Butler v. Powers: Pennsylvania Superior Court Opens the Door to Revisit the “Dunham Rule” for Marcellus Shale

September 19, 2011

On September 7, 2011, Pennsylvania’s Superior Court issued an opinion in Butler v. Powers, No. 1795 MDA 2010. The decision did not change existing law or introduce new law, but opened a series of questions related to what previously was regarded as settled law regarding ownership of shale gas.

In Butler, the plaintiff filed an action seeking a declaratory judgment that its deed which included all of the minerals underlying the subject property included the Marcellus Shale formation and, therefore, included the Marcellus gas as well. The trial court cited to the “Dunham Rule” and granted the gas owners preliminary objections to the complaint. On appeal, the Superior Court remanded on the basis that it could not determine from the record whether the deed intended to include the Marcellus Shale in the term “mineral.” The court posed three questions and held that the parties needed to introduce expert testimony at trial in support of their position. The three questions were 1) whether Marcellus Shale constitutes a “mineral”; 2) whether Marcellus Shale gas constitutes the type of conventional natural gas contemplated in Dunham and Highland; and 3) whether Marcellus Shale is similar to coal to the extent that whoever owns the shale, owns the shale gas.

Although the decision did not change Pennsylvania law, this case should be monitored carefully because current production of some Marcellus Shale gas rests on conveyances of oil and gas where the “minerals” are owned by another.