WEST VIRGINIA RECORD

CHARLESTON – Energy companies have split in a struggle over regulation of West Virginia gas wells that some call deep and some call shallow.

Any day now, the question may land in the lap of a Kanawha County judge.

The Supreme Court of Appeals on May 23 chose to stay out of the dispute but invited nine coal companies to sue the West Virginia Oil and Gas Conservation Commission.

The commission already has taken sides, declaring that if a driller of a shallow well digs below the line separating deep wells from shallow wells, the well turns deep.

On that basis the commission granted drilling permits to Chesapeake Appalachia, Eastern American Energy and Petroedge Resources.

Blue Eagle Land, Coalquest Development, Consolidation Coal, Horse Creek Land and Mining, National Council of Coal Lessors, Penn Virginia Operating, Pocahontas Land, WPP LLC and Wolf Run Mining oppose the permits.

Vast sums depend on the question, because royalties from deep wells go to gas owners while royalties from shallow wells go to property owners.

The structure of regulation hinges on the question too, for the commission doesn't regulate shallow wells. The Shallow Well Gas Review Board does.

In an unusual step, the Supreme Court of Appeals recommended that any lawsuit include a party that pleaded before the Court as "amicus curiae," friend of the court.

"If the instant case is refilled as an appeal," the Justices wrote, "the West Virginia Surface Owners' Rights Association should be given an opportunity to assert its interests and views."

That counts as a tribute to association attorney David McMahon of Charleston, who offered the Justices a brilliant and entertaining brief.

Under an ancient "rule of capture," he wrote, a gas well can be drilled at the edge of a property to capture gas from under a neighbor's property.

"Not only is this legalized thievery, it results in less total gas being produced," he wrote, because the neighbor will then sink a well.

"Those two wells will more quickly diminish the reservoir pressure that drives the gas up to the surface," he wrote, and as a result less gas is produced.

The rule of capture, he said, originated in England when lords disputed the right to kill deer for meat. Courts ruled that the meat belonged to the lord who captured the deer.

"The Rule of Capture was adopted for gas wells in this country when it was thought that oil ran in underground rivers and gas was a valueless byproduct," he wrote.

At least 31 states require well spacing and royalty sharing, he wrote, but West Virginia provides these only in limited circumstances.

Major drillers sought well spacing and royalty sharing by legislation, he wrote, but independents obtained a compromise distinguishing deep wells from shallow wells.

West Virginia statutes also provide well spacing and royalty sharing where a well penetrates a coal seam, he wrote.

The oil and gas commission generally spaces deep wells 3,000 feet apart, he wrote, but in this case the commission spaced them at 1,000 feet.

Coal owners want to declare the wells shallow so the Shallow Gas Well Review Board will space wells at 1,500 to 2,000 feet, he wrote.

Some drillers want closer spacing and some oppose it, he wrote.

"Surface owners also like forced well spacing and royalty sharing," he wrote, "since the result is fewer well sites and access roads getting bulldozed on their lands."

He wrote that applicants for the permits said they would space at 1,500 feet except when conditions required closer wells.

"Spacing of 1,500 feet is not what they requested and not what the order granted," McMahon wrote.

"It was arbitrary for the commission to grant spacing any less than 1,500 feet," he wrote.

He told the Justices they could declare the wells deep and if that makes no one happy, that may be the best result.

"It will force them to go to the Legislature where the law of West Virginia can be dragged, literally, out of the Dark Ages," he wrote.

Nicholas Preservati, Joseph Jenkins and Estill Jones Jr., all of Charleston, represent coal companies challenging the commission.
Kenneth Tawney of Charleston represents Petroedge, Timothy Miller and Keith Moffatt of Charleston represent Chesapeake Appalachia, and Susan Wittemeier and Robert Adkins of Charleston represent Eastern American Energy.

Attorney General Darrell McGraw represents the oil and gas commission, along with assistant attorney general Christie Utt.