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 Thomas P. Hartzfeld on April 5, 2012 at 4:19pm

It is my understanding that in the U.S. Steel vs Mary Jo Hoge case the court basically used the wisdom of Solomon and cut the baby in half ! In previous decisions the courts had ruled that in PA when you owned coal rights you owned the coal and the right to remove the coal and after the removal of the coal the void created by the removal of the coal reverted back to the surface owner after a reasonable  (non-specific) period of time. In the Hoge case the Court ruled the owner of the coal, (U.S. Steel), owned the methane contained within the coal (basically consisting of the "stumps and ribs" left to hold the roof up in the mine (common practice before Longwall mining))  while giving Hoge party the methane that had migrated out of the coal of it's own volition (the "fugacious" nature of gas) into the "void" created by the removal of the coal.  Your basic "Rule of Capture". ( try figuring out that division order).  Since the methane in the shale is NOT by nature fugacious and  is locked within the shale itself, in order to produce the methane the shale must be physically stimulated and broken up(fractured) in order to free the methane for production. Regardless of the historic value of the shale in place, it still is a recognized asset, and before you physically modify someone else's assets you would think you would need to ask their permission. (The don't touch my stuff rule !!!). The shale owners believe they have a dog in this fight and the Hoge case gives them a leg to stand on. This may very well send everyone, gas companies and landowners, back to square one.  As usual the winners will be the ones who brought us this arguement - the lawyers !!! 

Permalink Reply by Frank Walker on April 6, 2012 at 12:52am

Agreed regarding the lawyers.

And don't forget that deed searchers will also be huge winners.  If Dunham falls, many, many deeds will have to be re-searched, and much further back than previously was the norm.  It will be bedlam.  

Permalink Reply by Brian V. on April 6, 2012 at 5:07pm

Someone once told me that Pennsylvania and Alaska are the only states that consider oil and gas to be separate from minerals or that they can be reserved separately. In the other 48 when you have a "mineral" reservation it covers everything. Our title chain has a timber reservation from the late 1800's which without an action to quiet title could technically still be valid. The prior owners quieted title back in the 80's. Even still I've heard that actions to quiet title have been challenged. When you quiet title you have to go through the courts and the defendants would be, in our case the heirs to that Lumber Company. So really if your attorny did not technically give notice to all the heirs and one decided to do a family history project and find the Timber Reservation, and actually know what that meant and challenge the court ruling.

 

I guess I wouldn't try to quiet title to a mineral reservation nowadays with massive value of shale. Depending on this case you could be letting someone know that they have a right to at least the shale below you.  

Permalink Reply by owner on April 7, 2012 at 3:41am

Back in the 80's, the coal companies wanted the right to the gas so that they could dispose of the gas to make their mines safe.  Nobody wanted a methane explosion!   That is why the coal companies fought for the right to the gas.   The coal companies only wanted ownership of the methane in the coal so that they could remove it so that they could safely mine the coal.  Coal methane drainage was done to remove the gas from the coal seam to make the coal seam safe to mine.  Afterwards, they found out that they could profit from the gas.   Gas prices were high and they had alot of gas, why not sell it. 

CBM drainage is now done long in advance of mining to remove some of the gas and this gas is now sold.  There were times before consol gas existed, that Consolidation Coal Company made more money from it's gas removal than it made by mining coal.     

 

Now the logic has changed.   The gas has significantly more value and the coal operators or mineral operators can use the same previous logic to gain ownership of all of the gas rights.  The have already won the case that the ownership of the source rock enables them to own the gas in that source rock.  The gas must be produced by a source rock which has carbon.  All rocks are minerals, just of varying degrees.  

To me, the question is would the courts over rule 100 years of precedent.  The coal companies recieved this favorable ruling for safety issues.  In my opinion, the only way to beat this logic is to use this safety issue to the gas owners advantage.   This gas does not have to be removed for safety reasons, therefore the mineral owners do not "own" or have the right to remove the gas.   

 

Permalink Reply by Jack Straw on April 10, 2012 at 8:26am

RE: “Back in the 80's, the coal companies wanted the right to the gas so that they could dispose of the gas to make their mines safe.  Nobody wanted a methane explosion!   That is why the coal companies fought for the right to the gas.   The coal companies only wanted ownership of the methane in the coal so that they could remove it so that they could safely mine the coal.”

 

That makes for an interesting story, but unfortunately it is a “Fairy Tale”.

For the full (true) story, you need to read the Pennsylvania Supreme Court Decision: “U.S. Steel Corp. v. Hoge, 503 Pa. 140, 468 A.2d 1380”

The full text can be found here:

http://174.123.24.242/leagle/xmlResult.aspx?xmldoc=1983643503Pa140_...

 

What really transpired:

Landowners leased the Oil & Gas Rights.

The Oil & Gas Operator proceeded to drill into a Coal Seam at a depth of approximately 800 feet subsurface.

When the Company that had the Coal Rights learned that the Oil & Gas Operator was drilling into a deep Coal Seam and was producing Natural Gas from that Coal Seam they (U.S. Steel) “initiated actions in equity to terminate the intrusion upon its coal seam and to determine the ownership of, and right to develop, the coalbed gas”.

The coal (at 800’) was not being mined, nor was there intent on the part of the Coal Company to mine that coal.

The Court Case was about the ownership of Natural Gas present in a coal seam; did it belong to the Coal Owner or did it belong to the Natural Gas owner?

