Argue for the application of well-settled law.

Many observers have complained that the law is slow to change in the face of a rapidly changing world. But the static nature of the law can sometimes be a good thing — a source of stability — even in the context of rapid technological change.

The benefit of stability in the law in the face of rapid technological change in the Marcellus Shale industry is evident in a significant case now pending before the Pennsylvania Supreme Court. It raises an important issue regarding ownership of Marcellus Shale gas — Butler, et al. v. Charles Power Estate, et al., Pa. Supreme Court, Docket No., 27 MAP 2012.

In that case, prominent and respected industry groups, the Pennsylvania Independent Oil & Gas Association (PIOGA), and the American Petroleum Institute (API), among others, have recently filed amicus briefs in support of the position of the appellants/landowners and arguing in favor of the continued application of legal principles more than a century old.

The amicus brief of PIOGA and API asserts that the decision of the Superior Court in the case, which they contend departs from this settled law, has raised significant legal and practical concerns about the enforceability of tens of thousands of oil and gas property arrangements.

The parties in the Butler case are the Butlers, the owners of a 244-acre tract of land in Susquehanna County, and the heirs of Charles Powers. Charles Powers, now long since deceased, transferred the property in 1881 — that’s right, 1881 — under a deed that contained an exception reserving an interest in the “minerals” in the land to him and his heirs forever.

The dispute that arose between the Butlers and Powers’ heirs more than a century later centers on whether the 1881 deed’s reservation of “minerals” included Marcellus shale gas. In short, the question is whether the landowners or the owners of the retained right to “minerals” are the owners of the shale gas. The lower courts did not see eye-to-eye on this seemingly simple question, hence the Supreme Court’s involvement.

The trial court, the Susquehanna County Court of Common Pleas, sided with the landowners. That court concluded that the claim of ownership of the Marcellus Shale gas asserted by Powers’ heirs as owners of the “minerals” failed on its face, without any need to introduce evidence as the meaning of the term. The court sustained the landowners’ preliminary objections in the nature of a demurrer (Pennsylvania’s equivalent of a motion to dismiss) and dismissed the heirs’ claim with prejudice, before discovery or trial.

In reaching that result, the trial court relied principally upon a Pennsylvania Supreme Court decision from 1882 — that’s right, 1882 — in a case called Dunham v. Kirkpatrick, 101 Pa. 36 (1882), and a subsequent Pennsylvania Supreme Court decision, Highland v. Commonwealth, 400 Pa. 261, 161 A.2d 390 (1960), cert. denied, 364 U.S. 901 (1960), which reaffirmed the so-called the Dunham Rule. The trial court explained that the Dunham case held that a reservation in a deed of “all minerals” did not include petroleum oil, and that Highland, following Dunham, held that there is a presumption that the word “minerals” in a conveyance does not include natural gas. The trial court felt these cases were dispositive of the issue.

The disappointed heirs appealed to the Pennsylvania Superior Court. Siding with the heirs, at least for the time being, the Superior Court reversed and remanded for further proceedings. The Superior Court felt that Dunham and Highland were not dispositive, and made reference to yet another Supreme Court decision, U.S. Steel Corp. v. Hoge, 503 Pa. 140, 468 A.2d 1380 (1983).

As the Superior Court explained, Hoge involved a dispute between two parties who owned distinct mineral rights on the same land. The dispute focused on whether the owner of the specific vein of coal, or the owner of oil and gas rights in the surrounding substrata, was entitled to recover and develop coal bed gas located within the coal vein.

Quoting from the Supreme Court’s Hoge decision, the Superior Court noted the general rule that subterranean gas is owned by whoever has title to the property in which the gas is resting, as well as the Hoge Court’s ruling in favor of the owner of the coal with respect to the ownership of the coal bed gas (methane) in the coal: “such gas as is present in coal must necessarily belong to the owner of the coal.” Butler v. Charles Powers Estate, 2011 Pa. Super 198, 29 A.3d 35, 42 (2011) (quoting Hoge, 400 Pa. at 147, 468 A.2d at 1383).

In apparent reliance upon Hoge (the opinion really isn’t explicit on the point), the Superior Court in Butler held that “the Dunham and Highland decisions do not end the analysis, absent a more sufficient understanding of whether, inter alia, (1) Marcellus Shale constitutes a ‘mineral;’ (2) Marcellus Shale constitutes the kind of conventional gas contemplated in Dunham and Highland; (3) Marcellus Shale is similar to coal to the extent that whoever owns the shale, owns the shale gas.” 2011 Pa. Super. ___, 29 A.3d at 43.

On the record before it, the Superior Court found itself unable to say with certainty that the heirs had no cognizable claim. In remanding, the Superior Court said that the parties should have an opportunity to obtain appropriate experts on whether Marcellus Shale constitutes a type of mineral such that gas in it falls within the deed’s reservation.

The losers in the Superior Court, the landowners, had no immediate right to review in the Supreme Court, because the Superior Court’s decision did not finally resolve the case. The landowners, however, sought discretionary review by the Supreme Court, filing a petition for allowance of appeal.

In an apparent indication of the importance of the matter presented, the Supreme Court granted the petition and stated the issue for its review as follows: “In interpreting a deed reservation for ‘minerals’ whether the Superior Court erred in remanding the case for the introduction of scientific and historic evidence about the Marcellus shale and the natural gas contained therein, despite the fact that the Supreme Court of Pennsylvania has held (1) a rebuttable presumption exists that parties intend the term ‘minerals’ to include only metallic substances, and (2) only the parties intent can rebut the parties’ intention to include non-metallic substances.” Butler v. Charles Powers Estate, 41 A.3d 854 (April 3, 2012).

The concept of what constitutes a mineral has been consistently defined in dictionaries for years to include two characteristics that are not presented by natural gas, regardless of its location within geological structures. A mineral must be: (1) a solid homogeneous crystalline substance and (2) not of animal or vegetable origin.

Moreover, PIOGA’s and API’s amicus brief makes it clear that further obfuscation or indecision by the courts to defeat a time-honored precedent would be harmful: “The issues before this Court are of critical importance to PIOGA and API — and to the continued improvement of the Commonwealth’s economy.

The decision under review, which contradicts long-standing Supreme Court precedent, threatens the integrity of tens of thousands of property interest arrangements negotiated and executed over more than 100 years. To eliminate this unwarranted uncertainty created by the Superior Court’s decision, and to restore predictability in the rule of law in this Commonwealth, the question to be decided must be answered, ’YES’.”

With the appellants’ brief and the amicus briefs in support of the appellants having now been filed, the appellee’s brief is due later this summer. We will continue to follow and report on this important case and the industry’s efforts to address it, as well as other legal issues important to the responsible development of the Marcellus Shale gas industry in the Commonwealth.