Tri Cities
At 9 a.m. on April 19, three men stepped into a conference room on the top floor of the downtown Richmond building that houses Virginia’s Office of the Attorney General: a private attorney with a keen interest in energy policy, an independent grocer from Texas, and one of the attorney general’s top deputies.
The trio had assembled to discuss the inner workings of Virginia’s legal machinery for developing its natural gas reserves. Specifically, the two visitors shared their observations and concerns regarding the Virginia Gas and Oil Board, the regulatory body that has enabled a dramatic expansion of gas production, while funneling tens of millions in gas royalties into escrow accounts that are not routinely monitored for compliance.
Joining the participants by phone was the man responsible for setting up the meeting: Tazewell lawyer T. Shea Cook, who earlier this year engaged Virginia’s attorney general in brief legal combat by challenging the constitutionality of the Virginia Gas and Oil Act. Cook dropped his lawsuit Jan. 14, exactly two weeks after filing it, to clear the way for state lawmakers to introduce reforms to the statute he attacked.
With the legislative session over, Cook requested an audience with his recent adversaries as part of a “collaborative” approach. The goal, he explained in a recent interview, was to “make our case informally to an important representative of the attorney general.”
That representative was Richard Neel, deputy attorney general for technology, real estate, environment and transportation. Making their cases in person were John Sheffield, a Texas grocer with mineral interests in about 3,000 acres in Buchanan County and the plaintiff in Cook’s lawsuit; and Peter Glubiak, a Richmond-area lawyer who has spent much of the past decade battling energy corporations and the Gas and Oil Board to dislodge royalties in escrow for his landowner clients.
The meeting with Neel signals that a range of controversies in Southwest Virginia’s gas fields have migrated out of the weeds to arrest the attention of Attorney General Ken Cuccinelli. Less certain is whether Cuccinelli’s sensitivity to the controversies will translate into timely relief for thousands of landowners who have not been paid for the gas sucked from beneath their land for as long as 20 years.
A key topic of discussion at the April 19 meeting was legislation signed into law by Gov. Bob McDonnell just six days earlier. The new law, modeled on a 2004 Supreme Court of Virginia ruling that Glubiak won, aims to resolve the ownership dispute over coalbed methane gas; that dispute has stranded millions in royalties in escrow.
The Gas and Oil Board historically has presumed that there is a conflict over coalbed methane whenever unrelated parties own the coal and the gas rights to the same tract of land, and the board has ordered gas companies to pay royalties from the disputed gas into escrow. The new law states that landowners who sold only coal retained the rights to coalbed methane – ostensibly resolving that conflict.
“My position is that if you’ve got the authority to determine there is a conflict, then you’ve got the authority to determine there isn’t a conflict – by logical extension,” Glubiak, reflecting on the meeting, said by phone.
Cook, agreeing, said he wants the board to revisit its orders directing companies to pay royalties into escrow, and release the money in cases where the new law resolves the conflict. “That’s a very concrete, tangible thing that can be done,” he said.
The meeting lasted about an hour and a half. Neel, through a spokesman, characterized it as “informative.” He took at least four pages of notes.
Just 24 hours later, at the Gas and Oil Board’s monthly hearing in Lebanon, Va., the state’s top energy official announced that in spite of the legislative reforms, the board has no authority to determine coalbed methane ownership. The escrow gates will not open without a court order, an agreement between parties presumed to be in conflict, or – effective July 1 – the decision of a court-appointed arbitrator.
The trio had assembled to discuss the inner workings of Virginia’s legal machinery for developing its natural gas reserves. Specifically, the two visitors shared their observations and concerns regarding the Virginia Gas and Oil Board, the regulatory body that has enabled a dramatic expansion of gas production, while funneling tens of millions in gas royalties into escrow accounts that are not routinely monitored for compliance.
Joining the participants by phone was the man responsible for setting up the meeting: Tazewell lawyer T. Shea Cook, who earlier this year engaged Virginia’s attorney general in brief legal combat by challenging the constitutionality of the Virginia Gas and Oil Act. Cook dropped his lawsuit Jan. 14, exactly two weeks after filing it, to clear the way for state lawmakers to introduce reforms to the statute he attacked.
With the legislative session over, Cook requested an audience with his recent adversaries as part of a “collaborative” approach. The goal, he explained in a recent interview, was to “make our case informally to an important representative of the attorney general.”
That representative was Richard Neel, deputy attorney general for technology, real estate, environment and transportation. Making their cases in person were John Sheffield, a Texas grocer with mineral interests in about 3,000 acres in Buchanan County and the plaintiff in Cook’s lawsuit; and Peter Glubiak, a Richmond-area lawyer who has spent much of the past decade battling energy corporations and the Gas and Oil Board to dislodge royalties in escrow for his landowner clients.
