2010Public Service

Series underscores vital watchdog role of newspapers

J. Todd Foster, managing editor
December 6, 2009

On today’s front page, we launched an ambitious and complex eight-day series that involves millions of dollars and affects thousands of Southwest Virginia property owners.
Between unmasking other forms of malfeasance, corruption and outrage, investigative reporter Daniel Gilbert has spent portions of 13 months – so far – delving into an issue that affects many thousands of residents and absentee landowners from across the country.

Nearly 20 years ago, gas corporations and the commonwealth of Virginia figured out that below the surface of seven Southwest Virginia counties lies vaporous gold – pools of methane gas worth billions of dollars. The legislature crafted a law that allows these companies to extract the gas without the knowledge or consent of private property owners – a subterranean form of eminent domain. Those companies are getting rich. The moms and pops who own the land are getting screwed.

That’s because the state created a system whereby coal companies, who were deeded the coal a century ago by landowners, are fighting with those landowners’ heirs over a paltry portion of the gas royalties. The Supreme Court of Virginia has unanimously ruled that landowners who sold only their coal still get to keep the other minerals beneath their land, including coalbed methane.

That was more than five years ago. And many mineral owners are still getting nothing from companies draining their coalbed methane.

The moms and pops who own the gas beneath their land clearly are due a portion of coalbed methane royalties, but can’t afford to battle deep-pocketed corporate armies of attorneys bent on stringing the process out over years or just flouting the court’s will.

And instead of requiring gas companies to just pay the mineral owners, the state instead funnels thousands of dollars every month into an escrow fund that owners cannot monitor or access without clearing enormous and expensive legal hurdles. In addition, regulators have created an unaccountable and opaque bureaucratic jumble and then mismanaged it by assigning only two employees to monitor it.

As a result, $24 million – it should be more – sits in limbo in an escrow account even as major industry players acknowledge that some accounts are being shorted. In some cases, companies have failed to file the necessary paperwork for royalties to be escrowed years after a gas well began producing.

Here’s where the Bristol Herald Courier’s odyssey began: In November 2008, Gilbert attended a packed hearing of the Virginia Gas and Oil Board and met landowners who were incensed that corporations were draining their gas against their will and not paying them for the intrusion.

“I was struck by the huge asymmetry between the landowners and the deep-pocketed companies and their attorneys who were profiting from their resource,” says Gilbert, who joined this newspaper nearly two years ago. “I began researching the law and learned that because of a presumed conflict between coal and gas owners over coalbed methane, the state had funneled millions of dollars in royalties into an escrow fund, awaiting a determination of ownership or agreement between the parties. As I looked more deeply into the issue, I obtained statements from the escrow fund, and noticed that many individual accounts in escrow were not receiving royalty payments. I wondered: Is it anyone’s job to review these statements to make sure companies are complying with the law? And if not, what do companies pay when there is no one holding them accountable?”

Gilbert learned that the state has placed the burden of monitoring the billion-dollar energy conglomerates required to pay royalties into escrow on just two employees. He also learned that the state has no compliance checks built into its data-collection systems that would alert it to missing payments. And, he discovered, the last audit of the escrow fund was in 1999 – and even then the accountants offered no opinions about whether companies were complying with the law.

After attending a weeklong summer 2009 class on computer-assisted reporting at the University of Missouri, one of the nation’s preeminent journalism schools, Gilbert began a comprehensive analysis of the escrow fund.

He found hundreds of individual accounts in escrow received no royalty payments during months when the corresponding gas wells produced. He also learned that gas corporations failed to submit the necessary paperwork for royalties to be escrowed, and other cases where payments simply weren’t made. All of this raised serious questions about what is missing from escrow, as well as the state’s ability to ensure companies comply with the law.

Gilbert used two sets of data: the monthly gas production numbers that companies report to the state for an online database, and the monthly escrow statements generated by Wachovia Bank, data obtained from the Division of Gas and Oil through a Freedom of Information Act request.

The reporter then created two separate databases of the production numbers and the escrow accounts for 18 months, as well as a query that turned up each escrow account that did not receive a royalty payment during a month when the corresponding well produced gas.

This was more complex than first meets the eye. To make this comparison, Gilbert had to ensure that the names of the gas wells on the escrow statement matched the well names on the production reports. Often, the data were off by a single white space, by a hyphen, or by a combination of letters. Gilbert spent weeks cleaning the data until the well names from both data sets conformed.

The reporter ran into resistance from some companies and got concessions from others. The state agency responsible for overseeing the process has waffled in its responses but ultimately acknowledged discrepancies between production and escrow, and vowed to improve corporate compliance.

Even so, Gilbert presented to regulators several examples of companies that failed to file the required paperwork – misdemeanors punishable by $10,000 daily fines – but was told the Virginia Department of Mines, Minerals and Energy will pursue fines only if the company in question “is not responsive.”

Gilbert’s tireless pursuit of this story proves why newspapers will always be relevant – even if more and more readers change their reading habits to free online content.

The fact is, local Web sites and bloggers are not going to spend hundreds of hours and thousands of dollars paying for training classes and public records requests to chase any story, let alone one that is mind-numblingly complex.

This is a classic example of how a newspaper dedicated to a community can mine a story that no one else would have ever tackled for its sheer complexity and obscurity. We won’t let up either.

This newspaper soon will begin an editorial campaign that we ultimately hope will benefit the moms and pops who own the tracts where these methane gas pools are located.

If the legislature does the right thing and requires gas corporations and coal companies to honor a state Supreme Court decision that favored individual landowners, then those landowners will be the big winners.

The rest of you also need to ponder this fact: If newspapers fall by the wayside as victims of a fragmented media landscape, much of it free and offered on the Internet by authors untrained in journalism or its ethics, then you can kiss goodbye watchdog reporting that keeps government and the private sector from straying outside the lines of the law.