The Pennsylvania Superior Court recently created uncertainty for the burgeoning Marcellus Shale industry in Pennsylvania when it held that whether the Dunham Rule applies to Marcellus Shale gas is an open question. Pennsylvania has long followed a presumption, known as the Dunham Rule, that when a reservation or exception for "minerals" does not mention natural gas or oil, there is a rebuttable presumption that the word "minerals" does not include natural gas or oil.
The Butler Case
In Butler v. Powers, No. 1795 MDA 2010 (Pa. Super. Ct. Sept. 7, 2011), the trial court found that a reservation in a deed that reserved "one half the minerals and Petroleum Oils" did not include Marcellus Shale gas based on the application of the Dunham Rule. The Superior Court disagreed and held that it is not clear whether the Dunham Rule applies to Marcellus Shale gas. The Superior Court did not decide whether the Dunham Rule applies but instead remanded the case to the trial court for a determination of (1) whether Marcellus Shale constitutes a "mineral"; (2) whether Marcellus Shale gas constitutes the type of conventional natural gas contemplated by the Dunham Rule line of cases; and (3) whether Marcellus Shale is similar to coal as to which the Pennsylvania Supreme Court has determined that whoever owns the coal owns the coal bed methane gas contained therein, in which case it would logically follow that whoever owns the Marcellus Shale owns the shale gas.
What Does This Mean?
Depending on the ultimate outcome of Butler, which will go back to the trial court in Susquehanna County, and then potentially on appeal to the Pennsylvania Superior and Supreme Courts, landowners who did not believe that their "mineral" reservation included Marcellus Shale gas may find that they own more than they anticipated. Potentially more troubling is the fact that although the dispute between the parties in Butler does not directly involve a deed that explicitly conveys or reserves natural gas rights (since the deed in question used only the terms "minerals" and "petroleum oils,"), the outcome of the case could establish precedent regarding whether a conveyance or lease of oil and gas rights, reserving all other minerals, reserves the unconventional gas trapped in the Marcellus Shale to the mineral title holder.
We will continue to monitor this case and provide updates as it develops.