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Journal of World Energy Law and Business, 2012, Vol. 5, No. 1

Brief

We shale overcome? A US court issues an unsettling


decision on Marcellus property rights
Alisa Newman Hood*

Shale gas is transforming the natural gas market in the USA. It has driven down the price
of North American gas and, much to the delight of politicians, begun to reduce US
dependence on foreign energy sources at least for power generation. Pennsylvanias
Marcellus Shaletogether with North Dakotas Bakken Shale and Texass Barnett
Shalehas emerged as a major source of shale gas, with powerhouse independents
such as Chesapeake and Anadarko snapping up leases. However, a case now wending
its way through the Pennsylvania courts has unsettled a previously established area of law
regarding property rights in natural gas, setting the stage for a legal fight reminiscent of
the golden age of US oil of the turn of the 20th century.
Although it has been in existence for millennia, shale gas has emerged only in the past
decade as a valuable resource. This is due to the relatively recent development of new
techniques to extract it, coupled with a spike in US natural gas prices in 20072008,
which heralded the profitability of shale gas development. (It remains to be seen whether
such projects will remain economic in todays lower gas price environment.)
In the USA, the advent of shale gas has the potential to yield fortunes for individuals
and companies who hold the property rights to the resources. This is a uniquely North
American phenomenon. The USA, together with Canada, is virtually alone in recognizing
private ownership of subsurface minerals; in most jurisdictions, ownership rests only with
the sovereign.

Adjunct Professor (International Oil and Gas Law and Policy) at Georgetown University Law Center.

The Authors 2012. Published by Oxford University Press on behalf of the AIPN. All rights reserved.

doi:10.1093/jwelb/jwr027

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Shale gas is transforming the natural gas market in the United States. It has driven
down the price and, much to the delight of politicians, begun to reduce US dependence on foreign energy sources. Pennsylvanias Marcellus Shale has emerged as a
major source of shale gas, with independents such as Chesapeake and Anadarko
snapping up leases. However, a case now wending its way through the Pennsylvania
courts has unsettled a previously established area of law regarding property rights in
natural gas, setting the stage for a legal fight reminiscent of the golden age of US oil of
the turn of the 20th century.

Alisa Newman Hood  We shale overcome? A US court issues an unsettling decision on Marcellus property rights

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And as each oil and gas boom throughout US history has shown, the litigation follows
the money as potential stakeholders scramble to secure their rightswhich leads to the
case of Butler v Charles Powers Estate 2011 WL 3906897 (Pa. Super.).

1. The Facts
In 1881, a certain Charles Powers caused to be recorded a deed of title to his 244 acres in
scenic Susquehanna County, Pennsylvania containing the following exception which
reserved:
[O]ne half the minerals and Petroleum Oils to said Charles Powers his heirs and
assigns . . .

2. Ditching Dunham
Prior to Butler, the Pennsylvania Supreme Courts decision in Dunham v Kirkpatrick, 101
Pa. 36 (1882) had essentially governed oil and gas rights jurisprudence in the state for
more than 100 years. As the Butler court stated, the so-called Dunham Rule held that if,
in connection with a conveyance of land, there is a reservation or an exception of minerals, without any specific mention of gas or oil, a presumption. . . arises that the word
minerals was not intended by the parties to include natural gas or oil. In other words,
if a landowner intends to retain or grant oil and/or gas rights, he would be well-served to
use the words oil and/or gas in the conveyance; failing that, he would need to demonstrate strong evidence that both parties to the conveyance had such intent.
The Butler trial court, like so many Pennsylvania courts before it, applied the Dunham
Rule, which essentially rendered Butler an open and shut case. Because the Charles Power
deed contained the word minerals but did not mention natural gas, and because the

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That a deed containing such an exception was recorded during the decade of the 1880s
bears noting. At that time, Pennsylvania was in the midst of a historic oil boom that had
begun in 1859 with the first successful use of a drilling rig to produce oil at the Drake
well in the town of Titusville and would continue for the next several decades.
Landowners raced to secure rights to extract the minerals beneath their lands and
made small fortunes by selling the rights to developers. In this context, the Powers
deed was very much a creature of its age.
In the intervening years, John E Butler and Mary Josephine Butler purchased the
Powers land. Fast forward to 2009, as shale gas mania was reaching fever pitch in
Pennsylvania, William and Craig Pritchard, descendants of Charles Powers, filed for a
declaratory judgment in Pennsylvania state court claiming that the reservation of rights
contained in the 1880 deed included Marcellus shale gas.
The question that ultimately found its way to the Pennsylvania Superior Court (appeals
court) was whether the reservation of minerals and Petroleum Oils to the Charles
Powers descendants contained in the deed included the reservation of shale gas rights.

