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Permalink Reply by Jim Litwinowicz on September 22, 2011 at 12:47pm

This is news that may have dramatic impact on landowners in Pa.  It may slow things as companies wait for clarification from the state Supreme Court.  Hope they rush this through the appeal process and end it quickly.

Here is an article covering much of the history of the Dunham Rule'

 

http://www.litigationandtrial.com/2011/09/articles/attorney/consume...

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Permalink Reply by Frank Walker on September 22, 2011 at 7:51pm

I've had time to think about this and I want to amend something I wrote in the OP:

 

I wrote that, provided a landowner owns his mineral rights he will be OK even if Dunham's Rule is not upheld.  I now see trouble with that assertion.  Please allow me to use my own situation as an example:

 

I am leased and I collect royalties.  My property lies at a far end of my unit.  The horizontal drill bores terminate beneath my property.  The horizontals themselves are a mile long (plus or minus) and pass beneath the land of many other property owners before finally reaching my property.

 

I have never prior thought much about mineral rights.  All my focus was on O&G rights.  But nevertheless, AFAIK I do own my mineral rights.  So I was thinking, even if the Rule falls, I'm probably OK.  But I failed to consider the other property owners in my unit, all the properties lying between my land and the well heads.

 

I now believe the following:

 

Unless all landowners within the unit own their mineral rights, if Dunham's Rule falls the entire unit will be impugned.   Thus, it is necessary, but it is not sufficient, for me to own my mineral rights in order to be OK if the Rule fails to withstand legal challenge.

 

Viewed from the standpoint of a gas company, potential failure of Dunham's Rule is an incredible, almost unimaginable, can of worms.  I could not blame any gas company for immediately suspending payment of royalties until this matter is resolved beyond doubt.  After all, if the Rule falls they could easily be paying royalties to persons or entities who or which have no right to those royalties.

 

The Pennsylvania legislature should step in immediately and resolve this.  Failing that, the Pennsylvania Supreme Court should rule as soon as possible.  It's only JMHO and I hope I'm wrong, but I don't think either one of those things will happen.

 

My most serious concern is for landowners who have already leased their land for Marcellus drilling but who do not own their mineral rights.  If Dunham's Rule falls, I believe the gas companies will go to court to seek return of bonus and royalty money already paid out in those situations.  After all, absent Dunham's Rule, such payments would have been made in error.     

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Permalink Reply by Farmhouse on September 22, 2011 at 10:31pm

What if the deed is "fee simple" as established by title insurance? I read somewhere that the fee simple classification establishes that all surface and sub surface rights transfer.

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Permalink Reply by Farmhouse on September 23, 2011 at 9:05am

Guys, help me to understand, please..

My deed says fee simple. I had title insurance when I purchased the property to ensure I was retaining the mineral rights. 

Fee Simple from Wikipedia:

'An estate in fee simple is the "largest" estate known in law. It denotes the maximum of legal ownership, the greatest possible aggregate of rights, powers, privileges and immunities which a person may have in land, short of allodial title. It is an estate of potentially infinite duration in the holder and the holder's successors. The three hallmarks of the fee simple estate are that it is alienable, devisable and descendable.'

There is no known division of oil/gas/minerals and title insurance should back this up right?

Am I to understand that I now have to be concerned about a separation of the gas/oil/minerals from 100+ years ago? Even though the "fee simple" status has been established. Would I not then have cause for an action against the title insurance company?

Plus, my lease states that I do not warrant the title, that the (O&G company) will rely on their own title due diligence. So as far as clawback, not gonna happen without a war.

Sorry for not getting this right away but it's both confusing and potentially upsetting to say the least. Thanks

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Permalink Reply by Frank Walker on September 23, 2011 at 1:27pm

Farmhouse

 

I would have responded earlier but your question is highly legal and really exceeds my knowledge.  All I have to offer you is an opinion . . and I'm not a lawyer.  Here goes:

 

First of all, you have no jeopardy whatsoever provided Dunham's Rule is upheld.  Many people believe the Rule will be upheld, though certainly the matter can be argued both ways.

