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Cabot, Range: Court Case Impact on Leases Should Be Minimal

Two companies operating in the Marcellus Shale announced this week that they do not believe a recent ruling by the Pennsylvania Supreme Court will have an impact on their substantial leaseholds in that state's portion of the play.

On Sept. 7 the state's highest court reversed and remanded a lower court decision in Butler v. Charles Powers Estate, ruling that plaintiffs in the case should be allowed to make the argument that Marcellus Shale meets the legal definition of a "mineral." Under that scenario, shale gas would be considered a commodity in the same manner as coalbed methane is a commodity derived from coal. In Pennsylvania commodities must be specifically mentioned in lease agreements to be valid (see Shale Daily, Sept. 19).

Cabot Oil & Gas Corp. announced Monday that it has reviewed legal documents surrounding its leasehold in Susquehanna County, PA, and determined that the ruling will have little to no impact on the Houston-based company.

"Historically, there has been no exploration and production activity in the area where Cabot operates. Therefore, the minerals have not been severed into separate estates," Cabot CEO Dan Dinges said Monday. "The Butler case concerns language severing the minerals from the surface. Cabot's leases have express language covering oil and gas; therefore we do not see an impact of the Butler case on Cabot's leasehold."

On Sunday Range Resources Corp. said it had directed its land staff to review a sample of its lease agreements. The Fort Worth, TX-based company said its largest leases in Lycoming County, PA, were acquired from owners who acquired their interest from mineral tax assessments created by reservations that specifically treat "minerals" and "gas" on the same basis.

Range also found that 85% of sampled leases in southwestern Pennsylvania were from owners with full ownership of oil, gas and minerals. On the remaining 15%, the company said it would have to analyze the specific language of the leases to see if any partial interests or rights were held by other parties.

"While this issue is handled in the courts, Range plans on conducting business as normal but identifying where there could be additional business risks if the court rendered an adverse interpretation," Range said. "As drilling units are formed, title attorneys will identify any leasehold that could be impacted by the pending court actions. Range plans to make an informed business decision on a case-by-case basis for its future drilling operations."

Range said it was considering three options before the courts settle the issue:

"[We] will treat this uncertainty similar to other customary title issues in our normal course of business," Range said, adding that the company doesn't expect the ruling to affect day-to-day operations. The company added that it held no acreage in Susquehanna County.

According to the latest figures in NGI's Shale Daily, Range has a position of 1.048 million net acres in the Marcellus, second only to Chesapeake Energy Corp. (see Shale Daily, Sept. 26). Meanwhile Cabot has a position of 193,000 net acres in the Marcellus.

"In our leases, we have a very broad definition of gas that encompasses all forms produced regardless of mineral source," Dinges said.

Travis Windle, spokesman for the Marcellus Shale Coalition (MSC), told NGI's Shale Daily on Monday that the organization was "continuing to closely monitor developments surrounding this case," but MSC President Kathryn Klaber said it shouldn't affect the industry.

"This does not change the law, and in fact isn't even a decision," Klaber said. "What happened is that the [Supreme] Court sent the case back to the Common Pleas Court [of Susquehanna County] with additional questions to consider. That is all."

Range said it had consulted with several legal experts in Pennsylvania, most of whom said "the courts will ultimately decide the case based on the longheld view that unless explicitly stated, [mineral] interests are not conveyed or reserved."

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