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From the Bristol, Va.-Tn, Herald Courier

An interview with the winner of the Pulitzer grand prize

SHOWCASE | April 30, 2010

“You don’t have to be at the New York Times or the Washington Post or the Wall Street Journal to do important work,” says Daniel Gilbert, the young, newly celebrated reporter on a small paper in Southwest Virginia. Gilbert’s work uncovered callousness, red tape and corporate neglect (to put it mildly) that was keeping natural gas royalties, often sorely needed, from going to thousands of people in Appalachia.

By Barry Sussman and Daniel Gilbert

For many years in Southwest Virginia people sold rights to the coal under their land but no one sought rights to the methane, which was regarded as worthless. That changed after 1990 when a law paved the way for commercial production of coalbed methane, a form of natural gas. Energy companies have extracted billions of dollars worth of it since then, routinely disregarding landowners’ claims to royalties.
Daniel Gilbert, a reporter at the Bristol, Va.-Tn., Herald Courier, a small daily, reported this story hard and set in motion changes that may bring substantial compensation – sometimes six-figure compensation – to many small property owners. Here Gilbert tells his story in an online Q and A with Barry Sussman, editor of the Nieman Foundation’s Watchdog project (and himself a former reporter and editor at the Bristol Herald Courier).
Q. At what point did you decide this should be an eight-part series?
A. It wasn’t until near the end of my reporting that I organized the material into eight stories. But I decided early on that the best way to write about the issue would be in the form of a series. The questions I pursued (Why aren’t owners being paid for their gas? Why are royalties going into escrow? Whose job is it to monitor industry compliance with escrow payments?) were all integrally connected. As I reached for one piece, I would find it attached to something else. It was not a story that could be told effectively with weeks or months between installments.
Q. How long did you work on it; did you have to do other reporting during that period as well?
A. I began researching the story in November 2008. The first article in the series published in December 2009. As one of seven reporters at a small newspaper, we all have daily responsibilities. I cover courts and legal affairs in the region. I chipped away at this project as I could, while producing daily and other enterprise stories. I also wrote a number of less in-depth stories about the Virginia Gas and Oil Board and gas royalty issues du jour to introduce readers to the topic (and to justify my trips to board hearings to my editors).
Q. Did any news organizations pick up on the story while the series was running? Local TV, maybe? Media General papers elsewhere?
A. Yes. With my reporting mostly wrapped up, I reached out to our sister paper, the Richmond Times-Dispatch, about adapting a story from my series for them. I wanted to avoid the trees-falling-in-the-forest problem by ensuring that the story played in the policy nerve center of the state. The Times-Dispatch ran a condensed version of my series on a Sunday front page, and allotted it substantial inches inside. Richmond has continued to give my follow-up stories prominent treatment.
Additionally, our Media General television partner in Johnson City, Tenn., interviewed me about the stories when they ran. Other Media General papers (Charlottesville, Culpeper, Danville to name a few) also ran the version that the Times-Dispatch printed. Richmond’s editorial board weighed in a few times. The Roanoke Times, which is actually a regional competitor of ours, also weighed in with four or five editorials lauding our series and calling for legislative action.
Q.  And can you deal some with the responsiveness of the appropriate public officials?
A. The Virginia Department of Mines, Minerals and Energy was responsive to my Freedom of Information Act requests, and reasonable in the fees it charged. DMME officials refused to be interviewed, however, and would only respond to written questions by e-mail. In early February, DMME and Virginia Gas and Oil Board officials refused to answer any questions, citing the pendency of a lawsuit (which had actually been withdrawn at the time and has not been refilled). However, the DMME director appeared at a board hearing last week and answered my questions at length.
Among elected officials, the response was swift: Three area lawmakers introduced legislation as a result of my series. The majority leader of the House of Delegates also introduced a bill directing a commission to study issues raised by my reporting.
 Q. While there was some sharp reader reaction in the form of comments, there wasn’t a lot of it. Do you have any thoughts about that?
A. In general, my experience is that my long-form stories tend to receive fewer comments online. Page views at first were not extraordinarily high. But the articles were widely read, and I have received more e-mails in response to these stories than for any other story I’ve written. I’ve also fielded scores of phone calls from people across the country who own mineral rights in Southwest Virginia, seeking help on how to find out if they are owed any royalties.
Q. Can you give some overall estimates: When you started your reporting, about how many families should have been getting money overall? Of them, how many were not getting any money? How many natural gas firms are involved?
A. State energy officials estimated last June that 15,000 people have a claim to the millions in escrow (as of March, the accounts collectively held $25.6 million). All of those people are not receiving royalties. Many thousands more do receive royalties, but I have not seen data that illustrate the breakdown between people who receive royalties and people who do not. These people are paid based on private contracts that are outside the jurisdiction of the state, and so not publicly accessible. Two energy conglomerates, CNX Gas Co. (a subsidiary of Consol Energy) and EQT Corp., produce more than 90 percent of all natural gas in Virginia.
Q. If you had to boil down the story to two or three most important findings, what would they be?
A. One: Despite a 2004 Supreme Court of Virginia decision that clarified coalbed methane ownership, the state has refused to accept this as precedent and continued to direct energy companies to place millions of royalties from coalbed methane into escrow. The system in place has failed to compensate thousands of people for their gas for as long as 20 years.
Two: As of my initial reporting, Virginia had neglected to taken any serious measures to monitor the gas industry’s compliance with escrow requirements, up to and including the lack of regular audits and the absence of any compliance checks in the state’s data-collection systems.
