A Case to Watch: Butler v. Estate of Powers

October 2, 2011
by SUZANNE ILENE SCHILLER
MGKF News Flash

On September 7, 2011, the Pennsylvania Superior Court issued its decision in Butler v. Estate of Powers, 2011 Pa Super 198, sending the case back to the trial court to decide, in short, who owns the natural gas in the Marcellus Shale formation—the owner of the mineral rights, or the owner of the oil and gas rights.

This particular case begins a long time ago, in 1881, when Charles Powers sold 244 acres of land in Susquehanna County but reserved for himself and his heirs, among other things, the rights to "one half the minerals and Petroleum oils." Over a century later the Butlers, current owners of the property, filed an action seeking a declaration that Powers' heirs had lost the rights reserved to them in the deed. The jockeying for ownership was driven in large part, if not completely, by the potential that gas could be derived from the shale far below the surface of the ground and the primary question eventually faced by the Court was this: does a reservation of mineral rights include the gas in the Marcellus shale?

The legal issue of gas rights ownership in Pennsylvania is as old as the Powers deed. In 1882, a year after the Powers deed was written, the Pennsylvania Supreme Court held that the mineral rights reserved or transferred by deed did not necessarily include gas and oil rights but, instead, that the presumption was that the oil and gas rights were not transferred with the mineral rights. One hundred years later, in 1983, the Pennsylvania Supreme Court again drilled into the issue, holding that methane gas present in coal seams is owned by the party who owns the mineral rights, but the gas that migrates into surrounding formations is owned by the party who owns the oil and gas rights.

So where does that leave gas in the Marcellus Shale formation? The Butlers have argued that it is similar to the methane in coal seams, because in both cases the gas can be extracted only by releasing the gas from the mineral, a proposition the trial court disagreed with. But the Superior Court did not—at least not as a matter already settled. Rather, the Superior Court sent the case back to the trial court, giving the parties "the opportunity to obtain appropriate experts on whether Marcellus shale constitutes a type of mineral such that the gas in it falls within the deed's reservation."

This case, which appears to be one of first impression in Pennsylvania, is certain to be carefully watched because, whatever the outcome, it will have a dramatic impact on Marcellus shale exploration and production as well as exploration and production from other shale formations such as the Utica Shale