Gentry Locke Rakes & Moore

Coal Bed Methane

Virginia was in the forefront with developing this once discarded by-product of coal mining. In 1990, the Virginia General Assembly passed the Gas and Oil Act, clearing the way for the development of coalbed methane. Now, there are thousands of coalbed methane wells in Virginia, with aggressive development increasing each year.

As the coalbed methane industry has matured, Gentry Locke has been there to assist clients in sorting out the legal issues and, where necessary, litigating unsettled areas of the law such as:

Royalty Deductions:

  • See Levisa Coal Company, et al. v. Consolidation Coal Company. Gentry Locke recovered a verdict of $10,679,807 establishing: (1) that the gas operator was not entitled to calculate royalty deductions so as to recover an after-tax rate of return or even any cost of capital for post-production costs such as gathering, compressing and transporting gas; (2) that capital costs for gathering and compression assets must be amortized over 30 years; and (3) that capital costs for pipeline assets must be amortized over 40 years.

Ownership of coalbed methane:

  • See Harrison-Wyatt, LLC v. Donald Ratliff, et al. In this case, Gentry Locke represented coal owners in resolving the long-unsettled issue of whether coal or gas owners properly claimed the coalbed methane; and
  • See John Sheffield, Trustee, et al. v. CNX Gas Company, LLC, et al. In this case, Gentry Locke represented owners of the gas estate against claims by the owners of "other minerals," establishing that the gas owners are the rightful owners of coalbed methane.
  • Recently, the issue of "conflicting" claims of ownership has been widely publicized. Many complaints have been asserted regarding the escrow process in Virginia that allows royalties for conflict claims to be escrowed indefinitely.
  • Gentry Locke is currently serving as counsel in a class action lawsuit that seeks to resolve this issue. Recent statutory changes have also been made.

Rights of Competing Gas Operators:

  • See GeoMet v. CNX Gas Company, LLC:
    • Supreme Court opinion on appeal from Buchanan County
      (injunction reversed as inappropriate where one operator placed pipeline over acreage leased by another for gas production)
    • Supreme Court opinion on appeal from Tazewell County
      (injunction reversed as inappropriate where one gas operator purchased an interest in property then sought injunction to prevent pipeline)
    • Complaint in Antitrust case against CNX Gas Company LLC (can dominant operator take actions to exclude competition in the Oakwood Field?)
    • Virginia Supreme Court opinion finding in favor of property owner, ruling that a CBM gas lessee cannot exclude a competitor's pipeline on a 20,000 acre tract under an "exclusive" CBM lease with the property owners.
    • In Yukon Pocahontas Coal Company, et al. v. Consolidation Coal Company, et al

Duties of Operators to protect coalbed methane:

  • In Yukon Pocahontas Coal Company, et al. v. Consolidation Coal Company, et al, Gentry Locke asserted that its gas owner clients were owed a duty by the gas operator, CNX, to protect the gas owner's interests. Gentry Locke successfully asserted the existence of a duty to act as a reasonably prudent gas operator, surviving pre-trial motions designed to exclude such a duty. The case settled for $75 million immediately prior to trial.

"Consent to Stimulate" Coalbed Methane:

  • In Virginia, coalbed methane operators must obtain the coal owner or lessee's "consent" to stimulate the coal in order to produce the gas. This has provided a substantial advantage to gas operators affiliated with coal lessee's. Gentry Locke has been very active in addressing these issues.
  • Decision of Director of the Virginia Division of Gas and Oil, May 4, 2008: (finding Island Creek Coal Company, which has no active mines or mine permits, is not a coal "operator" entitled to oppose CBM development under the consent to stimulate law in Virginia). Decision was subsequently reversed by the Virginia Gas & Oil Board.

As a result of our active involvement in these and many other disputed issues, Gentry Locke is known as the legal leader in all aspects of the coalbed methane industry.