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Gas/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 coal bed methane. Now, there are thousands of coal bed methane wells in Virginia, with aggressive development increasing each year.

As the coal bed 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:

This thorny area of disputes has had a long life in Virginia.

  • See Harrison-Wyatt, LLC v. Donald Ratliff, et al. In this landmark case, Gentry Locke represented coal owners in resolving the long-unsettled issue of whether coal or gas owners properly claimed the coal bed 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 coal bed methane.
  • See Hale v. CNX Gas Company, LLC et al. In this class action case, Gentry Locke represented coal owner interests, particularly regarding whether the law in Harrison-Wyatt applied to FRAC gas where coal mining has not occurred.

Rights of Competing Gas Operators:

Duties of Operators to protect coal bed 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” coal bed methane:

  • In Virginia, coal bed 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.

Contract disputes:

  • In Gasco Drilling, Inc. v. Knox Energy, LLC and Consol Energy, Inc., Gentry Locke represented CNX Gas Company, LLC against claims asserted by a services vendor.

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 coal bed methane industry.

Have questions? Contact us.