Butler v. Charles Powers Estate Superior Court Decision Causes Uncertainty with Unconventional Gas Leases

Abstract

The Superior Court’s decision in Butler v. Charles Powers Estate is causing some uncertainty with respect to the validity of certain natural gas leases in Pennsylvania’s Marcellus Shale region. The issue before the court involved disputed ownership of the natural gas in the Marcellus Shale (and by implication, other unconventional natural gas plays in Pennsylvania). An 1881 deed reserved to Charles Powers, his heirs and assigns, one half the “minerals and Petroleum Oils” beneath the land. The Butlers brought a quite title action against the heirs seeking ownership of the reserved “minerals and petroleum oils” based on adverse possession. The trial court, citing the Dunham Rule, dismissed with prejudice the heirs’ request for a declaratory judgment that the reservation in the deed reserved to the heirs one-half ownership of the natural gas trapped within the Marcellus Shale on the basis that the deed did not specifically reference natural gas. The Superior Court reversed and remanded, reasoning that the Dunham Rule does not end the analysis, absent a more sufficient understanding of whether, among other things: (1) Marcellus Shale constitutes a “mineral”; (2) Marcellus Shale gas constitutes the type of conventional natural gas contemplated in Dunham and subsequent decisions; and (3) Marcellus Shale is similar to coal to the extent that whoever owns the shale, owns the shale gas. The case was remanded to the trial court to develop the record as to whether the Marcellus Shale constitutes a type of “mineral” such that the gas trapped within the shale falls within the deed’s reservation. The Butlers filed a petition for allowance of appeal with the Pennsylvania Supreme Court on October 7, 2011.