Lawsuit Seeks Billions for Va. Gas Drilling

June 18, 2010

Landowners in southwest Virginia have been cheated out of billions of dollars by two energy companies that drilled for natural gas on their land without compensating them, attorneys for the property owners allege.

Legal claims have been filed in U.S. District Court in Abingdon on behalf of two landowners by attorneys seeking class action status to represent thousands of property holders in six southwest counties.

The defendants are EQT Corp. and Consol Energy, Pittsburgh-area energy companies. They have thousands of natural gas wells in Appalachia and spokesmen said they would fight the allegations.

The lawsuits allege the companies drilled thousands of wells in southwest Virginia's coalbed to remove methane gas without obtaining legal claim to the resource from the landowners, contending the mineral rights were held by the coal companies.

The Virginia Gas and Oil Board ultimately granted conditional leases and placed royalties in an escrow account because of conflicting claims. The royalties placed in the account amounted to one-eighth of net proceeds of the drilling.

Attorneys for the landowners said the state panel subjected the landowners to "an involuntary lease" and established a below-market royalty rate.

The Virginia Supreme Court, in a 2004 ruling, found that the methane gas is a "distinct mineral estate" from coal, concluding the landowners owned the rights to natural gas removed from their properties.

Attorneys for the landowners are asking the federal court to recognize that right; get a full accounting of the royalties; and find unconstitutional the 1990 law that established the royalty formula and allowed the energy companies to drill.

The lawsuit is seeking royalties of seven-eighths of all the revenue generated by the drilling on the plaintiffs' land.

An attorney for the landowners estimated the companies realized billions of dollars from southwest Virginia drilling while the escrow account totals about $26 million from 800 individual accounts.

"They've taken somebody's else's gas, they've sold it and kept most of the money for themselves and put a tiny sliver into escrow," said Don Barrett, a Lexington, Miss., attorney who was involved in successful class actions against U.S. tobacco companies.

Since Virginia's highest court clarified the ownership issue, he added, "The gas companies have known that they don't own the gas. The Virginia Supreme Court ruled against it. It's over. It's done."

Another attorney, Peter Glubiak, said, "We're asking the court to put those billions of dollars back in the hands of the people."

He said in Buchanan County alone one year, Consol's gas subsidiary, CNX Gas Co., realized $1 billion in revenues from natural gas drilling.

Consol spokesman Joe Cerenzia declined to comment Thursday on the specifics of the lawsuit but said the company intended to "vigorously" defend itself.

Kevin West, spokesman for EPQ, said the attorneys for the landowners were attempting to skirt the 1990 provision approved by the General Assembly that allowed for the pooling of royalties and the one-eighth payment standard. "The lawsuit just seems to be an end-around attempt to circumvent the statute," he said, adding the company will file a motion to dismiss.

The two lawsuits filed Tuesday were on behalf of Robert Adair, a Tazewell County resident who owns mineral rights to at least 132 acres in Dickenson County; and Walter Short, a Russell County man who owns 55 acres in Buchanan County.

Adair and Short never agreed to lease their mineral rights and never received royalties from coalbed methane, according to the Bristol Herald Courier.

The newspaper won a Pulitzer Prize this year for the reporting of Daniel Gilbert on the mismanagement of natural gas royalties owed to landowners in Virginia.

The other counties named in the lawsuits are Wise, Scott and Lee.

A hearing date has not been scheduled for the request for class action status.


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