The Virginia Supreme Court has agreed to hear an appeal by Houston-based GeoMet in its ongoing natural gas pipeline dispute with a CNX Gas Corp. affiliate over a 32-acre coalbed methane (CBM) play in Buchanan County, VA.

CNX and GeoMet separately explore and develop CBM property in and around southwestern Virginia in the Appalachian Basin.

GeoMet produces 60% of its total gas from the Pond Creek field in Buchanan County, and it obtained an easement from Pocahontas Mining Co. (PMC) to construct a gathering line from the field. GeoMet began to build a 12-mile gas pipe and transport interconnect from the field to the Jewel Ridge Pipeline, which is operated by East Tennessee Natural Gas, a subsidiary of Spectra Energy. GeoMet also set up two transportation service agreements with East Tennessee to provide for a total of 25,000 MMBtu/d of firm transportation capacity.

Until last April, CNX affiliate Cardinal States Gathering System had a gathering agreement to redeliver GeoMet's gas production into the Columbia Gas Transportation interstate pipeline system. And CNX Gas Co. LLC claimed to hold exclusive right to build and operate gas pipelines over property owned by PMC in Buchanan County.

In January CNX filed a lawsuit seeking a temporary injunction to stop GeoMet from building the pipeline. The Circuit Court of Tazewell County, VA, then issued a temporary injunction halting the pipe's construction.

On appeal by GeoMet, the Virginia Supreme Court in February lifted the temporary injunction, which allowed the pipe to be completed. However, the high court also ruled that CNX could continue to pursue damages or a partition of the property in dispute.

GeoMet countersued the CNX affiliate and Island Creek Coal Co., asking for $561 million for compensatory and consequential damages arising from "alleged violations of the Virginia Antitrust Act, tortious interference with contractual relations with third parties, and statutory and common law conspiracy." GeoMet also asked to have the damages awarded tripled under Virginia statutes, which permit the court to award treble damages.

In May, the circuit court reversed its position and ruled that CNX had the exclusive right to transport gas over the PMC land (see NGI, May 28). The circuit court granted CNX injunctive relief and said GeoMet would be allowed to continue using its Pond Creek gathering line only if it escrowed net proceeds from the sale of gas transported through the Pond Creek gathering line and posted a bond in CNX's favor.

On June 20, the Virginia Supreme Court overturned the injunctive portion of the ruling, which allowed GeoMet to continue using its Pond Creek gathering line without escrowing funds or posting a bond.

Now the Virginia Supreme Court has agreed to hear GeoMet's appeal of the remaining portion of the lower court's order that CNX holds the exclusive right to transport gas over the PMC land. The high court also has denied all motions filed by CNX in the proceedings. And the court accepted the appeal filed by the landowner, PMC, which also contested the lower court's ruling on the exclusive right.

In its order, the high court agreed to consider on appeal all points of error that GeoMet and PMC raised in their petitions for appeal.

"We continue to transport the gas we produce from the Pond Creek field through our Pond Creek gathering line," said GeoMet CEO Darby Sere. "I would like to emphasize that we are not and have never escrowed any funds in connection with this matter. So far in 2007, we have been before the Virginia Supreme Court three times in the course of our litigation with CNX. And at each time the court has held in our favor."

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