Title of Regulation: 4VAC25-165. Regulations Governing the Use of Arbitration to Resolve Coalbed Methane Gas Ownership Disputes (adding 4VAC25-165-10 through 4VAC25-165-140).

Statutory Authority: §§ 45.1-361.15 and 45.1-361.22:1 of the Code of Virginia.

Effective Dates: December 20, 2010, through December 19, 2011.

Agency Contact: Michael Skiffington, Regulatory Coordinator, Department of Mines, Minerals and Energy, 1100 Bank Street, 8th Floor, Richmond, VA 23219-3402, telephone (804) 692-3212, FAX (804) 692-3237, TTY (800) 828-1120, or email michael.skiffington@dmme.virginia.gov.

Preamble:

Chapter 442 of the 2010 Acts of Assembly directs the Virginia Gas and Oil Board (VGOB) to adopt regulations to implement the arbitration process created in that act within 280 days of its enactment. VGOB adopts its regulations through the Department of Mines, Minerals and Energy (DMME). This regulation establishes the guidelines for the arbitration process. Some of the key provisions include how arbitrations are funded, the qualifications of the arbitrator, and procedures associated with the arbitration itself.

The act creates a voluntary arbitration process for parties with conflicting claims of ownership of coalbed methane gas. Currently, there is approximately $26 million in royalties held in escrow because conflicting claims of ownership have not yet been resolved. Creating an arbitration system that is an effective alternative to litigation can help reduce the amount of funds in escrow.

CHAPTER 165
REGULATIONS GOVERNING THE USE OF ARBITRATION TO RESOLVE COALBED METHANE GAS OWNERSHIP DISPUTES

4VAC25-165-10. Definitions.

The following words and terms when used in this regulation shall have the following meanings unless the context clearly indicates otherwise.

"Accrued interest" means funds accrued during the preceding 36 months on total proceeds held in the general escrow account. Accrued interest does not include escrow account fees or administrative costs of the Board related to the general escrow account.

"Act" means the Virginia Gas and Oil Act of 1990, Chapter 22.1 (§ 45.1-361.1 et seq.) of Title 45.1 of the Code of Virginia.

"Arbitrator" means a qualified individual appointed by a court to render a determination in an ownership dispute concerning coalbed methane gas.

"Board" means the Virginia Gas and Oil Board.

"Claimant" means person or entity in a dispute over ownership of coalbed methane has who has agreed to arbitration to resolve the dispute.

"Code" means Code of Virginia.

"Court" means a circuit court in the Commonwealth of Virginia wherein the majority of the subject tract of land is located.

"Department" means the Department of Mines, Minerals and Energy.

"Escrow account" means the account established by the board pursuant to §§ 45.1-361.21 and 45.1-361.22 (2) of the Code.

"Ex parte communication" means any form of communication between an arbitrator and a claimant without the presence of the opposing claimant.

"Operator" means the gas or oil owner designated by the board to operate in or on a pooled unit.

4VAC25-165-20. Authority and applicability.

This chapter implements the Virginia Gas and Oil Act, Chapter 22.1 (§ 45.1-361.1 et seq.) of Title 45.1 of the Code. The board is authorized to promulgate this chapter pursuant to §§ 45.1-361.15 and 45.1-361.22:1 of the Code.

4VAC25-165-30. Costs of arbitration.

Arbitrations shall be funded from accrued interest. The department shall determine on a case-by-case basis if sufficient funds exist to conduct an arbitration. Sufficiency of funds shall be determined by the amount of accrued interest available at the time arbitration is requested, less estimated costs of pending arbitrations. If sufficient funds are not available, the department shall maintain a waiting list of parties willing to arbitrate.

4VAC25-165-40. Qualification of arbitrators.

The department shall review all applications from potential arbitrators pursuant to § 45.1-361.22:1 C of the Code. Applications shall be submitted on a form prescribed by the department. In order to qualify, applicants must demonstrate substantial expertise in mineral title examination. Substantial expertise shall be determined on an individual basis. The department shall notify applicants deemed to be qualified.

