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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Replies to This Discussion
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Permalink Reply by Brian V. on -
Wow! If they over turn or redefine Butler V. Powers it would turn many areas throughout PA upside down. It would make a "mineral" reservation the ruling reservation over specific oil and gas reservations. I'd imagine this could effect many old reservations and could effect thousands of PA state land. Should be interesting.
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Permalink Reply by 0l1a6laz7smpf on
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they have tried that before. If you look at most of the leases they define the natural gas and other products with minerals....so it wouldn't change many of the contracts already signed but would put more specific language on the oil/gas leases. Now it may affect some very old leases persay and that would be good if they are inactive anyway. Perhaps it would also give some of us time to figure out what to do with all the 'catch all ' provisions in our leases and perhaps it will give the state some time to really define what the oil companies are doing with their leases to the ignorant and unknowing about the gas/oil process.
The leasing clause typically starts out with :
Lessor hereby leases exclusively to Lessee all the oil, gas, and coalbed methane and other minerals (not including coal or hard minerals) produced in conjunction therewith, but not limited to mined out or gob areas of such coal formations or seams ...... then they list even in more depth.
What someone aught to do is send the legislators more cries of complaints for the way the oil companies are misconstueing words on contracts to obtain more expenses paid by Lessor when they have told Lessor that it is a gross royalty contract. ..such as the 'Market enhancement clause' which clearly is in conflict of Pa. law as it is a "catch all' clause meant to confuse someone into thinking that they were in a gross contract rather it is still a 'net.
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Permalink Reply by Jim Litwinowicz on
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VG; the main issue is not with lease language but with the interpretation of any reservation clauses in the deeded land's history. What is at stake is if a coal company, or limestone, or gravel company, reserved "mineral rights" decades ago then it may mean that they also own all the rights to all shale gas and oil. This means a lot of landowners that have leased their shale, received bonus payments, and are getting royalties will see all of these income streams disappear and go to the coal companies. This could affect tens of thousands of acres.
It may even be possible for coal and other companies to sue for past payments but that would be very difficult. I think they would have difficult case for past payments but they would easily assume all future payments.
If this ruling stands and people lose their shale gas rights, I would expect the state legislators to move quickly to restore the status quo as this could be extremely disruptive to the landowners, the O & G industry, and to the state itself. It may take a state constitutional amendment to remedy but I believe it would be done quickly.
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Permalink Reply by Frank Walker on
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Jim hope I do not sound too disrespectful because this comment is not meant that way. But any expectation of the PA Legislature moving quickly proceeds from serious delusion. There is no more inertia-ridden body in the free world than the PA Legislature. And this is true regardless the issue.
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Permalink Reply by GBrewer on
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I retrieved the following from the online dockets:
April 3, 2012 Order Granting Petition for Allowance of Appeal
Per Curiam
Comments:
AND NOW, this 3rd day of April, 2012, the Petition for Allowance of Appeal is GRANTED. The issue, as stated by
petitioners, is:
In interpreting a deed reservation for minerals, whether the Superior Court erred in remanding the case for the
introduction of scientific and historic evidence about the Marcellus shale and the natural gas contained therein, despite
the fact that the Supreme Court of Pennsylvania has held (1) a rebuttable presumption exists that parties intend the term
minerals to include only metallic substances, and (2) only the parties' intent can rebut the presumption to include
non-metallic substances.
The Application for Leave to File Amicus Statement in Support of Petition for Allowance of Appeal, filed by the
Pennsylvania Independent Oil & Gas Association, is DENIED.
April 3, 2012 Order Exited
Office of the Prothonotary
April 3, 2012 Case was transferred to 27 MAP 2012
Office of the Prothonotary
You can track the case online through its new appellate number that was issued when the application for appeal was granted. The new number is: 27 MAP 2012.
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Here is a link to a follow up story on this issue.
http://www.bloomberg.com/news/2012-04-04/pennsylvania-high-court-ta...
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Here is an additional view on the topic.
http://www.pennlive.com/midstate/index.ssf/2011/10/marcellus_shale_...
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Permalink Reply by Jack Straw on
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RE: “Powers's heirs appealed that decision to the Superior Court, arguing that the Dunham Rule should not apply, but rather a 1983 ruling that found U.S. Steel owned the natural gas contained in the coal it owned – not the property owner who had retained the right to drill through the coal for oil and gas.”
