In 1990, the Virginia General Assembly Repealed Both the Migratory Gas Act (Section 55-154.1

In 1990, the Virginia General Assembly repealed both the Migratory Gas Act (Section 55-154.1 of the Code of Virginia) which provided that the surface owner, absent other provisions of law to the contrary, is conclusively presumed to be the owner of all migratory gases beneath his surface tract and the Virginia Oil and Gas Act of 1982 (Section 45.1-286, et. seq. of the Code of Virginia) and passed the Virginia Gas and Oil Act of 1990 (Section 45.1-361, et. seq. of the Code of Virginia).

The primary goal of The Virginia Gas and Oil Act of 1990 (“The 1990 Act”) was to encourage coalbed methane (CBM) production and allow gas operators to benefit from the substantial federal tax credit (Alternative Fuel Production Credit under Section 29 of the Internal Revenue Code) and numerous other tax incentives and subsidies that were available to operators.

The 1990 Act radically changed both the common law and prior statutory provisions concerning gas and oil in Virginia. Additionally, The 1990 Act extensively reorganized the predecessor act, the Virginia Oil and Gas Act of 1982 (Section 45-1-286, et. seq.) and consolidated the Well Review Board and the Virginia Oil and Gas Conservation Board into a single entity, the Virginia Gas and Oil Board (“The Board”). The Director of The Division of Gas and Oil (DGO) of the Department of Mines, Minerals and Energy (DMME) has jurisdiction and authority necessary to enforce the provisions of The 1990 Act (Section 45.1-361.4).

The 1990 Act further provided a new pooling mechanism to, inter alia, encourage the production of CBM gas; authorized The Board to execute and carry out all of its duties, with the specific provision authorizing the issuance of rules, regulations or orders pursuant to the provisions of the Administrative Process Act (Section 2.2-4000 et. seq.); and to “take such actions as are reasonably necessary to carry out the provisions of Chapter 22.1” (The 1990 Act). See Section 45.1-360.15 of the Virginia Code.

The 1990 Act made a distinction between CBM ownership and conventional gas ownership; gave coal operators greater control over the location of wells; limited the number of objections surface owners could raise; allowed for the forced-pooling of up to 100% of the CBM and up to 75% of the conventional gas owners in a unit; required that proceeds assigned to conflicting claimants and unknown/un-located owners be escrowed; removed the scientific basis for defining a pool; provided for statutory minimum spacing requirements between wells and adjacent units, while at the same time allowing for exceptions; eliminated the penalty for exceeding production rates; allowed for unknown or un-located gas owners who do not have conflicting claims to be deemed leased versus deemed carried well operators (also known as “nonparticipating operators”); allowed for conflicting claimants that failed to make an election to be deemed leased verses deemed carried well operators; and allowed The Board to have greater flexibility over the implementation of The 1990 Act.

The 1990 Act was supported by the coal and gas industries, and contained a number of provisions which have allowed Virginia’s gas industry to prosper. At the close of 2008, there were 6,426 producing gas wells. In 2008 alone, 691 wells were drilled. The amount of gas produced in 2008, according to production volumes reported by gas companies to the DGO, was 128.5 Bcf (billion cubic feet). The estimated value of this gas was 1.21 billion dollars based on the average regional index price and 1.54 billion dollars based on the Virginia City Gate price.

In 2008, all gas produced in Virginia came from seven counties (Buchanan, Dickenson, Lee, Russell, Scott, Tazewell, and Wise) in Southwest Virginia. BuchananCounty alone had 2,958 wells (2,527 of which were CBM wells). In 2008, BuchananCounty had approximately 46% of the total number of gas wells and produced approximately 54% of the total gas produced in Virginia. DickensonCounty had 1,794 wells (1,185 of which were CBM wells) or approximately 28% of the total number of gas wells and produced approximately 23% of the total gas produced in Virginia.

Less than three percent (3%) of the gas produced in Southwest Virginia is utilized in the area. Of that which is used, the coal and gas industries are the largest consumers.Residents and gas owners have no opportunity to utilize their gas for heating or other needs. The state, counties, and towns also have a claim to gas lying under its property. Yet, they have had no opportunity to take the gas “in kind” or even to use any of the gas for heating county or state owned buildings, such as schools, offices, and state prisons.

Very little effort has been made in the legislature, by the DGO, or by The Board, to ensure the protection of property rights and correlative rights of surface and gas owners and to ensure that pooling orders provide election options that afford gas owners the opportunity to recover or receive, without unnecessary expense, their just and fair share of production from the pool or unit.