 

Pure and simple:

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.

 

RE: “CBM drainage is now done long in advance of mining to remove some of the gas and this gas is now sold.”

That is true; however, drilling and commercially producing CBM typically occurs at depths far below where coal can be drilling and commercially mined.

CBM is often drilled and produced from coal seams that are far too thin to be commercially mined.

The action of drilling and completing wells for CBM involves horizontal drilling within the coal seam, followed by hydraulic fracing. Where a coal seam has been exploited for CBM, it cannot (at a future date) be safely mined. The action of horizontal drilling and fracing a coal seam alters the coal seam in a manner that will prevent any future possibility of it being mined.

 

 RE: “To me, the question is would the courts over rule 100 years of precedent.”

There is no “100 years of precedent”. The only applicable precedent concerning the matter is the 1983 U.S. Steel v. Hoge. If you can present other applicable precedent please provide a link to that information. The presence of “100 years of precedent” seems to be another “myth” that has crept into the discussion. I have challenged a number of people to present details of this “100 years of precedent”; still no takers.

 

RE: “The coal companies recieved this favorable ruling for safety issues.”

Wrong, the PA Supreme Court Decision at no point stated that that the decision was made because of “safety issues”. How could the PA Supreme Court state that they made a “favorable ruling for safety issues” when the very act of drilling for CBM precludes future mining.

 

RE: “Nobody wanted a methane explosion!   That is why the coal companies fought for the right to the gas.”

Wrong, the Coal Companies simply wanted ownership over this valuable commodity. The lawsuit was instituted over drilling into a coal seam that could not be mined.

 

RE: “The coal companies only wanted ownership of the methane in the coal so that they could remove it so that they could safely mine the coal.”

Wrong, the removal of the methane in question was at a depth that could not be economically mined. And, removal of the methane by the methods used precludes the ability to subsequently mine the coal.

 

Your story seems to have made it into the CBM Mythology.

Read the  PA Supreme Court Decision, if you want to learn the truth.

 

All IMHO,

                   JS

Permalink Reply by Mike Knapp on April 10, 2012 at 9:22am

I'll offer another point to this argument.  If the coal owner did NOT own the gas in the coal, how is the coal owner going to remove the coal while leaving behind the natural gas for its rightful owner.  It makes sense for the gas in the coal to be included, as the coal can be completely removed as its own commodity.  Not so with the Marcellus shale.  It has little to no economic value outside of the gas contained within it.

Permalink Reply by Jack Straw on April 10, 2012 at 10:07am

RE : " It makes sense for the gas in the coal to be included, as the coal can be completely removed as its own commodity. Not so with the Marcellus shale. It has little to no economic value outside of the gas contained within it."

Excepting a very small amount of CBM removed for safety reasons in current mining, the vast majority of CBM is removed by horizontal drilling and hydro fracing. Subsequent to the removal of the CBM, the coal cannot be mined - and thus "has little or no economic value outside of the gas contained within it".

The coal seams expolited for CBM wells are not coal seems that are suitable for mining.

And, once a coal seam has been exploited for CBM is will not in the future be available for mining; CBM extraction methodology destroys the mining potential.

 

             JS

Permalink Reply by Mike Knapp on April 10, 2012 at 11:09am

Complicated case.  Will be very interesting to see what the courts come up with. 

Permalink Reply by Jack Straw on April 10, 2012 at 12:17pm

A complicated case indeed; one highly complicated by the peculiar precedent of U.S. Steel v. Hoge.

 

Currently matters are complicated.

In the distant future they could get even more complicated.

Horizontal Drilling and multi-stage fracing will only extract a relatively small percentage of the in situ Natural Gas from the organic Marcellus Shale.

After primary extraction (and perhaps a couple re-fracs) there might be a means of extracting significant additional hydrocarbons via Fire-Flood.

In the future, large swaths of the subsurface will have been penetrated by parallel well bores. Secondary hydrocarbon capture could potentially be accomplished by pumping compressed air down one well bore and igniting the fractured/dewatered organic shale – creating a Fire-Flood. This Fire-Flood could drive hydrocarbons from the spreading fire emanating from a central well bore into adjacent well bores. This has already been tested at a secret location.

The O & G industry are today doing things that were unimaginable 20 years ago; who can guess as to what might be accomplished 40 years from now.

 

If something like Fracing makes the nut cases squeal like stuck pigs, Fire-Flood will get them whining like a 747 on take off.

Warning to Anti-Fracers: fasten your seat belts and put up your tray tables - you are in for a rough ride!

 

JS

Permalink Reply by Mike Knapp on April 10, 2012 at 12:55pm

It's so frustrating trying to put your head around this case while simultaneously attempting to apply logic.   But I hear you on the developing technologies.  The cell phone in my pocket has more computing power than a room full of computers 50 years ago!  With the free flow of information due to high speed internet, things are going to be crazy (in all facets of society) in 50 years, I would surely imagine.

Permalink Reply by GBrewer on April 10, 2012 at 2:31am

The initial briefing schedule for this case has been set by the Supreme Court.

 

Per the e-docket,

Appellant

Butler, John E. and Mary Josephine

Brief

Due: May 15, 2012 Filed:

Reply Brief

Reproduced Record

Due: May 15, 2012 Filed:

 

The Appellant can seek an extension of time for filing their brief.

 

The Appellee's brief is due 30 days after the Appellant's Brief is filed, absent an extension.

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