In September of 2011, we first posted about the case of Butler v. Estate of Powers in which the Pennsylvania Supreme Court reversed a Pennsylvania trial court decision holding that, under long-standing precedent, any grant of mineral rights that did not expressly include natural gas similarly did not include shale gas. The Superior Court disagreed, relying on United States Steel Corp. v. Hoge, 468 A.2d 1380 (Pa. 1983)(Hoge II) which held that the party with the rights to coal also had rights to the coalbed gas contained in the coal. Instead, the Superior Court remanded the case to the trial court for an evidentiary hearing on, in essence, whether shale gas is similar to coalbed gas and should be treated that way. At the time we first discussed the Butler case, we concluded:
This case, which appears to be one of first impression in Pennsylvania, is certain to be carefully watched because, whatever the outcome, it will have a dramatic impact on Marcellus shale exploration and production as well as exploration and production from other shale formations such as the Utica Shale.
Well, watch it we did, and the result is now in hand. Yesterday, the Pennsylvania Supreme Court, in Butler v. Charles Powers Estate, No. 27 MAP 2012 (Apr. 24, 2013) reversed the Superior Court and affirmed, for now and all time, that there is a rebuttable presumption that a grant or reservation of “mineral rights” in Pennsylvania deeds does not include natural gas, including shale gas, unless expressly stated, and that presumption can only be overcome by parole evidence concerning the intent of the grantor and grantee.
In its decision, the Supreme Court recounted, in detail, the history of this unique Pennsylania rule, noting that while it is different from those in other states (where natural gas is indisputably considered a “mineral”), its roots go back well over 175 years, since 1836 in fact, and that countless deeds and documents have been based upon the simple principle that one applies the “common understanding” of the word minerals, and that “common understanding” is that “minerals” are only those elements that are metallic in nature.
The Court also addressed the Hoge II decision. While it did not expressly overturn it, it noted that the Hoge court did not even reference the leading case on interpretation of mineral rights in this context, Dunham & Shortt v. Kirkpatrick , 101 Pa. 36 (Pa. 1882). Additionally, the Court also identified several distinguishing features of Hoge II. First, the Hoge II deed did expressly mention natural gas, giving the landowner the right to “drill through” the coal to reach it. Additionally, the deed gave the owner of the coal “ventilation” rights, acknowledging the existence of gas within the coal, but not reserving the rights to it, most likely because at the time, it was not commercially exploitable. Finally, the Butler Court noted that shale gas is the same chemical composition as natural gas, just trapped at a different layer of earth, whereas coalbed gas is structurally different. (As an aside, as the Court’s decision affirms the long-standing rule that “common understanding” and not scientific definitions guide deed interpretation, referencing this difference in the gases is curious).
One final item of note. The Court expressly did not address, as waived, whether natural gas might be considered an “appurtenance” of oil, which was reserved in the deed. That being said, in a footnote the Court signaled its view of the argument, stating that oil and natural gas have consistently been treated as separate substances for the purposes of deed interpretation. Thus, we should not be holding our breaths to see that argument addressed again by the Court.