This poses an interesting situation.
In the late 1970’s – early 1980’s Coal companies argued that the natural gas (methane) contained within coal seams was distinct from the natural gas (methane) contained within conventional reservoirs. (sandstone, dolomite, etc.). To distinguish the natural gas within the coal seams from the (same) natural gas that had migrated out of the coal seams; the Coal Companies coined the phrase “Coal Bed Methane” (as opposed to good old ordinary methane – aka natural gas). The Coal owners claimed ownership of Coal Bed Methane, arguing that since Coal Bed Methane was contained within the coal, it was thus a part of the coal.
The Coal companies argued that the natural gas that migrated out of the coal seams (and into nearby porous reservoir rock) was distinct and different from the natural gas that remained (in situ) in the coal seams. The Coal companies argued that the natural gas contained in coal seams belonged to those who owned the coal rights; and, did not belong to those who owned the Oil & Gas rights.
The Pennsylvania Supreme Court's 1983 decided in U.S. Steel Co. v. Hoge, that Coal Bed Methane (CBM) belongs to the owner of the coal rather than the owner of the Oil & Gas. As the ownership of the coal and surface are frequently separate in Pennsylvania, CBM drillers are able to drill on surface owners' land without having to pay a lease fee, or, pay royalties on gas produced, or, obtain the surface owner's approval before siting their operations.
In 1983, the Coal Companies succeeded in their argument that natural gas contained within coal seams was distinct from natural gas contained outside of coal beds (whether or not that natural gas outside of the coal had originated in a coal bed). Their success was based upon the argument that Coal Bed Methane was contained within the coal and was thus a part of the coal.
I would like to coin a new phrase: Shale Bed Methane (SBM). I would argue that natural gas (methane) contained within the matrix of shale beds is distinct and different from any natural gas that migrated out of the shale) and is now contained within reservoir rocks). I would argue that the methane contained within source rocks (such as shale) should belong to the owner of the rocks, in this case shale (and does not belong to the owner of the Oil & Gas rights). I claim ownership of Shale Bed Methane, arguing that Shale Bed Methane is contained within the shale and is thus a part of the shale.
Coal Bed Methane is sourced and contained within the matrix structure of the coal and within the coal cleats (fractures).
Shale Bed Methane is sourced and contained within the matrix structure of the shale and within the shale joints (fractures).
I would argue that Shale Bed Methane has more in common with Coal Bed Methane than either have in common with conventional Natural Gas (as traditionally produced from porous reservoir rocks).
The Pennsylvania Supreme Court ruled that Coal Bed Methane is distinct from (conventional) natural gas deposits. I believe that the same arguments that allowed the Court to come to that conclusion are equally persuasive in arguing that Shale Bed Methane is distinct from (conventional) natural gas deposits.
It is significant to note that the manner in which Coal Bed Methane is exploited is similar to the manner in which Shale Gas is produced; both utilize horizontal drilling and hydraulic fracturing in order to be economically exploited.
I would ask that any convinced by this argument to replace “Shale Gas” in their vocabulary with “Shale Bed Methane”; doing so to further acknowledge its distinct character.
The implications of the Court deciding that Shale Bed Methane is distinct from conventional natural gas are enormous; such a decision would take a great deal of courage. Were the Court to honor its precedent of 1983; such a decision should (in my opinion) follow.
All IMHO,
JS
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Permalink Reply by Jim Litwinowicz on
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JS; While that is a persuasive argument, I submit there is a sharp distinction between coal bed methane (CBM) and shale bed methane (SBM). Coal is mined and sold for its BTU content as a fuel source. Methane contributes to the BTU rating of coal substantially and therefore its value. In fact, as mined coal ages in storage some of the methane off gasses and the coal loses both BTUs and value. Thus methane is part and parcel of coal.
Shale however is not mined or used as a fuel and thus its BTU rating is insignificant in calculating its value. I don't think theses shales have ever been mined for any purpose. The methane contained within has no financial impact on the value or use of these shales. Even after all oil and gas is extracted, the shale will remain there at the same value should it ever be mined.
