Is Marcellus Shale a Mineral? An Important Question in PA

gas drillingA court case in Pennsylvania may have a chilling effect on Marcellus gas drilling in the state even before it’s finally decided. This is a bit complicated, so buckle up! And be sure to read this post if you own land in PA.

Full Disclosure: MDN’s editor is not a lawyer. I believe the information below to be correct and accurate, but I make no guarantees! If you are a lawyer who specializes in real estate, especially in mineral rights in PA, feel free to leave a comment.

The Marcellus Shale is a rock layer in the ground—by all accounts and by anyone’s definition, it’s a mineral. But what about the gas, or oil, it contains? Is that gas and/or oil a mineral too? For legal purposes in PA, the answer would be “no”—unless the courts change it.

Pennsylvania is unique among states in that “mineral rights” do not expressly include oil and gas. If all rights to a piece of land are being conveyed to a buyer, no problem. All is all and includes oil and gas as well as anything else. But if mineral rights were at some point separated from the deed, and if someone else owns those rights, oil and gas is NOT assumed to be part of those rights unless there is language specifically making them a part. This precedent in PA law goes all the way back to 1882 and is referred to as the “Dunham rule.” So under PA law, Marcellus Shale is not a “mineral” for the purposes of mineral rights.

That is, until possibly now. A lawsuit filed two years ago in Susquehanna County, PA claimed that land conveyed back in 1881, which severed the mineral rights “and petroleum oils” giving half to one person and half to another, does not include natural gas (as petroleum oils are not gas). The original court hearing the case decided that indeed gas is not oil and since gas is not specifically conveyed, the Dunham rule is in force, therefore gas rights were not conveyed back in 1881 and stay with the original deed.

But the PA Superior Court has overturned that decision saying the Dunham rule should not necessarily be the deciding factor, and the Superior Court has instructed the lower court to hear expert testimony on whether or not Marcellus Shale is indeed a mineral. In other words, the Superior Court is challenging the Dunham rule itself. If the courts find that gas is a mineral and part of mineral rights, unless otherwise stipulated in a deed, it would have profound consequences across the state. The uncertainty about it is already having an effect.

Ruling the shale is a mineral "would upset 110 years of oil and gas law, which the courts don’t want to do," said Gregg M. Rosen, who represents several drilling companies for McGuireWoods LLP, Downtown [Pittsburgh]. "And it would turn a billion-dollar industry on its head, subjecting oil and gas drillers to many lawsuits."

Rosen is one of a few lawyers who doubts the courts will overturn a century of precedent. But the ramifications are potentially so big that they’re all keeping watch in Pennsylvania.

"Anyone who’s interested in the definition of minerals or who’s interested in the rights of the Marcellus shale should pay attention to this case. And they are," said Paul Kelly, a retired attorney from Susquehanna County who was one of the first lawyers on the case.

It’s hard to say how many people and companies the case could affect, but it’s likely to be a significant number, said Joshua Lorenz, who represents landowners for Meyer, Unkovic & Scott LLP, Downtown [Pittsburgh]. Mineral rights have been severed in land deals going back to the mid-1800s, and older deals were not as detailed as they are today. Anyone whose estate accounts only generically for mineral rights could be affected, he said.

Pifer said the case has cast a pall of uncertainty over the Marcellus shale.

"The frustrating thing for the state of the law is that we had — whether it was good or not — we had what was believed to be established case law," Pifer said. "Now … we really don’t know which competing owner owns the Marcellus shale."*

*Pittsburgh Tribune-Review (Sep 22, 2011) – Susquehanna County court asks: Is shale a mineral?