P. 3 ~ Continued - Pennsylvania court raises questions about Marcellus shale gas ownership
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The Powers heirs argued that these cases were not controlling for a number of reasons.
First, the Butlers' deed was drafted and recorded in 1881, before the Pennsylvania Supreme Court's landmark decision in Dunham in 1882. Butler, 2011 WL 3906897, at *4. The Powers heirs contended that prior to the Dunham decision, the ordinary meaning of the term "minerals" included natural gas. Id.
Moreover, the Powers heirs argued that the Dunham and Highland cases involved "conventional gas," in which reservoirs contain "free flowing wild gas," whereas Marcellus shale gas is unconventional gas, which requires different recovery techniques from those used to recover conventional gas (i.e., recovery of unconventional gas requires hydrofracturing). Id.
The Powers heirs further argued that, although the reservation language did not specifically include natural gas, the reservation of "minerals" included the shale and that "whoever owns the shale, owns the gas." Id. To support this argument, the Powers heirs relied on U.S. Steel Corp. vs. Hoge, 468 A.2d 1380, 1382-85 (Pa. 1983), in which the Pennsylvania Supreme Court addressed the issue of ownership of and right to develop coalbed gas.
In Hoge, the coal severance deed conveyed ownership of "[a]ll the coal of the Pittsburgh or River Vein underlying all that certain tract of land...[t]ogether with all the rights and privileges necessary and useful in the mining and removing of said coal, including the right of mining without leaving any support..., the right of ventilation and drainage and of access to the mines for men and materials...." 468 A.2d at 1382. The deed reserved for the surface owners "the right to drill and operate through said coal for oil and gas." Id.
The owner of the reserved oil and gas rights began drilling wells for the purpose of recovering coalbed gas from the coal seam. Id. Upon learning of the gas lessee's intention to stimulate recovery of coalbed gas through hydrofracturing, the owner of the coal seam sued to terminate the drilling operations and determine ownership of and right to develop the coalbed gas. Id. The trial court entered a decree permitting the drilling but prohibiting the hydrofracturing, and the intermediate court of appeals affirmed. Id.
The Supreme Court agreed, holding that the reservation's language demonstrated the parties' intent to reserve only oil and gas in a strata deeper than the coal. Id. at 1384-85. In other words, the gas present in the coal belonged to the owner of the coal and the gas not contained in the coal belonged to the owner of the reserved oil and gas rights. In Butler, the Powers heirs argued that because they own the shale under the reservation of "minerals," they own the shale gas, just as the owners of the coal in Hoge owned the coalbed gas.
The Butler court ultimately decided that, "at this point in the proceedings[,]" it could not affirm the trial court's decision to dismiss the Powers heirs' claim that the reservation of "minerals and petroleum oils" included Marcellus shale gas.
The court stated that to decide the issue, the court would need a more sufficient understanding of whether, among other things, "(1) Marcellus shale constitutes a 'mineral'; (2) Marcellus shale gas constitutes the type of conventional natural gas contemplated in Dunham and Highland; and (3) Marcellus shale is similar to coal to the extent that whoever owns the shale, owns the shale gas." Butler, 2011 WL 3906897, at *7.
The court noted that "Pennsylvania has yet to determine whether shale is analogous to coal in this context, but at least one other jurisdiction has found similarities in this context." Butler, 2011 WL 3906897, at *8 n.2 (citing Cimarron Oil Corp. vs. Howard Energy Corp., 909 N.E. 2d 1115 (Ind. App. 2009)). Therefore, the court concluded that the parties should be given "the opportunity to obtain appropriate experts on whether Marcellus shale constitutes a type of mineral such that the gas in it falls within the deed's reservation." Id. at *7.
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