Unfortunately for landowners in rural parts of those counties, the rights to those potential riches belong to the Northeast Alabama Gas District.
Natural gas looked like a surefire investment in east Alabama two years ago. Methods of pulling gas out of the complex Conasauga Shale formation were developing and prices were at the highest ever recorded, according to the Energy Information Association.
Things were going so well in the natural gas business that a man named E.D. Phillips invited the 77-year-old mayor of Talladega Springs to his rented home in Cherokee County to tell the mayor how his town could get a piece of the gas money.
“He’s a pretty smart man, he knows how to conduct a meeting,” said Frank Mitchell, mayor of Talladega Springs, population 123.
Prices peaked that July at $11.32 per thousand cubic feet — the natural gas equivalent of a barrel of oil — and it seemed like an easy way for a small town with limited resources to make a little extra money.
But it takes at least two municipalities to form a gas district; such districts are supposed to deliver expensive natural gas to rural populations at a reasonable price.
So Phillips brought in the small town of Edwardsville and formed the Northeast Alabama Gas District. Phillips was also involved in Edwardsville forming two improvement districts that gave the town control over the development of 75 percent of the county. The town has since ceded control.
Formed in the summer of 2008, the gas district covers all unincorporated land in Calhoun, Cleburne and Talladega counties — all of which lie along the Conasauga Shale formation. The articles of incorporation outline a sort of profit-sharing agreement between the two towns and a managing board of E.D. Phillips, L.W. Toole and James Henderson.
Talladega Springs was granted as a gift 1 percent interest in land and mineral rights and an annual $2,500 payment for each producing well on land in an improvement district formed by the articles of incorporation.
No wells were drilled in the gas district, and probably won’t be any time soon, because a cost-effective method of pulling gas out of the rock wasn’t developed before gas prices dipped below $4 early in 2009.
Fracturing Fails
Shale gas differs from conventional natural gas because it’s trapped inside the rock, not in pockets formed by the rocks. The shale gas is captured through a process called hydraulic fracturing, where a pressurized mix of water and chemicals is used to break up gas-bearing rock.
The Conasauga Shale formation is the geologically oldest gas field in the world and one of the most structurally complex, research by the Geological Survey of Alabama found. But because of the Conasauga rock formation’s age and the amount of gas believed to be trapped inside the rock, a gas company took a chance and created the Big Canoe Creek field in St. Clair County, where the Appalachian Mountains pushed the rock to the surface, making it easier to drill gas-bearing reservoir rock, said Dave Bolin, deputy director of the state Oil and Gas Board.
Dominion Black Warrior Basin, the company working the Big Canoe Creek field, was making about $50,000 each month from roughly 30 wells when gas prices were highest. The distant promise of huge profits fell with gas prices in early 2009, however, and the company began scaling down its multi-million-dollar investment before it found the right combination of hydraulic fracturing fluid and drilling depths, Bolin said.
By late 2009, the company had plugged most of its wells, according to oil and gas board filings.
“I don’t remember what the volumes were, but it got down less than 100 or 50 cubic feet per day,” said Ken Hardy, who served as a consultant at the Big Canoe Creek field.
Had the company found the right combination, it could have triggered speculation throughout the Conasauga Shale formation — much of which lies in the Northeast Alabama Gas District.
A Questionable Gift
According to the articles of incorporation, Talladega Springs would have been paid at least $1,250 for each producing well and supposedly holds 1 percent interest in the land and mineral rights of all unincorporated land in the gas district.
A municipality is able to accept interest on land outside its boundaries if the interest is a gift, under Alabama law.
And the Northeast Alabama Gas District gave the interest to Talladega Springs as a gift. The only hitch is people living on the land typically have land and mineral rights tied to their deeds. Unless Phillips held mineral rights on all unincorporated land across the three counties in the gas district, that gift might be illegal.
“A gas district granting itself mineral rights would absolutely be subject to challenge by the affected landowners at a minimum as a taking,” said Tom Warburton, partner with Birmingham law firm Bradley Arant Boult Cummings.
It’s not Phillips’ first foray into the gray area of the law surrounding the formation of districts.
He set up two improvement districts in Cleburne County, through Edwardsville, which resulted in the town planning commission — which Phillips controlled — being directly responsible for the development of 75 percent of county land. The planning commission has since been dissolved, but the improvement districts remain.
Phillips also attempted to create an improvement district in Cherokee County, but was turned down after the county had a lawyer look into the proposed deal.
An improvement district was also formed for Talladega Springs by the Northeast Alabama Gas District. No boundaries were outlined for Talladega Springs’ improvement district mentioned in the founding documents.
But if Phillips was somehow able to legally gift 1 percent of land and mineral rights to Talladega Springs — the town’s mayor had a lawyer review the district’s founding documents — who holds the other 99 percent? It’s unclear, because the gas district’s board of directors have not met, as far as the two mayors on the board know. The other board members are three managing directors, Phillips, Toole and Henderson.
“Pretty much when the bottom fell out of the gas market, I think that put an end to that,” said Billy Joe Driggers, Edwardsville mayor. “I’m not sure exactly what [the managing directors are] doing.”
Mayor Mitchell used to get monthly phone calls from Phillips updating him on what the gas district was doing, but declined to say when they last spoke and what specifically was discussed.
“I’m not sure whether there’s been any meetings or not. I haven’t attended any… I’ve conversed with only one person, and that’s Mr. Phillips,” Mitchell said. “We’ve not discussed any areas of the state, just Talladega Springs.”
Attempts to reach Phillips the past two months have been unsuccessful.
It seems as though the district has innocuously faded away, but gas companies are developing shale reserves across the country and there were a lot of people interested in the Conasauga Shale gas reserves, said Hardy, the consultant at the Big Canoe Creek field.
“Who knows when someone will come back and start trying to develop again?” he said.
