Copalbed Methane Decision Issued by WV Supreme Court

It is only relatively recently that coalbed methane has been extensively exploited in the United States. One of the first legal issues that arose was ownership. In states like West Virginia, land ownership is often divided into separate estates for the surface, oil and gas, and coal, with a different entity owning each interest. When that occurs, both the coal owners and oil and gas owners claim the coalbed methane (CBM). Some states have determined, through the Legislature or by judicial fiat, that the CBM is the property of either the coal or the oil and gas owners.

In WV the issue has not been resolved that neatly. The Court ruled in Energy Development Corp. v. Moss, 214 W.Va. 577, 591 S.E.2d 135 (2003) that it was the intention of the parties that was determinative of the methane ownership. Since the coal and oil and gas may have been severed many years ago, before coalbed methane was of economic interest, determining methane ownership may require going back to the original grantor of the mineral interests to see whether he or she meant to convey the CBM. If not, it may belong to neither the oil and gas owner nor the coal owner.

Which brings us to today's blog, about CBC Holdings LLC v. Dynatec Corporation USA, No. 34267 (2009), which was issued a couple weeks ago by the WV Supreme Court. The appellant had filed a declaratory judgment action seeking a determination that it owned CBM being produced by Dynatec, and the Circuit Court of Wetzel County had refused to hear the petition, on the grounds that the matter should be resolved by the Division of Oil and Gas. The Supreme Court sent the matter back to the Circuit Court, agreeing with appellants that the Division of Oil and Gas is a permitting agency and has no authority to resolve ownership issues. This is consistent with the CBM Review Board position, which it has consistently taken, that it will not decide issues of ownership.

The Supreme Court clearly (and correctly) feels that resolution of CBM ownership is the province of the Legislature, referring somewhat disparagingly to "the clear decision of the Legislature to circumvent the issue of coalbed methane ownership" rather than resolve it one way or the other. Until the Legislature does so, the Court is not inclined to step into the breach. "The Legislature was clear in its designation of the Division's regulatory responsibilities. Noticeably absent from those delineated powers is authority to interpret mineral rights and leasehold ownership issues. Because there are no provisions in the Act that contemplate relief for the issues set forth in Appellant's complaint, there is simply no procedural basis for referring this matter back to the Division."

In one sense, the Wetzel County Circuit Court can be forgiven its confusion on the issue, given the unnecessarily complex nature of the CBM statute, 22 W. Va. Code Article 21. The Legislature, unable to decide who owned the coalbed methane, established an elaborate system for giving notice to the owners of the coal and the oil and gas rights anytime a CBM well will be drilled. It also set up a system for "force pooling" CBM interests so that drilling could proceed even in the event there is disagreement over ownership of the CBM. The statute sets up a system for approving the unit, and escrowing the proceeds from the well if there is a disagreement over who owns the CBM being produced. However, as the Supreme Court ruled, that statute does not provide for a determination of who should receive the escrowed funds. That is left to a court of law, which must apply ordinary property law principles in resolving the dispute. That is what CDC wanted, and what the Court allowed.