Court Decision to Resolve Shale Ownership Issue Expected Later This Year

The Pennsylvania Supreme Court will hear a case this year that has called into question the long-held presumption in Pennsylvania law that a conveyance of minerals does not include oil and gas, unless specifically stated.

The Pennsylvania Supreme Court on April 3 granted an appeal in the Butler v. Powers estate case. Pittsburgh-based law firm Reed Smith's Marcellus Shale team fully expects the Supreme Court to reverse the superior court decision and stick by the precedent, known as the Dunham rule, which has governed conveyances for the last 100 years.

"If not, thousands of lease- and deed-holders could be stripped of their rights to drill for shale gas," Reed Smith said in a statement.

The Dunham Rule dates back to an 1882 Pennsylvania court ruling which holds that the grant or reservation of minerals in a deed does not generally mean that the parties intended to grant or serve the oil and gas within a deed.

"You have to use the specific words oil and gas if you intend to include oil and gas," said Michael Joy, shale gas attorney and geologist with Reed Smith.

The plaintiffs in the Butler v. Powers case have argued that, while they understood the Dunham rule, they assert that the rule does not apply to the Marcellus shale gas unconventional resource, saying that shale gas should be treated as coal was treated in the case Hogue v. U.S. Steel.

Under Hogue, the owner of coal seam gas also has the right to produce coalbed methane gas. In this case, the owner of the shale would also own the right to produce the gas.

"If this was upheld, you would have circumstances in which oil and gas is conveyed to one party and minerals to another," said Joy. "It would be bizarre if you had a conveyance that specifically says oil and gas but a court order that said shale gas would be an exception."

The case began in 2009, when John and Mary Butler filed a title complaint on a land deal dating from 1881 for property in Susquehanna County, Pa. The property deed allotted half the reserves to Charles Powers and his heirs. The Butlers argued that all the gas should belong to the property, since it was not listed among the rights.

While the lower court decided in favor of the Butlers, the Superior Court ordered the lower court to reconsider its decision and not use the Dunham rule as a deciding factor.

Last September, the Pennsylvania Superior Court remanded the case back to the lower court to clarify the issue of whether ownership of gas contained in the Marcellus shale should be separated from rights for conventional gas.

In the meantime, the uncertainty of ownership of Marcellus shale gas rights has created additional headaches for operators dealing with severed mineral estates, forcing them to look back at records from the 1800s.

The uncertainty has impacted business development decisions and drilling decisions, said Joy.


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