Representing individual land owners, Aylett, Va., attorney Peter Glubiak won a 2004 Supreme Court of Virginia decision over a North Carolina-based coal company. The ruling awarded landholders royalties on 100 percent of the coalbed methane underlying their property. (Mark Gormus|Richmond Times Dispatch)

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In 2000, a country lawyer named Peter Glubiak listened to his secretary’s story of an energy giant draining coalbed methane gas from her family’s land, and of the royalties that were locked up in a state-run escrow account.

The source of Ann Graham’s dilemma, Glubiak realized, was a question that legislators ducked when they passed a 1990 law to spur the development of coalbed methane gas: the all-important question of ownership.

Until passage of the Virginia Gas and Oil Act, no one in the state had given much thought to who owned a gas that clings weakly to a coal seam, long considered nothing but dangerous to miners for its explosive properties. By creating a legal mechanism for energy corporations to commercially produce coalbed methane, the General Assembly dramatically raised the stakes of that question – particularly when different people owned the coal and the gas rights for the same tract of land.

A circuit court’s decision could tip millions of dollars in royalties one way or the other, Glubiak calculated, and either result would unquestionably end up in front of the Supreme Court of Virginia.

As it turned out, that projection proved half true.

In Buchanan County Circuit Court, Glubiak argued that Graham and another family, the Ratliffs, had severed only the coal from their land and owned all of the gas beneath it, including coalbed methane. Opposing him was a North Carolina-based coal company, Harrison-Wyatt, represented by J. Scott Sexton, a prominent mineral lawyer out of Roanoke, Va.

Glubiak prevailed in the trial court and in 2004, the Supreme Court of Virginia unanimously affirmed the lower court’s decision.

Citing common definitions of coal at the time the Ratliffs sold the mineral, the Supreme Court held that the “title to the [coalbed methane] did not pass to the coal owner,” and ruled that the Ratliffs were entitled to all royalties in escrow and future royalties from gas beneath their land. About a year later, the family collected their royalties from escrow and began receiving monthly royalty checks for 100 percent of their interest in the gas.

“When we got the Supreme Court ruling in the Ratliff case, my hope was that this would evolve into a pretty lucrative practice,” Glubiak said in a recent interview. “Very disappointingly, it has not.”

In the five years since Glubiak’s high court victory, millions of dollars from coalbed methane royalties have flowed into the Virginia Gas and Oil Board’s escrow fund, tripling its balance. Despite the Harrison-Wyatt precedent, those royalties are no easier to extract from escrow today than before the court rulings.

Already tested

Four days after the Supreme Court’s decision, the Department of Mines, Minerals and Energy issued a statement making it clear that the ruling changed nothing in how it regulated coalbed methane production.

The case “specifically applies to three particular tracts of land in Buchanan County,” the state agency wrote.

Not only did the DMME and the Virginia Gas and Oil Board lack the authority to determine coalbed methane ownership, the agency wrote, “neither the Virginia courts nor the legislature has addressed this ownership issue other than on the basis of analysis of individual deeds.”

In other words, the board still would escrow royalties from coalbed methane production whenever the coal and the gas were separately owned for the same tract of land. For a surface owner who had severed only the coal from his land to collect coalbed methane royalties, he would have to fight Glubiak’s fight all over again.

This is incomprehensible to many landowners who, like Ann Graham and the Ratliffs, own the gas under their land.

Force-pooled owner Jamie Hale has read his deed and the Supreme Court’s opinion that gave Graham and her family 100 percent of the coalbed methane.
“My case is identical to hers,” Hale said as he drove with a reporter through the mountainous 40 acres he owns, where seven wells are draining coalbed methane.

“Now we’re told we have to prove something we’ve already proved. Why should we have to hire a lawyer to prove what already belongs to us?” he asked. “If you do hire an attorney, you might as well take a split agreement. I really don’t know where to go or what to do.”

Shirley Keene is an heir to two tracts of land that contain 28 gas wells. She has always believed she and her family should receive 100 percent of the royalties from coalbed methane, she said recently.

“When the Ratliffs won their case, then we knew that it was ours,” Keene said. “If Ratliff had turned the other way, you would never have heard a word from us.”

At his home outside Richmond, Va., Graham Tiller and his wife have been waiting on a decision that will settle, once and for all, who owns coalbed methane.

Tiller, 77, is a Dickenson County native with an interest in more than 700 acres. His great-grandfather sold the coal and left him, in the eyes of the state, in conflict over coalbed methane with the current coal owner, Range Resources.

“I can’t afford a lawsuit by myself, but I’m not going to give it to them,” Tiller, who retired as a utilities coordinator for ICI, a chemical company in Hopewell, Va., said of splitting with the company. “If I had plenty of money, I’d have done had a lawsuit with them.”

The DMME’s logic – in continuing to escrow royalties when coalbed methane ownership is in dispute – escapes several state legislators.