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Journal of World Energy Law and Business, 2012, Vol. 5, No. 1

Charles Power descendants had not shown clear and convincing evidence (or, in fact, any
evidence at all) that the parties to the conveyance intended to include natural gas rights in
the reservation of mineral rights, the deed did not reserve shale gas rights to them.
In a surprise decision, the Pennsylvania Superior Court rejected the lower courts
application of the Dunham Rule, stating that the Dunham and Highland [Highland v
Commonwealth, 400 Pa. 261, 161 A.2d 390 (1960), cert. denied, 364 U.S. 901, 81 S.Ct. 234,
5 L.ED.2d 194 (1960), a decision which confirmed the Dunham Rule] decisions do not
end the analysis. The Pennsylvania Superior Court then returned to first principles by
proceeding to inject into the discussion perhaps one of the most fundamental concepts of
US property law.

At the trial court level, the Charles Power descendants had distinguished the Dunham and
Highland cases, arguing that the conventional gas reservoirs at issue in those cases were
ferae naturae (literally, wild nature), whereas Marcellus shale contains unconventional
gas reservoirs that are virtually inseparable from the shale they inhabit.
As every first-year law student in the USA can dutifully recite, the property law concept
of ferae naturae and the Rule of Capture which emanates from it was first enunciated
in Pierson v Post, the seminal property rights case involving the capture of a fox by a
hunter on a neighbors land (Pierson v Post, 3 Cai. 175 (N.Y. 1805)).
Alongside courts in other oil-producing states, the Pennsylvania Supreme Court extended the ferae naturae construct to fossil fuels, to which it applied an analogous Rule
of Capture (see, e.g. Westmoreland & Cambria Natural Gas Co. v De Witt, 130 Pa. 235
(1889), Jones v Forest Oil Co., 194 Pa. 379 (1900)). The application of the Rule of Capture
allowed landowners and oil developers to overcome the practical problem of not being
able to identify the precise location of an underground oil reservoir. The Rule of Capture
essentially held that a landowner/leaseholder was entitled to claim title to any oil he
extracted via a well on his own land; he did not need to show that the reservoir was
located fully beneath his land. Without such a rule, neighboring landowners could have
claimed title to the oil, creating a legal cloud that would have stymied development of oil
reservoirs, which, at the time, the US federal and state governments very much wanted to
promote. Therefore, the characterization of fossils fuels as ferae naturae and the application of the Rule of Capture are, and should be seen as, policy making by courts as much
as statements of legal principle. Though arguably the rationale behind the policy has long
since evaporated geological surveys can now predict the location of reservoirs with
considerable accuracy the Rule of Capture persists in US mineral rights jurisprudence to
this day.
At the trial level, in an argument similar to their distinguishing shale gas from ferae
naturae, the Charles Powers descendants also relied on the Pennsylvania Supreme
Courts decision in U.S. Steel Corp. v Hoge, 503 Pa. 140, 468 A.2d 1380 (1983). In that
case, the court found that such gas as is present in coal must necessarily belong to the
owner of the coal, so long as it remains within his property and subject to his exclusive

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3. Seizing Upon the Rule of Capture

Alisa Newman Hood  We shale overcome? A US court issues an unsettling decision on Marcellus property rights

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4. History Repeats
To many, it beggars belief that, some 150 years following the discovery of oil in commercial quantities in Pennsylvania, the states courts are still debating the fundamental
question of what constitutes a mineral. It is hardly coincidental that the governing line of
cases on which the Butler court relied dates back to the 1880s, the beginning of the last
fossil fuel boom in Pennsylvania. To a large extent, mineral rights jurisprudence in
Pennsylvania has remained essentially static for more than a century; as the states conventional oil assets were exhausted, so was the jurisprudence. The advent of shale gas has
required Pennsylvania and other states courts to pick up essentially where they left
off.
For those with a stake in Marcellus Shale, however, the Butler case represents much
more than an interesting historical development. As it currently stands, the Butler courts
decision represents a possible upending of established case law on which stakeholders
could have reasonably relied prior to the decision, thereby potentially destabilizing the
Marcellus shale legal regime. Landowners, leaseholders and lawyers alike will be watching
this space.

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dominion and control, (i.e. so long as it has not assumed characteristics of ferae naturae). The Charles Powers descendants advanced the argument that Marcellus shale is
analogous to coalbed gas (methane) in that the natural gas contained in both coalbeds
and shale can be extracted only when the coal or shale is in the ground by the hydrofracturing (commonly known as fracking) method. Due to the inseparability of shale
gas from shale, therefore, the Charles Power descendants argued, whoever owns the
shale, owns the gas.
In summarizing its decision in Butler, the Pennsylvania Superior Court stated that the
question of ownership of shale gas essentially turns on whether shale gas is analogous to
the conventional gas at issue in the Dunham and Highland cases in which case it would
be excluded from a definition of mineral rights - or to the coalbed methane at issue in
the Hoge case in which case it would be included. Concluding that this question had not
yet been answered, the Butler court reversed the trial courts decision and remanded the
case for the purpose of allowing the parties to obtain expert testimony aimed at properly
classifying Marcellus shale. The Butlers, not surprisingly, have filed a petition for review
in the Pennsylvania Supreme Court.