Title to Oil and Gas in PA Threatened

In 1882, the Supreme Court of Pennsylvania pronounced what would be known as the Rule in Dunham’s Case. In Dunham and Shortt v. Kirkpatrick, the Pennsylvania Supreme Court held that a grant or reservation of "all minerals" does not include oil or gas, despite the fact that oil and gas are minerals. The Rule in Dunham’s Case has been affirmed and arguably expanded over time, but, according to many, a case out of Susquehanna County, Pennsylvania, may threaten the Rule in Dunham’s Case and, therefore, title to oil and gas under deed reservations, mineral deeds and oil and gas leases based on the rule.

The Rule in Dunham’s Case holds that a grant or reservation of "all minerals," without more, raises a rebuttable presumption that the parties to the deed did not intend to include oil and gas in the grant or reservation. The presumption may be rebutted only by evidence showing that the parties intended oil and gas to be included in the grant or reservation.

In Butler v. Charles Powers Estate, 29 A.3d 35 (Pa. Super. 2011), an 1881 deed from the Estate of Charles Powers reserved "one half the minerals and petroleum oils." Under the Rule in Dunham’s Case, such a reservation would be presumed to exclude natural gas. Butler v. Charles Powers Estate raises two important issues:

  1. Is Marcellus Shale a mineral and, as a result, within the mineral reservation in the 1881 deed?
  2. Assuming Marcellus Shale is a mineral, should the gas trapped in the shale be treated like coalbed methane in Pennsylvania?

In Pennsylvania, the owner of the coal owns the coalbed methane embedded within the coal. See, U.S. Steel Corporation v. Hoge, 468 A.2d 1380 (Pa. 1983). The heirs of the Charles Powers Estate argued that Marcellus Shale is like coal in that the natural gas contained within the Marcellus Shale is owned by the owner of the shale because, in part, both can only be extracted while both substances are in the ground by hydrofracturing. On this latter point, the heirs of Charles Powers Estate are mistaken. Coalbed methane is extracted by any one of three methods: hydrofracturing; longwall gob (drilling small diameter boreholes used in longwall mining and siphoning off the gas); and, driving horizontal radial holes from a vertical shaft into the coal to siphon off the gas.1

The case is likely to turn on whether the gas in the Marcellus Shale is treated the same as coalbed methane in coal deposits. In this respect, the heirs of Charles Powers Estate may fail. Marcellus Shale is unlike coal in many respects. Coal is a valuable commodity that fuels much of the world’s electricity needs and, as a result, coal is mined at great risk and expense. Marcellus Shale has no distinct commodity value. It is a mere vessel for the gas trapped in the shale. Coalbed methane is a dangerous byproduct of coal mining and has long been vented during the mining process to reduce the risk of explosions and, therefore, ensure miner safety. The Marcellus Shale is not mined or extracted for any purpose.

The case has yet to be heard or decided on the merits. Most recently, the Pennsylvania Supreme Court granted Butler’s petition for allowance of appeal to consider one narrow issue - whether the Superior Court erred in ordering that scientific and historic evidence about the Marcellus Shale and the gas contained therein, despite the fact that the Pennsylvania Supreme Court has held, in Dunham’s case and its progeny, that only the parties’ intent can rebut the presumption. If the heirs of Charles Powers Estate prevail, thousands of oil and gas titles, and the oil and gas leases based on those titles, will be subject to attack and more than 100 years of case law will be discarded.