“I think the Supreme Court’s already tested that,” Sen. William Wampler, a Bristol Republican, said when asked about the lingering controversy over coalbed methane ownership.

“If you are a small royalty owner, and you have $500 in escrow, how do you have the financial resources to claim those dollars when that probably doesn’t even cover attorney fees?” Wampler asked. “If we have $25 million in escrow, that’s a lot of money. I don’t know why the DMME wouldn’t hire a dedicated person to contact the names of those who have been force pooled.”

The answer is that once royalties go into escrow, members of the Virginia Gas and Oil Board have their hands tied; the board can only release funds from escrow with a court order, or an agreement between people who dispute coalbed methane ownership.

One legislator believes the board should not be placing coalbed methane royalties in escrow at all.

“It should never go into escrow,” Sen. Philip Puckett, a Lebanon Democrat, said in an interview.

This might run counter to his personal interest: In a recent twist, the bank that employs Puckett, First Bank & Trust, has won the contract to manage the escrow fund for the next four years beginning in January.

Puckett repeatedly has said that if an individual has a deed similar to the Ratliffs’ – severing only the coal – then the owner should be able to present that to the board and claim the royalties. The senator is looking into the possibility of amending the Virginia Gas and Oil Act to codify the Supreme Court’s ruling.

“Most of our people can’t afford to go to court,” Puckett said.

But suing for ownership remains virtually the only way for a surface owner to collect 100 percent of the coalbed methane royalties.

Leveraging a precedent

The coal industry likewise has taken the stance that coalbed methane ownership hinges on the language of specific deeds, and the Harrison-Wyatt decision did not conclusively resolve the ownership question.

In private, though, at least one major corporation acknowledged the significance of the Supreme Court’s ruling, and waived its claim to coalbed methane royalties, according to correspondence obtained by the Bristol Herald Courier.

In 2004, a few weeks after the Supreme Court ruling, an agent of three heirs with substantial landholdings in Dickenson and Buchanan counties contacted the energy company with whom they had previously agreed to split coalbed methane royalties down the middle.

Charlie Bartlett, a consulting geologist and agent for the 1,000-acre William Baker estate, wrote to the president of Pine Mountain Oil and Gas and requested 100 percent of the royalties.

On June 9, 2004, Richard Brillhart, then president of Pine Mountain, contacted the operator of the coalbed methane wells on the Baker land about Bartlett’s request.

“Given the close similarity of the language in the severance deed at issue and the severance deeds analyzed by the Virginia Supreme Court, it appears that, at this point in time, Pine Mountain would not be successful in a claim for the coalbed methane on this tract,” Brillhart wrote.

Brillhart waived his company’s claim to the gas produced by six wells; the next month, he waived a claim to royalties from two additional wells.

The three Baker heirs – a doctor, an investor and a former university executive – all had moved away from Southwest Virginia but have several advantages most royalty owners do not enjoy.

Bill Baker, the original heir to his father’s estate, was an engineer and kept detailed records of the family holdings. He became friends with Bartlett, a longtime geology professor at Emory & Henry College who agreed to look after the estate following Baker’s death. Bartlett testified as an expert for Glubiak during the Harrison-Wyatt case.

“We were fortunate enough to have Dr. Bartlett’s assistance,” Betty Anne Cox, one of the heirs, said by phone. “All of my generation were living away,” said Cox, who lives in Hartford, Conn., and retired as the director of external affairs for Trinity College.

“It was very good to have somebody who was both knowledgeable and who we trusted and who knew all the players,” she said.

Even so, their struggle did not end with Brillhart’s 2004 letter that waived a claim to all coalbed methane royalties.

In late 2007, tiring of requesting royalties in piecemeal fashion, Bartlett asked Pine Mountain, which had since been acquired by Range Resources, to authorize a “complete release for these wells and any other remaining wells that may be drilled in the future on this same tract.”

Bartlett said that when he approached Jerry Grantham, a vice president at Range Resources, to ask him to waive his claim, Grantham offered to split the royalties, giving 75 percent to the Bakers.

Grantham, who is also president of the Virginia Oil and Gas Association, declined to comment on a private contract, but said his company found such a split “to be a pretty effective agreement in trying to get money out of escrow, benefiting all parties involved.”

In a March 7, 2008, letter, Range Resources registered a change in its approach toward the Baker heirs. Grantham wrote that the company would waive its claim for certain wells if the heirs signed a confidentiality agreement.

The Baker heirs retained Glubiak to help them collect money from escrow, and on March 19, 2008, Glubiak wrote to Grantham with a 10-day ultimatum.

“We have no intention of signing any confidentiality agreement,” he wrote. “In the alternative, I have been authorized to pursue a declaratory judgment action in
Dickenson County pursuant to the Harrison-Wyatt case, and I feel confident of a successful result.”

The company agreed, and the Baker heirs began receiving their royalty payments, Cox said.

But at the time of Glubiak’s letter, the Harrison-Wyatt case was quickly losing currency as a decisive precedent on coalbed methane ownership.