I submit that SBM is different than CBM in its financial impact which is the basis of these legal actions. Coal companies have a financial investment in coal and its future value. They do not have that in shales.
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Permalink Reply by Jack Straw on
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Coal (when sufficiently thick, sufficiently shallow and of sufficient quality) is mined and sold for its BTU content as a fuel source.
Organic Shales (when sufficiently thick, sufficiently shallow and have a sufficiently high Total Organic Content (TOC)), can be mined and retorted to produce oil and methane (that in turn can be sold as a fuel source).
RE your statement: “Shale however is not mined or used as a fuel and thus its BTU rating is insignificant in calculating its value. I don't think these shales have ever been mined for any purpose.”
“Modern industrial mining of oil shale began in 1837 in Autun, France, followed by exploitation in Scotland, Germany, and several other countries.”[
“As of 2008, industry uses oil shale in Brazil, China, Estonia and to some extent in Germany, and Russia. Several additional countries started assessing their reserves or had built experimental production plants, while others had phased out their oil shale industry. Oil shale serves for oil production in Estonia, Brazil, and China; for power generation in Estonia, China, and Germany; for cement production in Estonia, Germany, and China; and for use in chemical industries in China, Estonia, and Russia.”
Source: http://en.wikipedia.org/wiki/Oil_shale
Like Coal, Shale is mined and sold for its BTU content as a fuel source.
Coal is either surface mined or deep mined; obviously surface mines do not produce recoverable Coal Bed Methane. In deep mines, Coal Bed Methane is captured and sequestered as a safety matter. Though this CBM has some economic value and is used as a fuel; the primary impetus for its removal is in the interests of safety.
Methane is loosely bound to the coal, it is held in by the hydrostatic pressure of water in the coal deposits. The hydrostatic pressure of the water keeps methane gas attached to the coal. The greater the depth of the coal, the greater the hydrostatic pressure - and the greater the quantity of CBM present.
Where wells are drilled for CBM, these wells primarily exploit seams of coal far too thin for mining, or at depths beneath what could be deep mined. The deepest CBM wells in the U.S. exceed 7000’; far-far below the depth of the deepest coal mine.
Actually, it can be argued that there is a continuum from coal to shale. Coal contains organically derived hydrocarbons and clays (evident as “ash” upon combustion). As the amount of clays increase, the quality of the coal decreases to the point where the clay content is sufficient that it would be described as an organic shale.
You stated: “I submit that SBM is different than CBM in its financial impact”.
I agree with that statement; SBM will ultimately have a much greater financial impact than CBM.
I submit there is a no sharp distinction between coal bed methane (CBM) and shale bed methane (SBM).
Both coal and organic shales are mined and sold for their BTU content as a fuel source.
Methane contributes to the BTU rating of both coal and mined organic shale; and therefore its value. In fact, as mined coal and mined organic shale ages in storage some of the methane off gasses - losing both BTUs and value. Thus methane is part and parcel of both coal and organic shale.
Coal companies have a financial investment in both coal and organic shales - and their future value. The importance of CBM and SBM may have been the impetus for Consolidated Coal Company to change its name to Consol Energy.
All IMHO,
JS
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Permalink Reply by Jim Litwinowicz on
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Marcellus and Utica shales are not mined in the US and not in N America as far as I know. The fact it is mined in other countries has little bearing on US law. The shales with oil and gas are thousands of feet below the surface. These great depths make it prohibitive to mine from both a technology issue or economic issue. Even in areas where they are near the surface and even at the surface like Utica NY and Marcellus NY they have not been mined or used for fuel. There are many areas in Pa that these shales are exposed by highway cuts through mountains, yet these are not utilized commercially.
Further the BTU content is much lower than coal. Can either shale burn in a self sustaining fire? If I pile a ton of either shale and attempt to ignite it, will it burn? I think not.
Last, the coal companies are basing their complaint on the "intent" of the lessors and lessees at the time the leases were signed. Neither party had any hope, dream, plan, or any remote possibility that these shales contained any commercial viability. At these depths and at that time, the parties probably were unaware of their existence and certainly not their oil and gas potential.
Coal companies cannot have it both ways. They cannot argue "intent" claiming it gives them title to the oil and gas when there is no evidence they had knowledge at that time of the potential economic value of these shales.
