(08/22/2007)
Broadcast Transcript
By Scott Finn
West Virginia Public Broadcasting

Studio Lead: The Legislature is scheduled to wrap up its special session today. Most of the bills proposed by Gov. Joe Manchin are expected to pass easily. But one bill still in limbo involved royalties on oil and gas leases. Oil and Gas officials say its necessary to protect their industry. But landowners are crying foul. The bill was inspired by a $404M jury verdict earlier this year in Roane County. Reporter Scott Finn tried to decipher the issue, and he talks to the family that started it all.

Finn: It all started when a retired elementary schoolteacher named Garrison Tawney started to take a close look at the royalty checks he received for some gas wells on his farm Roane County. His son-inlaw, Vernon Goff, explains what happened:

Goff: What was going on is, he was getting royalty checks from Columbia Natural Resources, but he was also getting royalty checks from another company. And one company was paying much more per thousand cubic feet of gas than Columbia, and he got to asking questions about that, never got a satisfactory answer.

Finn: Tawney went to retired state Supreme Court Justice George Scott for help. It grew into a lawsuit representing more than 10,000 landowners. And it ended in a $404M verdict, where a jury and a circuit judge found that Columbia Natural Resources defrauded the landowners.

Goff: And what we found, that they were reducing the price that they were paying per thousand cubic feet of gas. They were also reducing the cubic feet of gas. And that was money going in their pockets, being taken from our pockets.

Finn: Here's how it works now: Landowners like Tawney have long-term leases with natural gas companies. They usually get one-eighth of the value of the gas. In Tawney's case, Columbia Natural Gas was deducting some of the costs of producing the gas before giving Tawney his cut. But last year, the state Supreme Court said that was illegal. The Tawney decision has rocked oil and gas officials in West Virginia. They convinced Gov. Manchin to propose a bill during this special session that they say will correct the situation. Here's Manchin's chief lawyer, Carte Goodwin.

Goodwin: The key thing is, a lot of these leases say, royalties calculated at the wellhead. Is that sufficient to indicate that you can deduct these costs? The majority of courts in the majority of states have said yes. And the reason they said yes is because, if you're calculating the royalty at the well, the wellhead, that means something different than when you calculate something at the point of sale.

Finn: Let's try an analogy here. Say they were pumped a gallon of crude oil from Tawney's property. Should he get paid one-eighth the value of crude oil? Or should the royalties be based on the one-eighth the price of a refined gallon of gas?

Goodwin: It's not marketable when it comes out of the well. We know that by making certain expenditures, to decompress the gas, to clean it up, to transport it, to market it, to distribute it, it becomes more valuable. So the price that you get at the point of sale is necessarily higher than it is when it comes out of the well itself.

Finn: As you can tell, this is complicated enough to make your eyes bleed. Some lawmakers are upset that this is being sprung on them during a three-day special session.

Goodwin: We've certainly been sharing drafts with legislative lawyers for well over a week, and been sharing it with members. Needless to say, it certainly is complex, as you suggest.

Finn: Meanwhile, landowners are wondering, what's the rush? Kasey Russell represents mineral rights owners in West Virginia. Russell: From the landowner point of view, is the sky really falling? I mean, it seems like they're about to invest and build this beautiful building in Charleston, their groundbreaking is on Wednesday. Landowners by all means want to see their gas produced, and we want Chesapeake to invest in West Virginia, but we also want to be treated fairly, and we want to be an equal player and participant at that table.

Finn: Russell says her group is willing to work with the oil and gas industry. But she says it will take time - a lot more time than three days.

Russell: You have some pretty upset gas owners, and the reason they're upset is they've asked for information on why they're getting the amount they're getting, and they haven't gotten the answers from the gas industry. And so you already have this automatic distrust. And so you have to get past that step. And then, once you get everyone talking about these issues, and you have the gas industry saying, O.K., we'll give you the adequate information so you understand exactly how much it costs us to get gas from A to B.

Finn: Garrison Tawney died not knowing the result of the lawsuit that bears his name. His son-in-law says he never wanted to cause a fuss. He just wanted a straight answer.

Goff: I'm proud of my father-in-law for the fact that he had the foresight and the initiative to make this wrong right, and he proceeded to do that. And it looks like it just might happen.

Finn: A public hearing on House Bill 216 is scheduled for 9:30 this morning at the state Capitol in the House of Delegate chamber. For West Virginia Public Broadcasting, I'm Scott Finn in Charleston.

www.wvpubcast.org


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