The meeting with Neel signals that a range of controversies in Southwest Virginia’s gas fields have migrated out of the weeds to arrest the attention of Attorney General Ken Cuccinelli. Less certain is whether Cuccinelli’s sensitivity to the controversies will translate into timely relief for thousands of landowners who have not been paid for the gas sucked from beneath their land for as long as 20 years.
A key topic of discussion at the April 19 meeting was legislation signed into law by Gov. Bob McDonnell just six days earlier. The new law, modeled on a 2004 Supreme Court of Virginia ruling that Glubiak won, aims to resolve the ownership dispute over coalbed methane gas; that dispute has stranded millions in royalties in escrow.
The Gas and Oil Board historically has presumed that there is a conflict over coalbed methane whenever unrelated parties own the coal and the gas rights to the same tract of land, and the board has ordered gas companies to pay royalties from the disputed gas into escrow. The new law states that landowners who sold only coal retained the rights to coalbed methane – ostensibly resolving that conflict.
“My position is that if you’ve got the authority to determine there is a conflict, then you’ve got the authority to determine there isn’t a conflict – by logical extension,” Glubiak, reflecting on the meeting, said by phone.
Cook, agreeing, said he wants the board to revisit its orders directing companies to pay royalties into escrow, and release the money in cases where the new law resolves the conflict. “That’s a very concrete, tangible thing that can be done,” he said.
The meeting lasted about an hour and a half. Neel, through a spokesman, characterized it as “informative.” He took at least four pages of notes.
Just 24 hours later, at the Gas and Oil Board’s monthly hearing in Lebanon, Va., the state’s top energy official announced that in spite of the legislative reforms, the board has no authority to determine coalbed methane ownership. The escrow gates will not open without a court order, an agreement between parties presumed to be in conflict, or – effective July 1 – the decision of a court-appointed arbitrator.
Eyes on the attorney general
Cook filed a lawsuit in Tazewell County Circuit Court on Dec. 30, advancing a wide-ranging argument that the 1990 Virginia Gas and Oil Act deprives landowners of their property without due process and without guaranteeing them just compensation.
“The shortcomings [in the law] add up to one big due process violation,” Cook recently summarized.
He withdrew his lawsuit Jan. 14, the day he read a lawmaker’s comments in the Bristol Herald Courier, expressing a concern that his active litigation might stall the legislature from enacting related reforms.
Almost immediately, Cook shifted gears.
On Jan. 15, Cook’s law firm donated $1,195 to Cuccinelli’s inaugural committee, according to Virginia State Board of Elections data. In an interview, Cook said he could not immediately recall if he made the contribution while his lawsuit was pending or afterwards, but said it had nothing to do with lobbying.
“I’ve been a supporter and fan of Ken Cuccinelli for a long time,” Cook said, citing the Republican attorney general’s role as a state senator in overhauling Virginia’s eminent domain statute. “He seems to get the role of private property, the idea that people’s property rights and ability to protect those rights is a core function of government.”
Asked if he intends to re-file his lawsuit, Cook said, “I’m not committed to re-filing it.” Instead, he is taking his cues from the attorney general, and how he advises the Gas and Oil Board going forward.
On Tuesday, Cuccinelli came to the Bristol Chamber of Commerce to discuss his office’s initiatives. When asked for his view of the recent reforms to the Gas and Oil Act, Cuccinelli said, “My own choice would have been to take a more aggressive legislative approach.”
Asked to elaborate, the attorney general said, “I think it takes a little bit of optimism to think the voluntary approach will move us very far.” He added, “I’m not optimistic by nature.”
The “voluntary approach” refers to a reform sponsored by Delegate Terry Kilgore, R-Gate City, that allows for people in dispute over gas royalties to enter into binding arbitration when all parties agree. The system would require court-appointed arbitrators – attorneys with at least 10 years of experience in real estate law – to decide ownership within six months.
The arbitrator’s fee and court costs would be paid out of interest earned on royalties in escrow, while available. So far this year, the accounts have earned about $10,700 after deducting expenses; last year, the accounts collectively lost $25,000 in negative interest.
A pivotal question is whether landowners, cynical after years of dealing with companies that have mined their minerals without paying them, will agree to binding arbitration – even with legal precedent and a new state law in their corner.
“If I were a betting man, I’d bet we’ll be revisiting this in a year or two,” Cuccinelli said.
State Sen. Phillip Puckett also is skeptical that arbitration will unlock much of the royalties trapped in escrow.
“Most of our people are not going to do that,” the Lebanon Democrat said by phone. “They’re just going to sit there and do nothing.”
Cook filed a lawsuit in Tazewell County Circuit Court on Dec. 30, advancing a wide-ranging argument that the 1990 Virginia Gas and Oil Act deprives landowners of their property without due process and without guaranteeing them just compensation.
