PA SUPREME COURT AGREES TO HEAR CASE

http://www.pittsburghlive.com/x/pittsburghtrib/news/breaking/s_7898...

 

This decision could have far reaching consequences.

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Permalink Reply by GBrewer on April 5, 2012 at 7:11am

A toast to "Shale Bed Methane"!

Permalink Reply by Mike Knapp on April 5, 2012 at 5:12am

If the courts say that Marcellus gas is a mineral, it's going to be a massive, massive blow to Western Pennsylvania landowners.  In the late 1800's, early 1900's, coal companies went through and bought up most of the mineral rights.  This would also overturn well over 100 years of case law.  Hopefully the Supreme Court agreed to hear this case so that it can hurry up and slap down the challenge so as to remove the current uncertainty.

Jim ShoosPermalink Reply by Jim Shoos on April 5, 2012 at 5:18am

Lower courts often exist in a reality distortion field that allows them to issue decisions that are oblivious to the practical effects of their actions.  There is no way that the PA Supreme Court is going to throw out 100 years of existing case law and dispossess landowners of the rights they thought they were reserving or conveying under the auspices of existing law at the time.  

Permalink Reply by GBrewer on April 5, 2012 at 5:37am

For over a quarter century, the Superior Court and the lower courts said educational support was owed for colledge for the children of divorced parents until one day someone challenged it on equal protection grounds, a case that went all the way to the Pa. Supreme Court.

 

The Supreme Court said, in effect, no one ever asked us before, but now that you have asked, no, there isn't any educational support, which ruling completely turned that area of the law upside down.

 

And, to the extent that separation agreements (contracts entered into upon the belief by competent lawyers across Pa. that there was educational support for college age children over the age of 18) provided for that support that the courts could not order, those kids got the support as a matter of contract law after the date of the decision and anyone seeking through the courts was denied.

 

Query, how can the courts say on one hand that gas embedded (not free flowing after having escaped from) coal beds belongs to the owner of the coal, but gas embedded in shale (freed only by fracturing) is different from coal bed methane gas?

 

Some counsel want to argue "intent of the parties" as they understood gas and minerals in the 1800's should not be effected by how science changes things today.  As I recall history, we once that the world was flat.  Should the law be bound to that understanding, despite what science teaches us?

Jim ShoosPermalink Reply by Jim Shoos on April 5, 2012 at 9:41am

Hold on just a second... whaddya mean the world isn't flat???

2s72s0k9mm8gdPermalink Reply by 2s72s0k9mm8gd on April 5, 2012 at 1:14pm

Jim, Are you a member of "The Flat Earth Society" of which our beloved President speaks so highly ? :-)

Permalink Reply by GBrewer on April 5, 2012 at 5:47am

This decision involves issues more complicated than apparent at first glance.

 

The Butler case involves language involving minerals language only.

 

What about where a grant or reservation of gas rights, but, consistent with the coal bed methane decision, the court would decide that the shale owner, like the coal owner, owns the gas.

If all you owned was the gas right, not the shale ownership, who gets the royalties, the shale owner only or someone who reserved or was granted the gas right?

Permalink Reply by Jack Straw on April 10, 2012 at 5:17am

RE: "In the late 1800's, early 1900's, coal companies went through and bought up most of the mineral rights."

I have one property in which the "Coal Rights" were severed. I still have all Minerals (excepting Coal).

I would be curious to know what Coal Companies typically bought/leased.

Did they typically lease or purchase the "Mineral Rights" or did they more typically  lease or purchase the "Coal Rights"? Obviously exact wording of the respective document is important.

If the wording more typically is as in my deed, then in most cases, the Coal Companies would not be involved in any manner should the Marcellus Shale be declared a mineral.

 

RE: “If the courts say that Marcellus gas is a mineral, it's going to be a massive, massive blow to Western Pennsylvania landowners.” 

Actually, should the courts say that Marcellus gas is a mineral, it's going to be a massive, massive boon to many Western Pennsylvania landowners.

Individuals who are currently held by production with shallow gas wells will now own their Marcellus Shale Bed Methane. Currently that Shale Bed Methane is owned by those who leased and drilled for shallow gas (and getting to the matter of intent; it is obvious that there was no original intent to lease or ever drill the Marcellus Shale – as, until recently, no one believed that the Marcellus Shale could ever possibly produce gas or oil).

Individuals who have signed Natural Gas leases in the past decade that expressly mention the Marcellus would (by virtue of inclusion of the Marcellus in the lease) have agreed to the leasing of the Marcellus (regardless of any subsequent Court determination as to its nature).

 

RE: “This would also overturn well over 100 years of case law.”

The only case law that addresses unconventional gas captured in situ from their source rocks is the Pennsylvania Supreme Court's 1983 decided in U.S. Steel Co. v. Hoge, in which Coal Bed Methane (CBM) belongs to the owner of the coal bed - rather than the owner of the Oil & Gas. In can be argued that the only extant applicable source law supports Shale Bed Methane being a property associated with the shale (and thus a mineral). If you can reference any other case law that might apply, I would be interested in a reference.

If the PA Supreme Court determines on the basis of Science and the precedent set in their 1983 ruling, then I predict that The Marcellus Shale could very well (as in the case of CBM) be declared a Mineral.

If the PA Supreme Court determines on the basis of politics (and the fear of legal chaos), then Shale Bed Methane will be declared conventional Natural Gas.