 

The issue of mineral rights is an intensely difficult one to calculate.  One would think even modern deeds would reflect mineral rights separation from years ago.  Sadly, in Pennsylvania, things were not always done all that carefully over the years.  Also, and especially regarding your mention of "100+" years:

 

Your focus needs to be on the "+".  I'm thinking (strictly MHO, BTW) jeopardy starts circa 150 years ago if it exists at all.  And jeopardy easily could extend all the way back  . .  to the King.  No kidding.

 

I'll use myself as an example, again.  Here where I live there never were any minerals of value.  Everyone knew that.  Nobody cared.  The land changed hands across all those years.  It never made one whit of difference whether the minerals were in or out.  There was zero value.   It was a mistake a busy lawyer could make with impunity as the deeds were drawn, over and over, across all those years.

 

So again, JMHO, if Dunham's Rule falls we all will have to search really, really hard.  I happen to be in Bradford County.  My search for the early years will have to go on down in Northumberland County because that's where our (Bradford County's) really early records sit.  Also a poster elsewhere has asserted mineral rights, under Pennsylvania law, can be conveyed by will.  If that is true,  all the wills of all the previous owners will have to be read.

It is a mess almost beyond belief.  But if the Rule falls, mineral rights will control everything Marcellus.  Remember, Dunham's Rule itself has roots in Pennsylvania extending back well over 100 years.  If something of that sort is reversed, the repercussions will be absolutely monumental.

 

I would say such a thing should be impossible on its face for obvious reasons.  But with so much money on the line, and given our wacky courts, I have to concede any outcome is possible.

 

I apologize this is so unhelpful.  It's because, straight up, I don't have the answer to your question.  I wish I did.  I can tell you, for myself:

 

My deed is solid on its face.  There is no hint whatsoever mineral rights are excluded, and I made a point at time of purchase of telling my lawyer I wanted to be certain I would own my mineral rights.  Still, I have no confidence whatsoever that I am OK if Dunham's Rule falls.  I think my search only went back to circa 1870, give or take.  That is nowhere near good enough, I now realize (didn't know that at purchase time).  So if the rule falls, it's gonna be a real search for me . . . . like I should have had to begin with! 

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Permalink Reply by Farmhouse on September 23, 2011 at 2:26pm

Frank,

Great explanation. I thank you. Like many, I will stay tuned. 

 

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Permalink Reply by Frank Walker on September 23, 2011 at 3:02pm

No problemo.  I want to put a finer point on something I wrote earlier.  I want to point to a solid possible scenario:

 

"Minerals" anywhere near my home, within maybe 75-100 miles, means "coal".  I'm talking as a practical matter.  As I wrote earlier, there is no coal anywhere near me.  The very closest coal is maybe 30 or 40 miles distant, or whatever.

 

So let's say back in the early 1800's,  or even back in the 1700's, when this was nearly wilderness and my land was part of a parcel that extended to include a coal region, some owner-seller retained and did not convey the mineral rights . . because of the coal.  That's why it might have happened.

 

Now there is no coal here where I live, as I indicated.  So over the years as the land was broken down into smaller and smaller parcels ("smaller" might still have been thousands of acres), but there would have come a point where a lawyer, knowing there was no coal, would not have bothered to include the mineral reservation in a new deed because it had no impact.  I'm talking about, perhaps, the early or middle 1800's here . . nothing recent.  So anyway, you can envision how a mineral rights screwup might have come about.  For large regions of the Commonwealth, over many tens of years, mineral rights just were not especially economically important.

 

Of course over those same years O&G rights were important.  But under Pennsylvania law, O&G rights and mineral rights were separate and distinct.

 

But if you want to know for sure about mineral rights, you had better be prepared to search deep and search diligently.

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Permalink Reply by Jim Litwinowicz on September 23, 2011 at 2:33am

Even if other landowners in your unit don't own the mineral rights, you shouldn't be affected. The gas company will have to find the rightful owners of the other parcel's gas rights and pay them. They may put disputed royalties into an escrow account until things are settled.

