Deal sought to free gas royalties trapped in escrow

As legislation to resolve a long-simmering natural gas ownership dispute appears poised to become law, legislators are still hashing out a compromise on a way to release more than $25 million of gas royalties from state-controlled escrow accounts.

Today, several area lawmakers, multiple state agencies and lobbyists will meet in Richmond to discuss a controversial plan to expedite the determination of gas ownership and the disbursement of royalties from escrow. Those invited include legislators who represent constituencies in the gas fields, the Virginia Department of Mines, Minerals and Energy, the state Attorney General’s Office, the state Department of the Treasury, and lobbyists for the natural gas industry and Buchanan County.

The millions in escrow come mostly from the production of coalbed methane gas, and belong to thousands of people whose mineral rights the state has leased to private energy corporations against their will or without their knowledge. Virginia law provides two ways for mineral owners to recover royalties from escrow: sue to prove ownership, or split the money with someone else who claims it.

The Bristol Herald Courier began a series of articles in December unraveling the royalty morass.

Twin bills, backed by Delegate Bud Phillips, D-Castlewood, and Sen. Phillip Puckett, D-Lebanon, would put into law a 2004 Supreme Court of Virginia ruling that clarified coalbed methane ownership. A third bill, sponsored by Delegate Terry Kilgore, R-Gate City, would compel court-appointed arbitrators to resolve ownership disputes within six months of a request by anyone with a claim to royalties in escrow.

Kilgore introduced the legislation as a means of prying the royalties out of escrow, he said, but the bill has been criticized by Phillips, Puckett and others who are concerned that corporations could haul landowners into binding arbitration against their will and leverage their legal muscle to prevail even when precedent tilts against them.

Kilgore’s bill would require the Virginia Gas and Oil Board to ask a circuit court judge to appoint an arbitrator. The arbitrator would have to be a lawyer with substantial experience litigating mineral title cases, and could not have received more than 10 percent of his income in the past three years from one of the claimants in the arbitration. The parties would split the court and arbitration costs.

One idea circulating to amend the bill would cut out the circuit court’s role in appointing arbitrators, and have the DMME contract them directly, Kilgore said Tuesday.

“Some of us have a little bit of concern. We’re not so sure that citizens would want DMME to be the ones appointing arbitrators,” Kilgore said. “I still say that a circuit court judge appointing an arbitrator gives more credence to the process.”

Phillips said last month he wants to amend Kilgore’s bill to make the arbitration non-binding, and to impose the costs on the losing party – an effort to spare a landowner with little in escrow the risk of losing more than he started with.

Today’s meeting is also likely to tackle an issue that none of the bills have so far addressed – whether royalties in escrow can be seized by the state treasury as abandoned property under escheat laws.

A Herald Courier analysis of 18 months of escrow data revealed that 190 individual accounts, whose contents totaled $3.8 million, received no payments during that period. A state energy official said that funds are considered abandoned “once active production payments stop and there is no evidence of activity for one year,” making the $3.8 million appear ripe for the state to seize.

Any funds taken by the treasury would be deposited into a state fund that provides low-interest loans to localities that build public schools and could be claimed – in theory – at any time by owners.

Kilgore opposes the treasury taking any funds from escrow.

“We can’t allow that,” Kilgore said. “Then people get the impression that the state took it. We’re afraid that folks will look at that and say, ‘the state’s taking our money.’ ”

In response to a Herald Courier query, the Virginia Division of Gas and Oil stated in November that it had no records of surrendering any royalties from escrow to the state.

The question of how to clear the millions out of escrow also has garnered the keen attention of Virginia’s new attorney general, Ken Cucinelli, who as a former Republican state senator sponsored a bill revamping Virginia’s eminent domain statute.

“It strikes a sensitive nerve for me because of the property rights issue, and the fact that government is essentially sitting on citizens’ money,” Cucinelli said in a January interview.

Kilgore said he has been corresponding with Richard Neel, deputy attorney general for technology, real estate, environment and transportation.

“He’s very interested in this to make sure that folks get what’s coming to them, and that they have a process to do that,” Kilgore said of Cucinelli.

A spokesman for the attorney general’s office could not confirm that a representative will be present at today’s meeting.

“The bottom line would be that the attorney general is working with Delegate Kilgore to assist the individuals who have claims to the methane gas royalties in escrow,” Brian Gottstein, director of communications, said Tuesday. “The way we’re working with Kilgore is to provide a new avenue for resolving these disputed claims.”

dgilbert@bristolnews.com | (276) 645-2558