Marcellus Minerals: Is Marcellus Shale Gas a “Mineral” for the Purposes of Pennsylvania’s Dunham Rule?

Photo by Images_of_Money. Some rights reserved.

Two recent law firm memos (from Fulbright & Jaworski and Pepper Hamilton) tackled the subject when they covered a September 7th decision from the Pennsylvania Superior Court in Butler v. Powers.

The “Dunham Rule” refers to an assumption in Pennsylvania law, wherein a reservation or exception for “minerals” in a deed or lease that does not specifically mention natural gas or oil creates a “presumption that the grantor did not intend for ‘minerals’ to include natural gas or oil.” The Dunham Rule has been around since its namesake case – Dunham v. Kirkpatrick – was decided in 1882.

In Butler v. Powers, a trial court in Susquehanna County had previously found that, based on the application of the Dunham rule, the disputed deed in the case did not include Marcellus Shale gas. However, the Superior Court – without actually deciding on the Dunham Rule’s applicability – remanded the case back to the trial court for determination of the following three things:

(1) whether Marcellus shale constitutes a “mineral”; (2) whether Marcellus shale gas constitutes the type of conventional natural gas contemplated in Dunham and Highland; and (3) whether Marcellus shale is similar to coal to the extent that whoever owns the shale, owns the shale gas.

“Consequently,” the opinion goes on to say, “the parties should have 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.”

But the decision made Pepper Hamilton nervous:

 “Potentially more troubling is the fact that although the dispute between the parties in Butler does not directly involve a deed that explicitly conveys or reserves natural gas rights (since the deed in question used only the terms “minerals” and “petroleum oils,”), the outcome of the case could establish precedent regarding whether a conveyance or lease of oil and gas rights, reserving all other minerals, reserves the unconventional gas trapped in the Marcellus Shale to the mineral title holder.”

Both Pepper Hamilton and Fulbright & Jaworski have pledged to keep a close eye on the case.

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