On April 24, 2013, the Pennsylvania Supreme Court issued its highly anticipated decision in the Butler v. Charles Powers Estate case. The Supreme Court decided to maintain the status quo in Pennsylvania by reaffirming the application of the Dunham Rule, meaning that there will not be a sea change in the Commonwealth regarding the interpretation of oil and gas conveyances.
The Dunham Rule requires that, for an interest in oil and gas rights to be reserved in a deed, the term “natural gas” must be specified in the reservation. At issue in the case was whether a reservation of “minerals” in an 1882 deed included Marcellus Shale gas. The trial court applied the Dunham Rule to find that the reservation did not include Marcellus Shale gas.
On appeal, the Superior Court reversed and remanded for further proceedings to allow expert testimony on whether Marcellus Shale gas constitutes a “mineral.” The Supreme Court granted an Allowance of Appeal on the issue of whether the Superior Court erred in remanding the case for expert testimony about the Marcellus Shale and the gas contained therein.
The current property owners, John and Mary Josephine Butler, argued that it was irrelevant whether modern-day experts consider Marcellus Shale a “mineral.” Rather, they argued that the Dunham Rule established a presumption that a reservation of “minerals” does not include oil and gas. This presumption can only be rebutted by evidence that it was the intent of the parties to this particular conveyance to include oil and gas in the reservation of “minerals.”
The Supreme Court rejected the Superior Court’s analysis and made clear that, absent the terms “oil” or “natural gas” being included within a reservation for mineral rights within a private deed, oil or natural gas are not considered part of the reservation unless clear and convincing evidence by the proponent of the reservation is produced. In the end, the Pennsylvania Supreme Court chose not to disrupt over a century’s worth of precedent upon which generations of oil and gas conveyances in the Commonwealth have been based. Hence, with the certainty of the Dunham Rule preserved, Pennsylvania will continue to require inclusion of the phrase “natural gas” in any deed reservation intending to reserve an interest in natural gas – including the natural gas found within the Marcellus and Utica Shale formations.
Posted by Michael G. Connelly. Mr. Connelly is co-chair of the firm’s Shale Gas practice group and chair of the Pittsburgh Litigation Group.