Update: Pennsylvania Supreme Court Holds that Reservation of Minerals Does not Include Marcellus Shale Natural Gas
By Dale A. Tice, Esq., Marshall, Parker & Weber
The Pennsylvania Supreme Court has issued a decision in Butler v. Powers Estate, 2013 Pa. Lexis 789, and the oil and gas lawyers in the Commonwealth have issued a collective sigh of relief.
This blog has previously discussed the Butler case; the earlier post may be viewed here. The question at issue was whether a reservation of minerals in a deed included Marcellus shale natural gas. This was a question that most lawyers practicing oil and gas or real estate law would have confidently answered in the negative based on an old rule of law in Pennsylvania, Dunham’s Rule.
Dunham’s Rule is based on a case from 1882, Dunham & Shortt v. Kirkpatrick, 101 Pa. 36 (Pa. 1882). The rule creates a rebuttable presumption that an exception and reservation of “minerals” without any specific mention of oil or gas was not intended by the parties to include oil and gas. A series of cases from the Pennsylvania Supreme Court have confirmed that Dunham’s Rule is a well-settled rule of property law in the state with many titles – and oil and gas leases – taken based on the presumption that a reservation of minerals does not include oil and gas.
The Superior Court Decision
When the Pennsylvania Superior Court issued an opinion in Butler v. Charles Powers Estate, 2011 PA Super 198 (Pa. Super. Ct. 2011) raising the possibility that Dunham’s Rule didn’t apply to Marcellus shale natural gas, the decision naturally garnered a great deal of attention. The appellants in the case argued that shale was a mineral and "whoever owns the shale, owns the gas," relying on U.S. Steel Corp. v. Hoge, 503 Pa. 140, 468 A.2d 1380 (1983) where the Pennsylvania Supreme Court held that the owner of coal also owns the coal-bed methane natural gas found in the coal. The Superior Court reversed and remanded the case, concluding that “the parties should have 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.”
The Pennsylvania Supreme Court Decision
The Superior Court decision was appealed to the Pennsylvania Supreme Court which granted allocatur, leading to the April 24, 2013 decision reversing the Superior Court. The opinion may be viewed here. The court reviewed at length the entire line of cases in which Dunham’s Rule evolved, and reaffirmed that the rule continues to be the law in Pennsylvania and applied to the instant appeal.
Of course, Dunham’s Rule creates a rebuttable presumption; the burden is on the party arguing that the reservation includes gas or oil to prove by clear and convincing evidence that it was the intent of the parties executing the deed to include gas or oil in the reservation. Regarding the rebuttable presumption, the court stated “Critically, however, such intention may only be shown through parol evidence that indicates the intent of the parties at the time the deed was executed (italics added) -- in this case, 1881.” Practically speaking, in cases involving old deeds where the parties have long since passed the presumption will be essentially impossible to rebut.
The court also distinguished Butler from the Hoge case, noting that the deed reservation at issue in Hoge concerned coal rights and the related right of ventilation of coalbed gas which was not commercially viable at the time. The court further stated that the Hoge court “inherently made a legal distinction between coalbed gas and natural gas, despite recognizing the chemical similarities between the two, by upholding the landowners’ right to drill through the coal seam to obtain natural gas.” The court concluded that Hoge did not apply to the appeal and there was no reason to remand the case for further fact finding.
Butler v. Powers Estate is one of the most important appellate decisions issued in the Commonwealth since the Marcellus natural gas boom began. This Commentator is pleased to see that the Pennsylvania Supreme Court has affirmed the continuing viability of Dunham’s Rule and has not seen fit to overturn one-hundred and thirty years of Pennsylvania property law.