P. 4 ~ Continued - Pennsylvania court raises questions about Marcellus shale gas ownership
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Analysis and conclusion
The appellate court's decision in Butler must be viewed through the lens of the procedural stage at which the court ruled. In reviewing the trial court's grant of a demurrer, the appellate court concluded that it could not say with certainty at this early stage of the proceedings that the Powers heirs have no cognizable claim, accepting as true the facts alleged in their request for a declaratory judgment. Butler, 2011 WL 3906897, at *3, 7 ("On this record, we are unable to say with certainty that Appellants have no cognizable claim based on the facts averred.").
The court suggested the possibility that shale and shale gas may be comparable to coal and coalbed gas, in which case the ruling from Hoge may apply—i.e., a reservation of a mineral that contains gas may also constitute a reservation of the gas contained in the mineral.
But the court did not take any position on either the applicability of the Hoge holding or the ultimate resolution of the question of whether the reservation of "minerals and petroleum oils" in the Butlers' deed somehow includes a reservation of natural gas. Instead, the court has merely allowed the parties to submit evidence from experts into the record.
The Butlers have filed a petition for review with the Pennsylvania Supreme Court. If the Supreme Court does not grant the petition, the case will proceed in the trial court, and the Butlers may argue on remand that the reservation of "minerals" did not include shale gas for a number of reasons.
First, the Butlers may argue that when the reservation was recorded in 1881, the term "minerals" was not understood to include shale, which was not extracted for any commercial or other purpose at the time. Therefore, no clear and convincing evidence exists to establish that the parties intended the reservation of minerals to include shale or shale gas. Indeed, for the same reason, it seems unlikely that shale would be considered a "mineral" as that term is commonly understood today.
Second, the Butlers' deed specifically reserved "petroleum oils" but not natural gas. Thus, the parties clearly demonstrated an understanding of the distinction between certain natural resources and "minerals." The fact that the deed's reservation includes petroleum oils but omits natural gas suggests that the parties intended to include oil but exclude natural gas. Under Dunham and its progeny, a reservation of oil does not constitute a reservation of natural gas; natural gas must be separately and expressly reserved.
Third, Hoge is distinguishable. The conveyance in Hoge expressly included coal in a specifically named vein, as opposed to a generic reservation of unspecified "minerals." The specificity of the coal conveyance helped to justify the Hoge court's conclusion that owner of the coal owns the coal gas.
Moreover, the conveyance of coal rights in Hoge was accompanied by the right to ventilate the coal, which supported an intent to reserve rights to gas contained within the coal. Conversely, the owners of the rights to the natural gas in Hoge had a right to drill only "through" the coal seam, not "into and through" the coal seam, suggesting that their rights did not extend to gas in the coal seam. The deed at issue in Butler contains none of these distinguishing features, but rather expressly reserves petroleum oils and minerals without any mention of natural gas.
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