Pennsylvania Supreme Court Reaffirms Dunham Rule, Confirms that Marcellus Shale Natural Gas is not a "Mineral"

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On April 24, 2013, the Pennsylvania Supreme Court in Butler v. Powers held that Marcellus shale “natural gas is presumptively not a mineral for purposes of private deeds.” The Court reaffirmed the “Dunham Rule,” which applies the common, layperson understanding of what is and is not a mineral. The “rule in Pennsylvania is that natural gas and oil simply are not minerals because they are not of a metallic nature, as the common person would understand minerals.” That rule is a rebuttable presumption, and a party asserting rights in natural gas based on a reservation of “mineral” rights must show by clear and convincing evidence that the parties intended, at the time the deed was signed, that the reservation include natural gas. Absent such evidence, a deed reserving “mineral” rights does not encompass natural gas and oil.

The Butler decision involved a deed executed in 1881 that reserved to the grantor “one half the minerals and Petroleum Oils.” The descendants of the grantor (“Grantor”) argued that, based on that provision, the grantor reserved to himself one half of the rights to the natural gas extracted from the Marcellus shale under the property. Citing the Dunham Rule, the trial court denied the Grantor’s request for declaratory relief because the deed reservation referred only to mineral rights. The Superior Court reversed, citing a Supreme Court case that the Superior Court viewed as countering the Dunham Rule in the context of trapped underground coalbed gas. United States Steel Corporation v. Hoge, 468 A.2d 1380 (Pa. 1983) (“Hoge II”). In Hoge II, the Pennsylvania Supreme Court held that coalbed gas that is trapped within seams of coal “must necessarily belong to the owner of the coal, so long as it remains within his property and subject to his exclusive dominion and control.” Analogizing the coalbed gas in Hoge II to the Marcellus shale natural gas in the case before it, the Superior Court ordered that the case be remanded to the trial court for an evidentiary hearing in which expert, scientific testimony would be heard on the issues of whether the Marcellus shale natural gas is “conventional natural gas,” whether Marcellus shale is a mineral, and whether the entity that owns the rights to the shale also owns the rights to the gas trapped within it.

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