WEST VIRGINIA RECORD

CHARLESTON – A West Virginia company claims it faces the possibility of bankruptcy and of being forced to lay off all its employees if an oil company is allowed to shut down its wells and to buy its meters.

In its putative class action complaint against Dominion Transmission, Inc., Drilco Oil and Gas Corporation claims Dominion is forcing it to sell all its meters to Dominion and that Dominion is shutting down Drilco's wells and taking them out of production for an unspecified period of time while it makes changes.

Under an agreement, Drilco transfers natural gas to Dominion from wells, according to the complaint Drilco filed in Roane Circuit Court on Aug. 3. Drilco operates 113 oil and gas wells in central West Virginia, and about 80 percent of those wells are contracted to Dominion, according to an affidavit filed by Drilco's President Hugh D. Dale Jr.

"Averaged over a year Drilco receives approximately $51,000 per month or $609,200 per year from the wells that feed the Dominion lines which is the great majority of annual income of Drilco," Dale's affidavit states.

The wells all possess meters that calculate and record the amount of natural gas being transferred from Drilco to Dominion, the suit states.

A few months ago, Dominion contacted Drilco and various other companies to say that it overpaid Drilco and the other companies for wells, the complaint says. In turn, Dominion requested an audit and meter charts, Drilco claims.

So Drilco sent the requested documents to Gas Analytical Service, which subsequently lost the paperwork, according to the complaint.

After the lost paperwork, Dominion raised a number of other issues with Drilco, and the two companies decided to meet on June 30. During the meeting, Drilco and Dominion agreed to a number of unspecified acts which Drilco claims it has performed.

Nevertheless, Drilco received a letter from Dominion on July 29 forcing it to sell meters, advising Drilco that Dominion was shutting down its wells for an unspecified period of time on Aug. 4 and informing Drilco that it will operate all gas measuring and payment determinations in the future, according to the complaint.

However, in his letter to Drilco, Dominion's manager Daniel T. Stuart says Drilco has not fulfilled its obligation to correct deficiencies discussed during the meeting and has not provided Dominion with necessary charts and information. In addition, Stuart informed Drilco that Dominion is forced to shut down all meters because it has to reset the meters to their original integrity and to make access roads acceptable.

But Drilco maintains Dominion is not legally allowed to take such actions.

"Drilco also considers it a total usurpation and illegal seizure of Drilco's assets (well meters and wells) without compensation and also as an act that will bankrupt Drilco as its revenues are mainly based [in] the sale of the natural gas from its wells to Dominion under the existing contracts," the suit states.

Dominion is attempting to take total control of the accounting, production revenue, gas measurement and other aspects of the natural gas marketing facet of the industry, Drilco says.

"Apparently, rather than proceeding directly against those natural gas producers that Dominion believes have been intentionally cheating, falsifying and/or exaggerating their natural gas production, Dominion has elected to undertake an ill considered 'purge' towards a number of other of its natural gas producers in addition to that now being initiated against Drilco," the complaint says.

In its complaint, Drilco is seeking a preliminary injunction, and eventually a permanent injunction, against Dominion preventing it from undertaking control of its wells and meters, plus compensatory damages for lost production revenues and punitive and exemplary damages, plus other relief the court seems just. Drilco is also asking the court to certify the case as a class action.

Dominion contends Drilco is not entitled to any damages, in part because it failed to mitigate damages. In addition, money Drilco seeks in the complaint may be reduced by any amounts it owes to Dominion, the oil company claims.

In its answer to the complaint, Dominion is asking the court to dismiss Drilco's complaint.

Dominion filed a counter-complaint against Drilco seeking compensatory and punitive damages, as well as preliminary and permanent injunctive relief, plus attorneys' fees, costs and other relief the court deems just.

In its counterclaim, Dominion says Drilco is guilty of failing to perform its obligations under an agreement and failed to comply with Dominion's gas tariff.

Dominion removed the case to federal court because it involves a federal question that a federal court should answer.

In addition, Drilco's case involves a diversity of citizenship because Dominion is incorporated under Delaware law and Drilco is a West Virginia corporation. Other companies that may be included in the class action suit are probably also residents of different states.

Larry L. Skeen of Skeen and Skeen in Charleston will be representing Drilco.

W. Henry Lawrence and Amy M. Smith of Steptoe and Johnson in Clarksburg and Jacqueline A. Wilson of Clarksburg will be representing Dominion.

U.S. District Court case number: 2:09-959