“The shortcomings [in the law] add up to one big due process violation,” Cook recently summarized.
He withdrew his lawsuit Jan. 14, the day he read a lawmaker’s comments in the Bristol Herald Courier, expressing a concern that his active litigation might stall the legislature from enacting related reforms.
Almost immediately, Cook shifted gears.
On Jan. 15, Cook’s law firm donated $1,195 to Cuccinelli’s inaugural committee, according to Virginia State Board of Elections data. In an interview, Cook said he could not immediately recall if he made the contribution while his lawsuit was pending or afterwards, but said it had nothing to do with lobbying.
“I’ve been a supporter and fan of Ken Cuccinelli for a long time,” Cook said, citing the Republican attorney general’s role as a state senator in overhauling Virginia’s eminent domain statute. “He seems to get the role of private property, the idea that people’s property rights and ability to protect those rights is a core function of government.”
Asked if he intends to re-file his lawsuit, Cook said, “I’m not committed to re-filing it.” Instead, he is taking his cues from the attorney general, and how he advises the Gas and Oil Board going forward.
On Tuesday, Cuccinelli came to the Bristol Chamber of Commerce to discuss his office’s initiatives. When asked for his view of the recent reforms to the Gas and Oil Act, Cuccinelli said, “My own choice would have been to take a more aggressive legislative approach.”
Asked to elaborate, the attorney general said, “I think it takes a little bit of optimism to think the voluntary approach will move us very far.” He added, “I’m not optimistic by nature.”
The “voluntary approach” refers to a reform sponsored by Delegate Terry Kilgore, R-Gate City, that allows for people in dispute over gas royalties to enter into binding arbitration when all parties agree. The system would require court-appointed arbitrators – attorneys with at least 10 years of experience in real estate law – to decide ownership within six months.
The arbitrator’s fee and court costs would be paid out of interest earned on royalties in escrow, while available. So far this year, the accounts have earned about $10,700 after deducting expenses; last year, the accounts collectively lost $25,000 in negative interest.
A pivotal question is whether landowners, cynical after years of dealing with companies that have mined their minerals without paying them, will agree to binding arbitration – even with legal precedent and a new state law in their corner.
“If I were a betting man, I’d bet we’ll be revisiting this in a year or two,” Cuccinelli said.
State Sen. Phillip Puckett also is skeptical that arbitration will unlock much of the royalties trapped in escrow.
“Most of our people are not going to do that,” the Lebanon Democrat said by phone. “They’re just going to sit there and do nothing.”
A question of conflict
Puckett had hoped that the reform he squired through the legislature with Delegate Bud Phillips, D-Castlewood, would resolve the dispute over coalbed methane and free such royalties from escrow. He envisioned his constituents bringing their mineral severance deeds before the board, and collecting their royalties without having to hire a lawyer, negotiate with a coal company or go through arbitration.
Stephen A. Walz, director of the Department of Mines, Minerals and Energy, has a different vision: Resolving ownership is best left to courts, not citizen boards.
“The law change didn’t tell the board, ‘You should start adjudicating property rights,’ ” Walz said in an April 20 interview. “It didn’t do that. And so it didn’t change the authority of the board.”
Butch Lambert, chairman of the Gas and Oil Board, announced in April that he had requested a formal, expedited opinion from Cuccinelli’s office on whether the board had the authority to determine ownership, guided by the new law clarifying the coalbed methane dispute.
Cuccinelli would not comment on the request for his formal opinion. But if the law resolves the dispute that originally sent royalties into escrow, Cuccinelli opined, then that money should now flow to the rightful owner.
“Money stays in escrow until the conflict is resolved,” he said. “By definition, if there isn’t a conflict over a particular piece of property, then the money associated with that property ought to be distributed.”
Just what counts as a conflict in the context of mineral ownership is an open question. It is not defined in the Gas and Oil Act.
Walz believes that a conflict can be as simple as any two parties claiming the same property, regardless of a claim’s merit. Cuccinelli was more circumspect in what constitutes a conflict.
“I do think there are plenty of cooked-up conflicts by people who are just hoping to get some of the money,” he said. “And how do you contend with that in sifting the wheat from the chaff? The law that was passed this session was a pretty gentle way to go about trying to do it, and if it was too gentle, which is my anticipated observation, then we’ll come back and look for something that pushes harder.”
The revelation that his approach might have been too gentle is deeply frustrating to Puckett.
“I think somebody should have along the lines said, ‘What you’re doing is not going to help,’ ” the lawmaker said.
“I’m very disappointed that the board is seemingly taking the position that they’re not going to do anything differently,” he said. “What we passed was just another tool for people to go court and prove their case and come back to the board?”
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