By Leigh Lyons, Esquire
A recent ruling in Pennsylvania in the Butler v. Powers Estatecase has made quite a wave in local communities by casting doubt on the 100 year old “Dunham rule” in regards to ownership of mineral rights, and in this particular
case, ownership rights to the Marcellus Shale. The ruling, if it stands through remand and the appeals process, could mean a hefty pay day for mineral owners, and a lot of litigation for their counterparts who have previously believed that they are the rightful owners to the prosperity associated with ownership rights to
the Marcellus Shale.
The“Dunham rule” basically holds that a conveyance of “mineral rights” in a deed or other instrument does not include “oil and gas rights,” unless there is specific language in the conveyance that the parties intended to use the word
“mineral rights” in a way that differs from the standard rule. In this light, the parties must be very specific in their use of “mineral rights,” or else the presumption will be that the wording “mineral rights” does not include “oil and gas rights.”
The “Dunham rule” is a minority among courts across the country though, and Pennsylvania is only one of two states that follow the minority rule. In the 130 some years that Pennsylvania courts have followed the “Dunham rule,” the
courts have only made a few notable exceptions that varied from this age old rule.
In U.S. Steel v. Hoge, the Pennsylvania Supreme Court held that coalbed methane is owned by the owner of the coal and not the owner of the gas rights. The court decided that “subterranean gas is owned by whoever has title to the property in which the gas is resting,” citing the facts that coalbed gas is seen as a waste product from coal
production, that unconventional methods are used to extract the gas, and also that the actual extraction of the gas would have major effects on the underlying coal. The decision in Hogeturned, in part, on coal’s lengthy history as a mineral that is extracted in Pennsylvania, which differs immensely from the relatively short history that Marcellus Shale has here in the state.
The potentially revolutionary case that has brought about all this discussion is Butlerv. Powers Estate. Here’s
the summary: the Butlers’ owned the property surface and also a portion of the subsurface rights in question, while the heirs of Charles Powers (Powers Estate) owned a one-half interest in the minerals and petroleum oil underlying the same
property. The Powers Estate claimed that their mineral interest should include a one-half interest in the
Marcellus Shale that is below the property. If the trial court were to follow Hoge, then the Powers Estate would
be entitled to the Marcellus Shale and the gas it contains which is released by a process called fracking.
However, the trial court weren’t convinced by the Powers Estate’s argument, and instead relied on the “Dunham rule,” where the use of “mineral rights” would not include “oil and gas rights.” The Superior Court, on the other hand,
reversed the decision of the trial court because they questioned whether ownership of the Marcellus Shale gas should follow the “Dunham rule,” as the trial court had decided, or if it should follow the Hoge decision that if the gas comes
from the fracking of the Marcellus Shale, then it could be considered gas that was trapped inside of a mineral formation. The Superior Court remanded the case with instructions for the trial court to explore these issues more completely.
For right now, Pennsylvania property owners, including the separate owners of minerals and of oil and gas rights, and the drilling companies, are left hanging, awaiting the possibility of what is to come after the Butler v. Powers Estate case is eventually decided, which may, and probably will, take many years. There are pros and cons to the arguments of each side waging this battle for rights to the coveted Marcellus Shale. The Butlerside has the deep-rooted “Dunham
rule” in their favor, which purports that mineral rights do not include oil and gas rights unless specifically stated.
Conversely, the Powers side has the fact that the process of fracking, which releases gas trapped in the
shale, in their favor, because in Hoge, when the coalbed methane was released, the owner of the methane was determined to be the same owner of the actual coal. The question really comes down to whether the court will allow the
Hogeruling, involving coalbed methane coming from the coal, to extend to the gas coming from the Marcellus Shale. This question arises in an unparalleled time of prosperity from natural resources in the Commonwealth of Pennsylvania due to the Marcellus Shale drilling. However, until a final decision is made, the gas companies and all potential owners of
the gas from the Marcellus Shale are left waiting on a ruling that could mean the difference of millions of dollars either gained… or lost.
