The Capulets and Montagues

Written By Luke Burgess

Posted January 31, 2006

Dear reader:

With the coal and natural gas markets booming, land disputes between the two industries are heating up.

Industry wars are now being fought over rules that were designed to keep natural gas wells from intersecting with coal seams.

When gas companies drill wells through coal seams, it often results in major safety and financial problems for coal companies.

Coal companies claim that every gas well drilled through one metallurgical coal seam can cause up to $1 million in losses.

Here’s why.

A 36 inch diameter hole that is drilled into a coal seam 600 feet deep would contain about 22,600 tons of coal and rock. If 80% of that is recoverable coal, the operator would lose about 18,000 tons of metallurgical coal.

At today’s coal prices of about $56 per ton, the 18,000 ton loss would be worth just over a cool million.

And on top of that, coal operators spend millions developing mines.

A lot of planning goes into developing mines. Where to put mine entries, how to move equipment, water and air in and out of the underground workings and where to place belt lines must all be taken into consideration

It costs coal operators a minimum of $100,000 when a gas well causes a mine operator to reroute a belt line.

The gas industry claims that they have almost always been able to negotiate settlements between the two parties. But now that has all changed because of the increased in value for both resources.

Land companies often include language in leases stating that coal operators hold the dominant interest.

Cabot Oil & Gas, for example, signed leases with Pocahontas Land stating, “The mining and shipping of coal is of prime importance.” The coal reserves “under said lands are the dominant estate therein and … the oil and gas estates therein are made servient thereto.”

It’s a problem for both industries. Luckily there is a solution. That’s where coalbed methane companies, such as Storm Cat Energy and Torrent Energy, step in.

If you’ve been reading our sister letter, Wealth Daily, you already know that these companies simply suck the methane, the primary energy source in natural gas, off the coal.

With the ever increasing prices for coal and natural gas, land disputes will become costlier and more contentious than ever.

And coalbed methane companies, such as the two I just mentioned, stand to bring in a lot of profit from this problem.

It’s like Brian Hicks told me once, “Crisis equals opportunity”

The coal and natural gas industries have a symbiotic problem. Coalbed methane companies can help to solve their problems while at the same time making massive profits.

For more information on coalbed methane, visit the U.S. Geological Survey by clicking here.

– Luke Burgess

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