PA Supreme Court determines Marcellus shale gas is covered by Dunham Rule

Burleson LLP

Yesterday, the Supreme Court of Pennsylvania reaffirmed the "Dunham Rule" as to Marcellus Shale natural gas. In Butler v. Powers, No. 27 MAP 2012 (April 24, 2013), the Court addressed the issue of whether the reservation of "one-half [of] the minerals and Petroleum Oils" contained in a deed from 1881 effectively reserved shale-based natural gas. Justice Baer, writing the majority opinion, stated that it did not.

Central to the analysis of the case was the applicability of Dunham v. Kirkpatrick, 101 Pa. 36 (Pa. 1882) and its progeny.  In Dunham, the Supreme Court held that a reservation or exception of "minerals," without any specific mention of oil, created a rebuttable presumption that the word "minerals" was not intended to reserve the oil, and that clear and convincing evidence is required to establish such an intention. The Supreme Court held that the same interpretation applies to natural gas in Bundy v. Myers, 94 A.2d 724 (Pa. 1953). The Butler Court stated that the well-established "Dunham Rule" (and subsequent case law) remains "viable", "controlling" and "unwavering in clarity."

In Butler, representatives of the Charles Powers Estate asserted that the language in the 1881 deed did effectively reserve the natural gas.  In doing so, they relied on United States Steel Corporation v. Hoge, 468 A.2d 1380 (Pa. 1983).  In Hoge, the Supreme Court held that the owner of the coal interest was also entitled to the coalbed methane embedded within the coal seam.  They argued that the Marcellus Shale is a mineral and, as such, one-half of the shale-based natural gas was effectively reserved in the 1881 lease.  The Butler Court found the Hoge case to be "distinguishable and inapplicable" because, among other reasons, (i) the coalbed methane was viewed as a dangerous waste product of the coal mining and (ii) the Hoge Court made a legal distinction between coalbed gas and natural gas.

While the "Dunham Rule" is anomalous relative to the laws of other gas-producing states, it is, nevertheless, the clarified rule of law in Pennsylvania.


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