The department shall maintain a list of qualified arbitrators and update it annually. The list shall be supplied to the court when the board issues an order for arbitration. Pursuant to § 45.1-361.22:1 C of the Code, the court has the discretion to appoint an individual not on the list of qualified arbitrators.

In order to maintain a current, accurate list, qualified arbitrators shall at least annually update their disclosures to the department.

4VAC25-165-50. Agreement to arbitrate.

Claimants shall submit their request of arbitration to the board on a form prescribed by the department. Claimants shall also provide an affidavit pursuant to § 45.1-361.22:1 A of the Code.

4VAC25-165-60. Conflicts of interest.

In addition to the limitations set forth in § 45.1-361.22:1 A of the Code, an arbitrator may not hear an arbitration if the arbitrator is related to one of the claimants, has a personal interest in the subject of the arbitration, has a present or former personal or business relationship with one of the claimants or other circumstances exist that might affect the arbitrator's ability to render a fair determination. If evidence of a conflict exists under this section, a claimant may petition the court to appoint a different arbitrator.

4VAC25-165-70. Location.

The arbitrator shall determine an appropriate time and place for the arbitration. The arbitration shall take place in the jurisdiction where the majority of the subject tract is located, unless all claimants agree to an alternate location. Notice to claimants shall be given pursuant to the requirements of § 45.1-361.22:1 D of the Code.

4VAC25-165-80. Postponement of arbitration.

Any request for postponement may be granted by the arbitrator if all claimants consent, or if good cause for a postponement is shown to the satisfaction of the arbitrator. Requests for postponement for cause should be made to the arbitrator at least 15 days before the hearing, unless the circumstances requiring the postponement do not allow 15 days' notice. Whenever a postponement is granted, the arbitrator will promptly reschedule the hearing and notify the board and the claimants.

4VAC25-165-90. Discovery.

Pursuant to §§ 8.01-581.06 and 45.1-361.22:1 D of the Code, the arbitrator may issue subpoenas, administer oaths, and take depositions. Additionally, any documents a claimant intends to introduce at the arbitration must be shared with the opposing claimant and the arbitrator not less than five days prior to the arbitration. If this provision is found not to be met, the arbitrator may elect to continue the arbitration.

4VAC25-165-100. Extension of arbitration.

If, pursuant to § 45.1-361.22:1 E of the Code, the claimants agree that the arbitrator may take longer than six months from the date the board ordered the arbitration to render a determination, the arbitrator shall notify the board of this extension.

4VAC25-165-110. Determination of arbitrator.

Pursuant to § 45.1-361.22:1 E of the Code, the determination of the arbitrator shall be in writing and sent to the board and each party to whom notice is required to be given. The determination shall include, at a minimum, a finding of facts and an explanation for the basis of the determination. A copy of the determination shall be placed on the department's website. The arbitrator shall record the determination with the Clerk's Office of the court.

4VAC25-165-120. Ex parte communications.

There shall be no direct communication between the claimants and the arbitrator concerning the merits of the dispute other than at the arbitration hearing. If an ex parte communication occurs between a party and the arbitrator outside of the arbitration hearing, the arbitrator shall notify the other parties of the date, time, place, and content of the communication.

4VAC25-165-130. Fees.

Arbitrators shall be paid at the rate of no more than $250 per hour. Expenses of the arbitrator incurred during the course of the arbitration shall be reimbursed in accordance with the State Travel Regulations prescribed by the Department of Accounts. Arbitrators shall submit a complete W-9 form to the department before payment is made.

Pursuant to § 45.1-361.22:1 F of the Code, payment of fees and expenses of the arbitration may be delayed if there are intervening disbursements from the general escrow account under § 45.1-361.22(5)(i) or (iii) of the Code that reduce the interest balance below the amount of fees and expenses requested.

4VAC25-165-140. Disbursement of proceeds.

Within 30 days of receipt of an affidavit from the claimants affirming the determination, the operator shall petition the board for disbursement pursuant to § 45.1-361.22 (5) of the Code.

FORMS (4VAC25-165)

Arbitrator Qualification Form, DGO-ARB (rev. 5/10).

Agreement to Arbitrate Form, DGO-ARB2 (rev. 7/10).