Pennsylvania court raises questions about Marcellus shale gas ownership

Mark Robeck
Jeff McNabb
Baker Botts
Houston

A recent decision by a Pennsylvania appellate court garnering much attention has raised questions concerning the ownership rights to natural gas in the Marcellus shale formation. On Sept. 7, 2011, the Superior Court of Pennsylvania, an intermediate court of appeals, reversed and remanded an order entered by the Court of Common Pleas of Susquehanna County. Butler vs. Charles Powers Estate, No. 1795 MDA 2010, --- A.3d ----, 2011 WL 3906897 (Pa. Super. Ct. Sept. 7, 2011). This article summarizes and analyzes the Butler court's decision.

Factual and procedural background

John E. Butler and Mary Butler are the owners in fee simple of a tract of land in Pennsylvania. The Butlers' deed to the land, recorded in 1881, contains an exception reserving "one-half the minerals and petroleum oils to...Charles Powers [and] his heirs and assigns...."

The Butlers filed a lawsuit to quiet title against the heirs of Charles Powers (the "Powers heirs") alleging that the Butlers owned the land in fee simple and also owned all minerals and petroleum oils based on adverse possession.

The Powers heirs filed a counterclaim for a declaratory judgment alleging that the reservation of rights in the deed's exception included Marcellus shale gas.

The Butlers filed a demurrer (or motion to dismiss) challenging the Powers heirs' declaratory judgment counterclaim, arguing in relevant part that the deed's reservation of "minerals and petroleum oils" did not include natural gas and therefore did not include the Marcellus shale gas.

The trial court's ruling

The Pennsylvania Court of Common Pleas granted the Butlers' demurrer and dismissed the Powers heirs' claim seeking a declaratory judgment that the deed's reservation of "minerals" included shale gas.

The trial court reasoned that "[t]he Pennsylvania Supreme Court has held in a long line of cases that gas is distinct from minerals and petroleum oil" Butler vs. Charles Powers Estate, No. 2009-1141 CP, at 5 (Pa. Ct. Common Pleas Jan. 28, 2010). The trial court explained that, under Pennsylvania law, a reservation of minerals, without any specific mention of natural gas or oil, gives rise to a rebuttable presumption that the term "minerals" was not intended to include natural gas or oil. Id.

Because the reservation in the Butlers' deed reserved "minerals and petroleum oils," but did not specifically mention natural gas, the court held that natural gas had not been reserved or excepted from the deed. Id. Therefore, the trial court dismissed the Powers heirs' claim for a declaratory judgment that the reservation included Marcellus shale gas.

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