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Marcellus Shale case appealed to Pa. Supreme Court could create 'chaos' by questioning ownership of gas rights

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By DONALD GILLILAND, The Patriot-News

A court case that many believe has the potential to upend 100 years of case law and God knows how many Marcellus gas leases in Pennsylvania hinges on what the everyday definition of “minerals” was in 1836.

Attorneys at Buchanan Ingersoll & Rooney who appealed the case to the Supreme Court on Friday say they simply want the high court to reaffirm what's been “bedrock” property law for more 100 years.

The case involves John and Mary Butler, owners of 244 acres in Susquehanna County, and the heirs of Charles Powers, who in 1881 was granted “one-half the minerals and Petroleum Oils” under the property.

Powers's heirs argue that they are entitled to half the Marcellus gas under the property as well.

Susquehanna County President Judge Kenneth Seamans ruled against that claim in January 2010, citing what's known as the “Dunham Rule” - a Supreme Court ruling that has stood since 1882 that a conveyance of “minerals” in a deed does not include oil and gas unless specifically stated. The Powers deed makes no mention of gas.

Powers's heirs appealed that decision to the Superior Court, arguing that the Dunham Rule should not apply, but rather a 1983 ruling that found U.S. Steel owned the natural gas contained in the coal it owned – not the property owner who had retained the right to drill through the coal for oil and gas.

As the attorney for the heirs put it to the Superior Court: “Whoever owns the shale, owns the gas.”

The Superior Court said there wasn't enough evidence to decide, and last month remanded the case back to the county court to hear scientific testimony on whether or not Marcellus shale constitutes a “mineral” and whether or not shale is analogous to the coal in the U.S. Steel case.

That prompted Bloomberg News to report “potential chaos” in the Marcellus industry, with the ruling “putting in doubt the legitimacy of thousands of drilling leases.”

Attorneys at Buchanan Ingersoll & Rooney, one of the leading gas industry firms in the state, said the reporting was overblown, that the ruling didn't do anything but send the case back for more testimony and that ultimately, settled law would prevail.

But on Friday John and Mary Butler appealed to the Supreme Court – with Buchanan Ingersoll & Rooney their brand new co-counsel.

Now the industry attorneys say the Superior Court ruling “implicitly eviscerated” the Dunham Rule, “a 175-year-old rule of contract interpretation that serves as a cornerstone of Pennsylvania property law.”

Actually, the Dunham Rule is only 129 years old. The additional 46 years come from the case upon which Dunham relied for precedent: Gibson v Tyson, the 1836 case that defined “minerals” in Pennsylvania as being exclusively metallic in nature “such as gold, silver, iron, copper, lead, &c.”

“This case turns on the intent of the parties – what did they intend in 1881,” said Gregory Krock, the attorney at Buchanan who filed the appeal Friday. For 46 years prior to the deed in question, the law of the land was that “minerals” only meant metals – and neither coal nor Marcellus Shale shale are metals.

Sean Moran, co-chair of Buchanan's oil and gas practice, said the Superior Court's decision was nothing but a procedural ruling, but the “uncertainty” it created “can cause a little indigestion even if it is a procedural issue.”

“The law has been settled for a very long time,” said Moran. “Our role is to get the Supreme Court to affirm that's the case.”

Laurence Kelly, the Susquehanna County attorney representing the heirs of Charles Powers declined to comment on the case when contacted by the Patriot-News.

He has 14 days to file any objections.

It could take months before the Supreme Court decides if it will hear the appeal.

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