Pennsylvania Supreme Court Resolves Marcellus Shale Ownership And Lease Uncertainty By Reaffirming Longtime 'Dunham' Rule

Concludes that Natural Gas Produced from the Marcellus Shale Formation is not a "Mineral"

Natural gas producers and landowners alike breathed a sigh of relief on April 24, 2013 as the Pennsylvania Supreme Court (the "Supreme Court" or "Court") overturned a lower court decision that questioned whether subsurface ownership rights of natural gas in shale formations should be treated differently than ownership rights of natural gas in conventional formations. The uncertainty began in 2011, when the Pennsylvania Superior Court (the "Superior Court") suggested that the Dunham Rule—a century-old rule creating a rebuttable presumption that reservations of "minerals" in property conveyances do not include oil or natural gas—may not apply to natural gas found in the unconventional Marcellus shale play. See Butler v. Charles Powers Estate, 29 A.3d 35 (Pa. Super. 2011). However, the Supreme Court recently held that there is a presumption that property conveyances describing "minerals," without specific reference to natural gas, do not include the natural gas found in the Marcellus shale formation. Butler v. Charles Powers Estate, No. 27 MAP 2012. If the Dunham Rule ultimately were not applied to unconventional shale plays, the result could have upended thousands of Marcellus shale gas leases signed in the Commonwealth of Pennsylvania. The Supreme Court's decision resolves any uncertainty by extending the Dunham Rule to natural gas extracted from the Marcellus shale play.

The Dunham Rule

Pennsylvania allows property owners to sever ownership of the property's surface from ownership rights to the subsurface, which includes the right to extract coal, oil, natural gas, or other minerals. The Supreme Court, in Dunham & Short v. Kirkpatrick, 101 Pa. 36 (1882) and Highland v. Commonwealth, 161 A.2d 390 (Pa. 1960), held that a reservation or exception in a deed reserving "minerals," without any specific mention of natural gas or oil, creates a rebuttable presumption that the grantor did not intend that the term "minerals" include natural gas or oil. Known as the Dunham Rule, this presumption can be rebutted only by presenting clear and convincing evidence that the parties intended otherwise at the time of the conveyance. See Highland, 161 A.2d at 398-99.

The Butler Case

Butler v. Charles Powers Estate arose from a deed recorded in October of 1881 conveying 244 acres of land in Susquehanna County, Pennsylvania, but reserving for the grantor Charles Powers "one...