Three: Energy corporations, left on the honor system, have failed to pay royalties into escrow years after wells began producing gas. This matters greatly for royalty owners who want to collect from escrow but can only afford to hire an attorney on a contingency basis. The more than $1.1 million corrective payments into escrow so far prompted by my reporting show that some people whose accounts held only pocket change now have a claim to six figures in royalties. The companies’ failure to make timely royalty payments has deprived such owners of crucial information that would have allowed them make an informed decision about whether to retain an attorney.
Q. Some of the financial reporting here is complicated. Did you get help on it? From whom?
A. I contacted analysts at private energy firms and at the U.S. Department of Energy for help on obtaining meaningful figures on natural gas prices by regional pipelines. I read U.S. Government Accountability Office reports on its audits of the Minerals Management Service, and found other experts and accountants with experience auditing energy companies.
Q. U.S. Sen. James Webb is from that part of Virginia. Did he ever get involved; did you ever ask him to? And any comments you might have about other political leaders.  
A. I have not spoken with Sen. Webb or heard from his office. The system I was exploring is governed by state statute, and accordingly the officials I’ve interviewed are at the state level.
Q. From my quick reading, it looks like there has been no accounting for exactly how much money should have been put into these escrow accounts or paid out altogether. Is that correct? Do you have figures on how much the gas companies have made on this, how much they have paid out, and how much they should have paid out?
A. You are correct. To give a basic illustration of how much money gas companies are making, I used the average monthly sales price from the relevant interstate pipelines and multiplied that by well volume. The volume of gas produced in 2008 had a market value in excess of $1.2 billion.
The gas industry claims it has paid $600 million in royalties to owners since 1990, but I have seen no data to support this and don’t know a way of independently verifying that figure. As for what they’ve paid into escrow versus what they should have paid, the last audit of the accounts was in 2000, and it was not a compliance audit. Days after my series published, the Gas and Oil Board authorized an independent audit, which is ongoing.
 Q. Is it your sense that this type activity wouldn’t have happened in most places and that, as some of your readers’ comments suggested, the companies involved, the banks and the state authorities were unresponsive because they didn’t care about the people of SW Virginia and didn’t think they had the smarts to stand up for themselves?
A. Landowners in Southwest Virginia would certainly tell you that. They have been shouting about this for 20 years, but without any lobbying power, their voices failed to reach the policymakers in Richmond. Without trying to guess at the motivations of state authorities and industry, my impression as a journalist is that the development of natural resources raises highly complex questions about mineral ownership. The state regulatory agency, the lawmakers and the industry have been content to let one question – the ownership of coalbed methane gas – languish, and allow the royalties in escrow to burgeon without any meaningful oversight. This is the mess they swept into the closet.
Q. What was the upshot of the series: What got accomplished as a result of it?
A. In the first place, the Virginia Department of Mines, Minerals and Energy publicly acknowledged problems with its collection of escrow payments, and has pledged to improve its ability to monitor compliance. The DMME recently announced it will impose new fees on the industry to fund a new support position, and has temporarily re-assigned other employees to help build a database that will allow the people to see if they have gas wells on their property and a claim to money in escrow.
As I mentioned, EQT and CNX have so far combined to pay more than $1.1 million into escrow accounts I identified as missing payments. I have recently revealed escrow accounts that should be receiving royalties but don’t actually exist, which continues to raise questions about how much is missing from escrow.
Most crucially, the governor signed legislation that essentially ends the dispute over coalbed methane ownership that has diverted tens of millions of royalties into escrow. Another amendment establishes an arbitration system designed to expedite the release of royalties from escrow.
Q. Has the situation been resolved, would you say? Are people getting what’s theirs now?
A. No. There is still more than $25 million in escrow that belongs to people. Many landowners believe they should be able to just present their deeds to the Virginia Gas and Oil Board and claim their royalties, but the board maintains that it does not have the authority to determine ownership (a formal opinion from the Virginia attorney general on this question is pending). If landowners want their royalties, they still have to sue to prove ownership; reach an agreement with someone else who claims the gas rights; or go through arbitration. Legal precedent and the new law clarifying coalbed methane ownership greatly strengthen the landowners’ position, but the money won’t just come to them.
Q. Anything else you’d like to say about this fine achievement of yours?
A. To the extent that the Pulitzer Board sends a message with its awards, I think the message here is that you don’t have to be at the New York Times or the Washington Post or the Wall Street Journal to do important work. The places without a powerhouse news organization need good, accountability reporting as much or more than anywhere else. Newspapers of all sizes and means have a responsibility to go after the big, difficult stories that affect their communities. Because no one else is going to do it.

Posted by Jim Hines
04/30/2010, 12:40 PM

I knew nothing about this until I read all the articles, and have no financial interest in the outcome, so am therefore on the outside looking in.
To the extent that politics played into this delinquency, it's apparent that elected officials over the years didn't want to offend those with financial clout. It's also apparent that some in the legal profession, as well as the financial institution that managed the money, wanted to claim a share of the pie, since landwoners have been routinely told that they must go to court to prove ownership of money that's in escrow being managed by said institution. There's no way any landowner should bear any of the financial cost-not one penny- involved to recover what's owed them. Also, it's beyond me how a 50/50 split can even be allowed if ownership is 'in question'in any way.
And, then there's the fact that at some point, people directly involved in this-in the industry and otherwise, not including the landowners, of course, began refusing to talk with Mr. Gilbert, for whatever stated reason.
Once all was layed out, the words 'collusion on a grand scale' come to mind, though it would probably be impossible to prove.

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