 

All IMHO,

                     JS

Permalink Reply by Mike Knapp on April 10, 2012 at 8:00am

You bring up some interesting points.   Coal is often (as you mention) dealt with as a completely separate entity.    There are countless deeds that reserve only the coal.  As such, I think that it's much easier to draw the link between one who owns the coal also owning the natural gas inside it.  Minerals covers such a broad spectrum.  There are many minerals that have no gas inside it.  . Shale, sandstone, and coal are all sedimentary rocks.  What's to stop someone that reserved specifically the sandstones from arguing that any gas trapped inside it belongs to him?  

I would argue that the gas that has been produced for the last 100 years IS "shale bed methane."  The sandstone formations are merely a trap for escaped shale bed methane, they don't generate much (if any) gas themselves.  If the owner of the oil and gas owns the gas that has escaped the formation, why wouldn't he also own the gas that's IN the formation?   Declaring the gas in the Marcellus to be with the owner of the minerals would (at least in my mind) completely negate the entire concept of separate oil and gas ownership. 

Permalink Reply by Jack Straw on April 10, 2012 at 9:58am

U.S. Steel Corp. v. Hoge, 503 Pa. 140, 468 A.2d 1380 (1983)

In U.S. Steel Corp. v. Hoge, the Court stated that such gas as is present

in coal belongs to the owner of the coal, coal bed gas that migrates into

surrounding property belongs to owner of the surrounding property.

 

The Court instructs that when Nature Gas (Methane) is within a Coal Seam it is Coal Bed Methane (CBM) and belongs to the coal; when that same Nature Gas (Methane) that originated as CBM migrates out of the coal seam it is now Natural Gas (belonging to what/where it currently resides).     

Frankly, I find this to be a peculiar distinction; it is a bit like saying that when a certain animal is in its den in the ground, it is a Whyrfle – but; when it comes out of its den, it is no longer a Whyrfle – it is now a Gusiffle. Somehow, the act of moving (from one location to another) changes what it is! Strange logic!

 

Stated another way; the Court determined that when the Natural Gas (Methane) is within the Source Rock (Coal) from which it was derived, it is a Mineral.

When it migrates into a reservoir (outside of its origin) it is now Natural Gas (Methane) and under the purview of O & G (and no longer a Mineral).

 

To be honest, I thank that the Court erred in 1983 in the manner in which they ruled.

I think that they should have attempted to identify the circumstances in which coal could realistically be mined. And, in those cases the Methane belongs to those who have the right to mine that (mineable) coal. Simply stated Natural Gas present in association with minable coal belongs with the coal(thus a mineral). In cases where coal seams are to narrow, too deep or of insufficient quality to allow for commercial mining – the Court should have presented criteria that identified these coals as containing Natural Gas that belongs to those who own the O&G.

 

The reality is that the Court did what it did in 1983, and that creates a precedent.

If the Court proceeds to perpetuate and honor that (flawed?) precedent, I would argue that that strongly suggests that there is a Mineral that I have referred to as shale Bed Methane (SHB). Should such SBM migrate out of the Source Rock (Shale, rather than coal, in this case) it becomes Natural Gas.

 

RE: “Shale, sandstone, and coal are all sedimentary rocks.” 

Organic Shales and Coals are impermeable Source Rocks.

Porous Sandstones are permeable Reservoir Rocks.

These are important distinctions in Petroleum Geology, Geochemistry and Reservoir/Petroleum Engineering.

 

RE: “What's to stop someone that reserved specifically the sandstones from arguing that any gas trapped inside it belongs to him?””

Sandstones are (and have historically been) recognized as Reservoir Rocks (the domain of movable Oil and Gas). Many Oil and Gas Leases refer to specific sandstones (Bradford Sands, Clinton Sands, etc.). Sandstones, porous Limestone and Dolomites historically have been recognized as addressed under Oil & Gas Leases as historically producible Oil and Gas reservoirs. O & G Law are just now trying to catch up with the changing paradigms associated with the new unconventional resources.

 

RE: “If the owner of the oil and gas owns the gas that has escaped the formation, why wouldn't he also own the gas that's IN the formation?”

You can make that (very logical) argument. The problem is that in 1983, the PA Supreme Court decided otherwise. I confess that it is difficult to defend the Court’s 1983 precedent setting decision; will the current PA Supreme Court honor (or ignore) that 1983 precedent? All we can do is “stay tuned”.

 

RE: “Declaring the gas in the Marcellus to be with the owner of the minerals would (at least in my mind) completely negate the entire concept of separate oil and gas ownership.”

As was done in 1983!

 

My Scientific training causes me to be inclined to attempt to calculate “how many Angels can dance on the head of a pin’.

The Legal profession have a history of attempting to count “how many Angels can dance on the head of a pin’.

All we can do is “stay tuned”, this could all be very interesting as this is U.S. Steel Corp. v. Hoge on steroids.

 

All IMHO,

                     JS

Permalink Reply by farmgas on April 5, 2012 at 9:32am

 

Thanks to those who offer some really intellectual and professional discussion to this subject.   Let`s hope that the court offers a decision that doesn`t flip this industry into turnmoil!

Permalink Reply by GBrewer on April 5, 2012 at 10:43am

Re:  Let`s hope that the court offers a decision that doesn`t flip this industry into turnmoil!

 

I would say, Let's hope the court gets it right", for history and the history of the law is that even if a decision requires change, after the "speed bump" of change, "order" is restored and life continues as it should.

 

Witness, and only a sampling at that, the abolition of slavery, women's right to vote, the dismantling of "separate, but equal", all of which changed the basic fabric of our nation.

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