Property, Mineral Rights In Conflict

- Property, Mineral Rights In Conflict

Wednesday, July 06, 2011
Knight Ridder/Tribune Business News
by Ry Rivard, Charleston Daily Mail, W.Va.

In a case that may give West Virginia landowners a stronger bargaining chip in dealings with natural gas companies, a Marion County man is suing two of the state's largest gas producers to pay up or get off his land.

Richard Cain argues that gas producers don't have a right to put large Marcellus shale wells on his land in order to get at gas on his neighbors' property. If Cain prevails, it could become more difficult and expensive for gas companies to place multi-acre Marcellus well pads.

David McMahon, a lawyer who co-founded the West Virginia Surface Owners' Rights Organization, filed the lawsuit last week in Marion County Circuit Court. Cain is suing XTO Energy, a division of Exxon Mobil, and Glenville-based Waco Oil and Gas.

The lawsuit argues XTO can't take over up to 36 acres of Cain's 105-acre property just to put in Marcellus shale wells. The plans make Cain, a 61-year-old farmer and crane operator, "heart sick," McMahon said in a telephone interview last week.

Cain bought the land in 1989 to eventually give to his children. But he only owns the top of the land -- more than a century ago, the mineral rights had been sold off.

The law gives mineral owners the right to come on a surface owner's land to get at coal, gas or oil beneath. Cain doesn't dispute that companies can use his land to get gas from beneath his 105 acres or even from the other 33 acres near him that were part of an original 138-acre tract.

But Cain argues the law doesn't give XTO or Waco the right to use his land as staging area for several large well pads that will drain gas from hundreds and hundreds of acres around his property that the companies have the mineral rights to.

The companies "do not have any rights at all to use his surface to drill horizontal wells to, or to explore for or produce gas from, any neighboring mineral tracts," the lawsuit reads.

A spokesman for XTO said the company does not comment on pending litigation. Waco did not return a phone call Friday afternoon seeking comment.

Cain's case arises mostly because of a change in technologies. Traditionally, drillers were using vertical gas wells with a relatively small footprint. These vertical wells were like straws and didn't draw gas from very far away.

But now drillers are building pads with several acre footprints and wells that run horizontally underground for nearly a mile apiece. Cain's case is testing whether these horizontal wells should be treated differently in the eyes of the law.

According to the lawsuit, XTO has received approval for one 12-acre well pad on the southwest corner of Cain's land. From it, at least three and up to six horizontal wells will be drilled underground.

XTO plans to put two more pads on his land. If the two pads disturb the same 12 acres as the first one, nearly 40 percent of Cain's land will have been taken without his permission.

None of the underground wells on the first well pad will drain much of Cain's gas, according to the lawsuit. Instead, the three wells will travel underground away from the corner of his land for 5,500 feet, 4,600 feet and 3,300 feet.

Even though XTO may be getting little gas from Cain's property, there could be advantages to its putting wells there. Companies drill down nearly a mile before they turn horizontally through the shale formation from where they get gas. These vertical legs also need room, though, because they slope a bit before become horizontal and run through the shale -- so moving the well pad on the surface even slightly can hurt companies by giving them less access to the profitable gas.

McMahon alleges XTO is shifting the burden of the multi-acre well pads to Cain's property.

If Cain prevails, companies that don't own surface rights will have to spend more time negotiating.

Plus, there's the cost. Under state law, the companies have to pay surface owners for lost income, expenses and damages. But McMahon said the formula in law isn't enough for the loss Cain faces.

"I think that the value shouldn't just be what it's worth to the seller, but what it's worth to the buyer, who is the driller in this case, and I think it's $25,000 a well in this case to the buyer," McMahon said.

The lawsuit also gives a look at the dealings between reluctant surface owners and companies eager to drill.

XTO began efforts to use Cain's land in June 2010, according to the lawsuit.

Cain "delayed as much as he could" to see if lawmakers would pass new rules in Charleston that could clarify or even add to his rights. They didn't.

An XTO agent didn't give Cain any say on where the company would locate its wells or its access roads. But, according to the lawsuit, an agent suggested XTO could pay Cain several thousand dollars for each pad -- the highest offer being $12,000.

An XTO agent also told Cain, "We will leave you a little," the lawsuit said.

On April 5 of this year, Cain sent XTO a letter that read, "You do not have permission to enter this property" to develop horizontal wells that would primarily take his neighbor's gas.

On April 14, XTO replied that they didn't need his permission.

When Cain went to his land April 17, he found part of his property had been cleared and his timber had been cut down.

Copyright (c) 2011, Charleston Daily Mail, W.Va.

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