On September 7, 2011, an intermediate appellate court of Pennsylvania (Superior Court) issued an opinion in Butler v. Powers regarding the meaning of a deed from 1881 that questioned traditional views in Pennsylvania of how ownership of shale gas is determined in that state. In Butler, this issue arises out of a dispute over the meaning of the term "minerals" in a reservation carved out of plaintiff appellees' deed to 244 acres of land in Apolacon Township, Pennsylvania. The reservation states that half of "the minerals and Petroleum Oils" underlying the land belong to Charles Powers and his heirs. Under the Dunham Rule, a deed or instrument reserving or conveying "minerals" without any reference to oil or gas creates a rebuttable presumption that the grantor did not intend for "minerals" to include oil or gas. The Superior Court reviewed the trial court's ruling that "the...reservation in the chain of title to the surface land currently owned by appellees did not include a reservation of one half of such unconventional Marcellus shale gas as might be found under the land[.]" The trial court relied on the Dunham Rule to determine that Pennsylvania law required natural gas rights to be explicitly reserved. The Superior Court was asked to determine whether appellants had a cognizable claim that shale gas was included in the "minerals and Petroleum Oils" language in the deed.
On appeal, appellants urged the court to treat gas contained in Marcellus shale in the same manner that Pennsylvania courts have treated gas contained in coal in terms of determining ownership. In so doing, the appellants cited to U.S. Steel Corp. v. Hoge, in which the Pennsylvania Supreme Court held that whatever gas is present in coal belongs to the owner of the coal. Under such an approach, any failure to expressly reserve gas under the Dunham Rule would be immaterial to the extent that the language in the deed is sufficient to create ownership of the shale containing the gas at issue.
Stating that it disagreed with the trial court's decision at this point, the Superior Court noted that the Dunham Rule did not necessarily end the analysis of the ownership of the Marcellus Shale gas without a more sufficient understanding of the issues, including whether: "(1) Marcellus shale constitutes a 'mineral'; (2) Marcellus shale gas constitutes the type of conventional natural gas contemplated in Dunham ... ; and (3) whether Marcellus shale is similar to coal to the extent that whoever owns the shale, owns the shale gas." The Superior Court remanded the case to the trial court to permit the appellants to attempt to establish Marcellus shale gas as an unconventional gas that defies categorization as a natural gas. For now, it is clear only that the Superior Court is willing to entertain arguments that the Dunham rule may not apply to shale gas in Pennsylvania. Until this question is resolved more clearly, either by appellate courts in Pennsylvania or the legislature, this decision may create some confusion with respect to the longheld view of the ownership of the Marcellus shale gas in Pennsylvania and may give rise to further litigation on the issue.
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