Pocahontas Gas withdraws E36 petition as pooling hearing spotlights royalty, deduction dispute

The Virginia Gas and Oil Board heard competing arguments Feb. 17 over compulsory pooling orders that would combine scattered ownership into units beneath long‑wall coal panels and decide how royalties and costs are allocated.

Kelly Barry, senior land analyst for CNX Gas Company LLC, said she prepared Pocahontas Gas LLC's application, certified notice by mail and published notice in the Bluefield Daily Telegraph. "I work for CNX Gas Company LLC, appearing on behalf of their subsidiary, Pocahontas Gas LLC," she told the board as she walked through plats and the exhibits listing owners. She told the board Pocahontas controls roughly 84.9% of the coal‑bed methane interest in the affected unit and proposed forced‑pooling lease terms of $5 per acre per year (five‑year paid up) and a 12.5% royalty.

Before the hearing items proceeded, counsel for Pocahontas said the company would withdraw the petition for a 1.05‑acre tract in E36 to avoid a protracted dispute today and instead press the board on neighboring units, leaving the withdrawal "without prejudice," the chair said.

Opponents and landowners pressed a separate, central question: whether a pooling order entered by the board can effectively permit downstream or post‑production deductions that, they said, conflict with explicit lease language. Jason Davidson, a Buchanan/Beccan Energy representative and lessor, pointed to his company’s lease and read the clause that says in part that when CBM gas is "not sold at the wellhead . . . [lessee] shall not deduct from royalty any sum from the sales price at the point of sale including but not limited to deductions for gathering, transportation, line loss, compression, taxes." Davidson said forced pooling that permits standard downstream deductions would "result in the loss of our contractual rights associated with the lease and the loss of revenue associated with the downstream costs that would be deducted from our royalty." (Davidson: "That is an exclusive right given to Diversified.")

Pocahontas and its counsel argued that a pooling order sets the board‑authorized terms for payment and cost allocation for a compelled unit and that some deductions are historically recognized under board form orders. Mark Schwarz, representing the petitioner, told the board he expects Coronado (the mine operator) will fund much of the well capital and that cost recovery mechanics are embedded in prior practice: "Pocohontas Gas through its affiliate CNX has filed documentation . . . that it does not have any capital cost with respect to any of its wells; all of these wells are funded by Coronado," he said in a proffer that the board accepted for the record as non‑evidentiary.

The hearing record includes a lengthy statutory and regulatory back‑and‑forth. Counsel and staff cited Virginia Code §45.2‑1620 (and subsections) and the board regulation on allowable cost (BAC 25‑160‑100) while debating whether a pooling order may impose specific treatment of post‑production charges or must respect private contract language. Board counsel advised parties that the board will not adjudicate competing private contract rights directly but must decide the contents of any pooling order it enters.

CNX witnesses also gave technical testimony on scope and cost. Josh Ball, CNX director of drilling and completions, testified that the company projects about 14 gob wells for panel 19 at an average cost of about $753,344 per well, based on regional contractor data and historical wells. Greg Braden, CNX vice president for reservoir development, provided recoverable‑reserves ranges for nearby long‑wall panels (for example, panel 19 P10=12 Bcf / P90=5 Bcf), which parties said are part of the technical record the board may weigh.

No final orders were issued at the hearing. The chair said the board would consult counsel, accept supplemental clarifications into the hearing record, and render decisions within 30 days. (The board also approved procedural items during the session, including permitting Mr. Harris to attend remotely.)

Why it matters: A pooling order determines who can recover and market gas produced under long‑wall panels, and it fixes the formula used to compute royalties from commingled production. If a pooling order allows certain post‑production deductions, some lessors say it could materially reduce the royalty they receive compared with what their private lease promises.

What’s next: The board paused the record to let witnesses confer on a disputed mapping/acreage issue and will take supplemental filings; it said it will issue written decisions within 30 days.