Bill aimed at freeing gas royalties poised to pass

A bill aimed at freeing millions of dollars in natural-gas royalties from state-run escrow accounts is one floor vote and a governor’s signature away from becoming law.

“I didn’t think I was ever going to get it to this point,” Delegate Bud Phillips, D-Castlewood, said in an interview Monday after his bill advanced with unanimous approval from a Senate committee.

The bill’s path to approval in the Senate has been greased by a twin bill backed by Sen. Philip Puckett, D-Lebanon, which senators unanimously approved earlier this month and is now being considered by a House of Delegates committee.

Phillips’ and Puckett’s legislation would clarify the ownership of coalbed methane – which comprises 80 percent of all gas produced in Virginia – and compel the state’s auditor to review accounting standards and practices for the royalties held by the state pending a determination of ownership. The legislation would not affect any settlements or court orders on ownership prior to its passage. And it remains unclear whether the legislation would force a state regulatory board to release the $25 million of royalties in escrow accounts to landowners who haven’t been paid for their gas for as long as 20 years.

The clarification on gas ownership mirrors the ruling of a Buchanan County Circuit Court, unanimously upheld by the Supreme Court of Virginia in 2004, that surface landowners who sold only coal from their property retained the rights to coalbed methane. Coal companies have asserted their rights to the methane – which is produced by fracturing and stimulating the coal seam – prompting the Virginia Gas and Oil Board to divert those royalties into escrow whenever different people own gas and coal rights for the same tract of land.

The bills proposed by Phillips and Puckett would strengthen the claim to coalbed methane of the landowner who sold only coal from his property. But to collect such royalties from escrow, “You’ll still have to go to court,” said Peter Glubiak, a Richmond lawyer who won the 2004 Supreme Court case for the surface owner plaintiffs and who helped draft the language regarding ownership in the pending bills.

Both Phillips and Puckett believe that their legislation should settle the dispute over coalbed methane and eliminate the need for landowners to sue to prove their ownership. The lawmakers anticipate that if the bills become law, landowners should be able to present their deeds to the Gas and Oil Board and collect their royalties. It’s just not clear who will review the deeds and make the determination of ownership.

Puckett and Phillips want the Gas and Oil Board to determine coalbed methane ownership based on the deeds, but their legislation does not specifically charge the seven members with that responsibility.

“They’ll take the position that, ‘We don’t decide conflicts, courts do,” Glubiak said of the Gas and Oil Board members. “Should they? Yeah, they should. But they’ll say they can’t make a determination, that they don’t have the documents to do that.”

Glubiak added, “Maybe if enough political pressure is brought to bear on the board, they will make those decisions.”

Asked about the possibility that the board would pass on determining ownership, Puckett said, “You’re raising an issue that doesn’t make me very happy.”

Noting that he received little input from the Gas and Oil Board in crafting his bill, Puckett said, “I’m going to be highly upset if the board says, ‘Sorry, this doesn’t make any difference to us.’”

A related bill backed by Delegate Terry Kilgore, R-Gate City, would establish a system of binding arbitration, with a court-appointed arbitrator compelled to resolve ownership within six months of a petition by someone who claims coalbed methane royalties in escrow. Puckett, Phillips and others have voiced concerns that landowners could be hauled into a binding arbitration against their will, and would be at a disadvantage in a proceeding that would pit them against a coal company’s lawyers.

Phillips said Monday that he and Puckett are proposing changes to Kilgore’s bill – which was unanimously passed by delegates and now rests with a Senate committee – that would make the arbitration optional, and impose the costs of arbitration on whoever loses. Kilgore did not return a phone message seeking comment Monday.

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