 

As for back payments, it all depends on the lease.  If it states that Lessee warrant the title, then he/she may have an issue. But if the lease states that Lessee only warrants it to the best of their knowledge or something along those lines, then you are ok. If someone sues for back payments it then would be the responsibility of either the gas company or the title company. Again it depends on the lease.

 

You are right that this needs to addressed ASAP. This will cause massive disruption if is allowed to stand. I am sure there are law firms frothing at the mouth, ready to pounce.

 

I don't know if there is a legislative cure possible short of an amendment to the state constitution.Most experts I have seen fully expect the State Supreme Court to uphold Dunham's Rule.

 

Disclaimer;  I am not an attorney and these are just my personal opinions.

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Permalink Reply by Frank Walker on September 23, 2011 at 3:47am

[in the event the Rule falls]

 

I fully agree that if the gas company can successfully lease, within any existing unit, mineral rights it might not already own, then there would be no impact and no problem;  except perhaps delay of some nature while the paperwork catches up.

 

But I don't assume the gas company necessarily will be successful with this endeavor.  Mineral owners not already under lease might, or might not, be agreeable to leasing on terms acceptable to the gas company.  It's not a sure thing;  not at all.  And if the unit falls, or if best case it takes a long time to re-establish the unit, I can foresee the gas company withholding all payments or just ceasing production until matters are resolved.  They cannot be placed in a position, after all, of stealing gas.

 

On clawbacks:

 

You could be right on this and I hope you are.  Still, were I a leased landowner not owning my mineral rights I would have concern.  In court, with a lot of money on the line, anything can happen . . . and oftentimes does.

 

On PA Supreme Court action:

 

One would hope they stand behind Dunham's Rule.  But the question is:  when?

 

Absent a conclusive decision, I would expect (at least some of) the gas companies to act to protect their interests.  In so doing, it's not likely they would be acting in landowners' best interests.  And in our FUBAR'd legal system, this thing could grind on for years.

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Permalink Reply by Jim Litwinowicz on September 23, 2011 at 3:57am

Frank;  good point I hadn't considered. If they find the new mineral right owner and he/she doesn't want to lease, the unit could fail.

 

In the Utica, forced pooling is legal but has never been done.  Should the above scenario arise, you may see the first forced pooling claims filed. But in the Marcellus, there is no forced pooling.  This may be an impetus to eventually allow forced pooling for all strata. That may be the legislative vehicle to fix the problem.

 

But landowners that thought they owned the O & G rights will still be screwed. Perhaps a system like that in Ohio would be good. In  Ohio, the mineral rights can be declared abandoned and returned to the surface owner if they have been inactive for more than 20 years.

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Permalink Reply by Frank Walker on September 23, 2011 at 4:55am

Jim

 

I really appreciate your mention of and comment regarding:  forced pooling.

 

You have an excellent point and that's not something that had occurred to me.

 

This Dunham's Rule thing has so many facets and convolutions that it is mind boggling . . . . at least it is for me.  I'm struggling with it and trying to unwind and understand the many possibilities.

 

In my own case . . . . 

 

I revealed, above, that I am a leased landowner already collecting royalties.  If this matter disturbs that royalty income flow, even just for less than (let's say) two years, my tax planning goes haywire.  And there are so many other unpredictable  possibilities . . . . .

 

This is a truly remarkable mess, for example . . .

 

You made mention of finding mineral rights owners.   It's not always that easy to locate mineral rights owners, especially not if the mineral rights were detached 150 years ago . . . or if the detachment was accomplished by will, which I understand is legal in Pennsylvania.  If Dunham's Rule falls, record searchers in this Commonwealth will be assured of lifetime employment!!  With so much money on the line, if the Rule falls you can be certain (at least some) searches will be conducted all the way back to the King!

 

 

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Permalink Reply by jb379 on September 23, 2011 at 7:59am

Frank,

 

In regards to your last point, that may very well be where the PA Dormant Oil & Gas Act will come into play if Dunham should fall.

 

JB

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