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Permalink Reply by Jack Straw on
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RE: “Can either shale burn in a self sustaining fire?”
In places the Marcellus Shale has a TOC as high as 12%. The TOC of the Utica is much lower.
The answer is yes for the Marcellus (where the TOCs are higher), the answer is no for the Utica.
“Humans have used oil shale as a fuel since prehistoric times, since it generally burns without any processing.” Source: http://en.wikipedia.org/wiki/Oil_shale
RE:” The fact it is mined in other countries has little bearing on US law.”
Actually it is not a matter of US law, it is a matter of Pennsylvania law (it comes under the State’s purview). Regardless, organic shales have been mined in the United States and converted to oil and natural gas; this was accomplished using the Green River Formation at a pilot plant outside Rifle, Colorado. Oil prices are currently at a threshold where mining and processing oil from shale is economically feasible; but there are significant environmental concerns (similar to those associated with the strip mining and burning of coal).
Organic shales are a recognized resource, and recognized as such in the United States – Check out the USGS and the EIA websites.
RE: “Further the BTU content is much lower than coal.”
I am not sure as to the significance of that comment.
But the Marcellus Shale is much thicker than any PA coal seam.
A 64’ thick Marcellus Shale with a 12% TOC would have more organic content (BTUs) as an 8’ coal seam.
RE:” The shales with oil and gas are thousands of feet below the surface.”
Just as commercially viable CBM wells are thousands of feet below the surface; these great depths make it prohibitive to mine shales and coal from both a technology issue or economic issue.
RE: “Last, the coal companies are basing their complaint on the "intent" of the lessors and lessees at the time the leases were signed.”
I was not aware that coal companies were party to any “complaint’. I have not seen where coal companies have brought up the issue of “intent of the lessors and lessees at the time the leases were signed.” Please reference where you have found note of the involvement of coal companies in the pending matter before the Supreme Court.
RE: “Neither party had any hope, dream, plan, or any remote possibility that these shales contained any commercial viability.”
Very true. The Marcellus Shale was recognized as an organic shale; lacking in sufficient permeability to allow the movement of oil or gas from the shale to a well bore. The Marcellus Shale was not considered to be a potential reservoir; however, it was recognized as a source rock (capable of generating oil and gas that could migrate to a suitable nearby reservoir).
RE: “At these depths and at that time, the parties probably were unaware of their existence and certainly not their oil and gas potential.”
The Marcellus Shale has long been recognized as a source rock, its potential to generate oil and gas was indeed recognized. Until recently, you could only economically produce oil and gas from suitable porous and permeable reservoir rocks (such as the underlying Onadonga). The paradigm shift occurred when George Mitchell (of Mitchell Energy) developed the technology necessary to produce organic shale source rocks (initially in the Barnett Shale of Texas).
The Oil & Gas industry recognized the unique nature of the oil and gas shales; referring to them as “unconventional resources”.
RE: “Coal companies cannot have it both ways. They cannot argue "intent" claiming it gives them title to the oil and gas when there is no evidence they had knowledge at that time of the potential economic value of these shales.”
I agree. As I understand matters, in Pennsylvania, you can separate the subsurface into Oil, Gas, Coal and Minerals. And you can separate Minerals into specifics (Limestone, Iron Ore, Gravel, etc.).
Should the Marcellus Shale be determined (by the PA Supreme Court) to be a “Mineral”, that does not mean that someone who has the “Coal” rights would have the rights to that mineral. If the “Mineral” rights were separated and leased (or sold), then the Marcellus Shale could (likely would) end up being included.
If a landowner has acreage leased and HBP, then they might discover that the Marcellus Shale rights belong to them (and not the company that has their shallow (conventional) sand production).
Should the Marcellus Shale be determined (by the PA Supreme Court) to be a “Mineral”, this would doubtless raise havoc and result in the full employment of every Attorney licensed to practice law in PA.
I have yet to hear a convincing argument that unconventional Shale Bed Methane is closer to conventional Natural Gas than it is to unconventional Coal Bed Methane.
If the PA Supreme Court determines on the sole basis of Science and the precedent set in their 1983 ruling, then I predict that The Marcellus Shale will (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 chaos), then Shale Bed Methane will be declared conventional Natural Gas.
All IMHO,
JS
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