Susquehanna County Court Asks: Is Shale a Mineral?
Pittsburgh Tribune-Review
22 September 2011
By Timothy Puko
For anyone who's played the game "Animal, Vegetable, Mineral," it
might seem obvious that the Marcellus shale isn't alive and
doesn't grow -- it's a rock layer in the ground, so it's a
mineral. In the Pennsylvania courts, the answer is not so clear.
A Susquehanna County Common Pleas court is headed for a hearing to
determine whether the gas-rich Marcellus shale is a mineral, and
therefore, included in mineral rights. The state Superior Court
ruled this month that case law is unclear, leaving big questions
over who legitimately controls drilling rights and the valuable
natural gas in the mile-deep rock layer, legal observers say.
"With this ruling, it is now not clear who owns the rights to
Marcellus gas where there has been a 'mineral' reservation," said
Ross Pifer, director of the Agricultural Law Resource and
Reference Center at Penn State's Dickinson School of Law. "The
leases will still be valid, but they may not convey rights to the
Marcellus shale."
Pennsylvania is unique among states in that it does not consider
gas as a mineral when it comes to land rights and leases, said
Sean Moran, an energy lawyer at Buchanan Ingersoll & Rooney
PC, Downtown. It's known as the "Dunham rule," a precedent the
state Supreme Court set in 1882. The justices have ruled that any
land deal involving "mineral rights" -- but not specifically
including gas or oil -- essentially does not transfer those oil
and gas rights along with the minerals.
If the Marcellus shale is not a mineral, it could change
everything drillers have assumed about the state's oil and gas
laws. Valuable mineral deeds -- especially older deeds with
imprecise language -- and the validity of Marcellus contracts
based on them could be in jeopardy all over Pennsylvania. The
uncertainty alone could lead drillers scrambling to write "cover
leases" or hesitating to drill on land where mineral rights have
been sold or partially sold in separate deals, said Pifer.
Ruling the shale is a mineral "would upset 110 years of oil and
gas law, which the courts don't want to do," said
Gregg M. Rosen, who represents several drilling companies for
McGuireWoods LLP, Downtown. "And it would turn a billion-dollar
industry on its head, subjecting oil and gas drillers to many
lawsuits."
Rosen is one of a few lawyers who doubts the courts will overturn
a century of precedent. But the ramifications are potentially so
big that they're all keeping watch in Pennsylvania. It's one of
several bubbling legal issues as the state maps the frontier of
unconventional gas exploration.
The Susquehanna County case started two years ago when John E. and
Mary Josephine Butler filed a title complaint on a land deal that
originated in 1881. The deed for their 244 acres in Apolacon
reserves only "half the minerals and petroleum oils," giving the
other half to a man named Charles Powers and his heirs, now the
appellants. Gas was not listed among the rights, so all of the gas
should still belong to the property, the Butlers argued.
This month the Superior Court reversed the lower court decision,
which upheld Dunham's rule as the deciding factor. The higher
court said it is not, necessarily, and wants the lower court to
hear expert testimony on whether Marcellus shale is a mineral. No
hearing date has been set.
"Anyone who's interested in the definition of minerals or who's
interested in the rights of the Marcellus shale should pay
attention to this case. And they are," said Paul Kelly, a retired
attorney from Susquehanna County who was one of the first lawyers
on the case.
It's hard to say how many people and companies the case could
affect, but it's likely to be a significant number, said Joshua
Lorenz, who represents landowners for Meyer, Unkovic & Scott
LLP, Downtown. Mineral rights have been severed in land deals
going back to the mid-1800s, and older deals were not as detailed
as they are today. Anyone whose estate accounts only generically
for mineral rights could be affected, he said.
Pifer said the case has cast a pall of uncertainty over the
Marcellus shale.
"The frustrating thing for the state of the law is that we had --
whether it was good or not -- we had what was believed to be
established case law," Pifer said. "Now ... we really don't know
which competing owner owns the Marcellus shale."
Timothy Puko can be reached at tpuko@tribweb.com or 412-320-7991.