The Pennsylvania Supreme Court has introduced a measure of uncertainty into some ownership claims for the resource rights to Marcellus Shale gas, ordering a lower court to consider whether the owner of the shale also owns the shale gas in the same manner that state law declares that coalbed methane belongs to the owner of the coal.
"It is hard to imagine a more unfortunate time for an appellate court to introduce uncertainty into a fundamental issue of property law," said attorney Russell L. Schetroma, who practices with Steptoe & Johnson in Meadville and Canonsburg, PA.
The decision "challenges a settled and widely followed principle of Pennsylvania property law while remanding the case for trial and probable subsequent appeal that will leave this fundamental issue of oil and gas title law uncertain for years."
The case has "the potential for judicially caused land title chaos affecting the Commonwealth's greatest potential driver of wealth and employment," Schetroma said.
According to a precedent with over 100 years standing, the conveyance of mineral rights does not include either petroleum oils or natural gas unless those commodities are specifically mentioned. In other words, the legal definition of "minerals" does not include oil and gas, and further, the legal definition of petroleum oils does not include natural gas, unless it also is specifically mentioned.
But whether that long-standing precedent applies to the Marcellus Shale and its gas has been thrown open to question. The Court of Common Pleas of Susquehanna County thought it did and applied the precedent and dismissed a claim.
But in its Sept. 7 decision in Butler v. Charles Powers Estate, the high court reversed and remanded the lower court decision. The high court said the plaintiffs in the case should be given the chance to prove that the Marcellus Shale is a "mineral" and the treatment of shale gas should be the same as coal and coalbed gas, rather than the treatment afforded conventional oil and natural gas reservoirs. If this were proven it would mean any Pennsylvania deed conveying "mineral" rights would include the shale and its gas, just as conveyance of the coal mineral includes the coalbed gas.
Schetroma said companies may want to defer drilling on any properties that might be subject to the an ultimate decision on the question. Also, "companies need to review their force majeure language to determine if it can be used to assert a continuance of leases pending a resolution of this unanticipated legal uncertainty." It also may be possible to negotiate amendments to leases.