A recent ruling in Pennsylvania in the Butler v. Powers Estatecase has made quite a wave in local communities by casting doubt on the 100 year old “Dunham rule” in regards to ownership of mineral rights, and in this particular
case, ownership rights to the Marcellus Shale. The ruling, if it stands through remand and the appeals process, could mean a hefty pay day for mineral owners, and a lot of litigation for their counterparts who have previously believed that they are the rightful owners to the prosperity associated with ownership rights to
the Marcellus Shale.
The“Dunham rule” basically holds that a conveyance of “mineral rights” in a deed or other instrument does not include “oil and gas rights,” unless there is specific language in the conveyance that the parties intended to use the word
“mineral rights” in a way that differs from the standard rule. In this light, the parties must be very specific in their use of “mineral rights,” or else the presumption will be that the wording “mineral rights” does not include “oil and gas rights.”
The “Dunham rule” is a minority among courts across the country though, and Pennsylvania is only one of two states that follow the minority rule. In the 130 some years that Pennsylvania courts have followed the “Dunham rule,” the
courts have only made a few notable exceptions that varied from this age old rule.
In U.S. Steel v. Hoge, the Pennsylvania Supreme Court held that coalbed methane is owned by the owner of the coal and not the owner of the gas rights. The court decided that “subterranean gas is owned by whoever has title to the property in which the gas is resting,” citing the facts that coalbed gas is seen as a waste product from coal
production, that unconventional methods are used to extract the gas, and also that the actual extraction of the gas would have major effects on the underlying coal. The decision in Hogeturned, in part, on coal’s lengthy history as a mineral that is extracted in Pennsylvania, which differs immensely from the relatively short history that Marcellus Shale has here in the state.
The potentially revolutionary case that has brought about all this discussion is Butlerv. Powers Estate. Here’s
the summary: the Butlers’ owned the property surface and also a portion of the subsurface rights in question, while the heirs of Charles Powers (Powers Estate) owned a one-half interest in the minerals and petroleum oil underlying the same
property. The Powers Estate claimed that their mineral interest should include a one-half interest in the
Marcellus Shale that is below the property. If the trial court were to follow Hoge, then the Powers Estate would
be entitled to the Marcellus Shale and the gas it contains which is released by a process called fracking.
However, the trial court weren’t convinced by the Powers Estate’s argument, and instead relied on the “Dunham rule,” where the use of “mineral rights” would not include “oil and gas rights.” The Superior Court, on the other hand,
reversed the decision of the trial court because they questioned whether ownership of the Marcellus Shale gas should follow the “Dunham rule,” as the trial court had decided, or if it should follow the Hoge decision that if the gas comes
from the fracking of the Marcellus Shale, then it could be considered gas that was trapped inside of a mineral formation. The Superior Court remanded the case with instructions for the trial court to explore these issues more completely.
For right now, Pennsylvania property owners, including the separate owners of minerals and of oil and gas rights, and the drilling companies, are left hanging, awaiting the possibility of what is to come after the Butler v. Powers Estate case is eventually decided, which may, and probably will, take many years. There are pros and cons to the arguments of each side waging this battle for rights to the coveted Marcellus Shale. The Butlerside has the deep-rooted “Dunham
rule” in their favor, which purports that mineral rights do not include oil and gas rights unless specifically stated.
Conversely, the Powers side has the fact that the process of fracking, which releases gas trapped in the
shale, in their favor, because in Hoge, when the coalbed methane was released, the owner of the methane was determined to be the same owner of the actual coal. The question really comes down to whether the court will allow the
Hogeruling, involving coalbed methane coming from the coal, to extend to the gas coming from the Marcellus Shale. This question arises in an unparalleled time of prosperity from natural resources in the Commonwealth of Pennsylvania due to the Marcellus Shale drilling. However, until a final decision is made, the gas companies and all potential owners of
the gas from the Marcellus Shale are left waiting on a ruling that could mean the difference of millions of dollars either gained… or lost.
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