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Blurbs from the Bossman

When Is A Gas Not A Gas?
by Scott Perry | 2011/11/20 |

The Pennsylvania Superior Court, one of the Keystone State’s intermediate level appellate courts, recently remanded back to the Susquehanna County Common Pleas Court a case which could have a potentially huge impact on the rights of Pennsylvania landowners.  This is a case which needs to be closely watched by every land title professional practicing in Pennsylvania.

Blurbs from the Bossman ::


Since 1882, Pennsylvania common law has held that a reservation of “minerals” in a conveyance does not include reservation of any oil or natural gas absent a clear expression of the Grantor to do so.  It’s called “the Dunham Rule” after the plaintiff in Dunham v. Kirkpatrick, 101 Pa. 36 (1882), in which the Pennsylvania Supreme Court ruled that a “mineral” reservation in a deed does not include “oil and gas” absent specific language to that effect within the four corners of the document.  Dunham has been controlling law in Pennsylvania for almost 130 years and was upheld as recently as 1960.  Highland v. Commonwealth, 161 A.2d 390 (Pa. 1960); New York State Natural Gas Co. v. Swan-Finch Gas Development Co., et al., 278 F.2d 577 (1960).

On July 20, 2009, plaintiffs William and Mary Butler filed a Complaint to Quiet Title in Susquehanna County Common Pleas Court against the Estate and Heirs of Charles Powers, asserting fee simple ownership of their 244 acre tract in Apolacon Township, Susquehanna County, along with “all of the minerals and petroleum oils” lying thereunder, based on a claim of adverse possession.  The deed upon which the Butlers base their claim was recorded in 1881 and contains the following reservation:

 

“[O]ne half the minerals and Petroleum Oils to said Charles Powers his heirs and assigns forever together with all and singular the buildings, water courses ways waters watercourses rights liberties privileges hereditaments and appurtenances whatsoever there unto belonging or in any wise appertaining and the reversions and remainders rents issues and profits thereof; And also all the estate right, title interest property claimed and demand whatsoever there unto belonging or in any wise appertaining in law equity or otherwise however of in to or out of the same…”

The Powers Heirs filed a counterclaim for a declaratory judgment, arguing that the mineral reservation in the 1881 deed includes Marcellus Shale gas.  The basis for their assertion is that Marcellus is an “unconventional” gas of a type not contemplated at the time of the Dunham ruling, arguing that the word “minerals” includes the Marcellus Shale and therefore, the gas contained therein.  They rely on the more recent ruling in US Steel Corp. v. Hoge, 468 A.2d 1380 (1983).  In Hoge, the Pennsylvania Supreme Court held that methane gas contained in coal deposits is owned by the party which owns the coal, but gas that migrates into surrounding formations belongs to the owner of the oil & gas rights.  The Butlers filed a motion for demurrer (dismissal), which was granted by the trial court.  The case was appealed to the Pennsylvania Superior Court, which reversed and remanded on procedural grounds.
 
The Superior Court’s remand of this case is intended to give the parties “the opportunity to obtain appropriate experts on whether Marcellus shale constitutes a type of mineral such that the gas in it falls within the deed's reservation.” This introduces a new challenge to what has previously been an established and well-settled area of Pennsylvania real property law.  Already, law firms throughout the region whose clients own oil & gas interests in Pennsylvania are advising them to review the reservation language contained in deeds in the chains of title to their real estate holdings.

Although the appellate court made no ruling on the applicability of Hoge to the instant case, the reversal certainly suggests room for interpretation as to exactly what constitutes a reservation of natural gas in the absence of specific language in a conveyance. Since Dunham, it has been commonly accepted and understood by parties to deeds and leases that under Pennsylvania law, oil and natural gas must be specifically excepted and reserved in conveyances of real property, so it seems unlikely that this ruling will be much of a game-changer.  Nevertheless, this is a case that warrants close monitoring for further developments.




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Blurbs from the Bossman

 

Thoughts, Observations
and Ruminations of an Independent Title Examiner Living & Working in the "Steel Buckle of the Rust Belt."

 

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