrow fund on behalf of the Gas and Oil Board, told an assembled crowd at a public meeting in Grundy, Va., “We would like for that escrow account to be zero. We don’t have a goal to grow the escrow account.”
Yet the fund continues to accumulate royalties faster than Asbury and the board can disburse them. Two months after Asbury spoke, on Aug. 11, the board published a request seeking bids from banks to manage the escrow fund. Buried in the 71-page document is a sentence that powerfully, if casually, underscores the difficulty of getting the fund to zero: “It is estimated that twenty-five to fifty million dollars may be held in escrow at any one time.”
The size of the escrow fund has dismayed some area legislators and stunned others.
“We have got to find some better way of getting those monies out of escrow,” Delegate Terry Kilgore, an attorney and senior Republican lawmaker from Gate City, Va., said in an interview.
“I was shocked to see your number, $24 million?” Kilgore said. “I don’t think it was ever the intent of the General Assembly to have that kind of escrow account.”
Peter Glubiak, the attorney who won the 2004 Supreme Court ruling for gas owners in Buchanan County, believes legislators could fix the escrow problem with the stroke of a single sentence.
Noting that an earlier law presumed that people owned the gas beneath their surface, Glubiak said, “What needs to happen is a simple reversal, reinstituting the presumption that if you own the land, you own the gas. That way, the burden would be on the coal company to come in and affirmatively prove [coalbed methane ownership]. It isn’t the poor landowner who has to hire a lawyer and go to court and spend a lot of money. And you would get rid of 75, 80, 90 percent of what’s in escrow.”
Failing any better way to retrieve royalties from escrow, mineral owners are considering their options.
At his home outside Richmond, Va., Graham Tiller reads the minutes of the board hearings online, scanning them for details on what kind of deals gas owners are striking with coal companies over coalbed methane royalties. Recently, he saw one in which the gas owner received 80 percent of the royalties, and he’s been talking with an agent of the company that owns the coal where he owns the gas.
“I’m thinking strongly about seeing if I can make a deal with them – if I can get the right kind of deal,” he said. “I’m getting old, and I’ve got a grandson to send to school. I can’t afford a lawsuit by myself, but I’m not going to give it to them.”
Theresa Brents is looking for a lawyer.
Shirley Keene is looking for her fourth lawyer.
Jamie Hale is working on a plan that does not involve a lawyer. During the 10 years that CNX Gas has sucked coalbed methane from beneath his 40-acre property, he has not received a dime. Assuming the Hales could recover 100 percent of the royalties in escrow, their interest would entitle them to approximately $266,000 – less whatever CNX deducts to get the gas to market.
“What I had in mind – I don’t know that I’d get anywhere with this – is my next day off, going to the courthouse and speaking with the judge if I can,” he said.
“If I can, I’ll get a declaratory judgment order against CNX Gas or whoever,” he said, although his conflict is actually with the coal owner, Hugh MacRae Land Trust.
“That’s my next step – talking to a judge or a legal representative at the courthouse. I can’t see us having to get an attorney to get what is rightfully ours. I mean, it’s not right. If you do hire an attorney, you might as well take a split agreement,” he said.
Then he sighed.
“I really don’t know where to go or what to do.”
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