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State Supreme Court affirms Dunham Rule for Marcellus Shale

By - Last modified: April 25, 2013 at 11:38 AM

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The average person would not consider natural gas a mineral, in the ordinary use of the word, and standard Pennsylvania property law should continue not to do so either, the state Supreme Court said Wednesday.

The court issued an opinion upholding the Dunham Rule, an 1882 precedent that codified conventions first applied in the early 1800s. The case was of great concern to landowners and drillers involved in the Marcellus Shale, who feared thousands of leases could be invalidated if the court found the Dunham Rule inapplicable.

The court’s unanimous ruling concerned Butler v. Powers Estate, a case involving an 1881 deed used to transfer a property in Susquehanna County. The deed reserved “one-half the minerals and Petroleum Oils” to the seller, Charles Powers, and his heirs. Powers’ heirs filed court papers arguing, based on the deed, that they owned one-half of any Marcellus Shale natural gas found on the property.

According to the Dunham Rule, the word “minerals” in a deed is presumed not to cover natural gas or oil, absent clear evidence to the contrary. The state Superior Court, however, cited a 1983 decision that conferred ownership of coalbed gas to the owner of the coal seam, and ordered the lower court to hear testimony on whether Marcellus Shale gas should be treated that way as well.

The Superior Court erred, the Supreme Court said.

“We reaffirm that the rule continues to be the law of Pennsylvania,” the high court said. “In our view, neither the Superior Court nor Appellees have provided any justification for overruling or limiting the Dunham Rule and its longstanding progeny that have formed the bedrock for innumerable private, real property transactions for nearly two centuries.”

The 1983 coalbed decision did not discuss the Dunham Rule and is not relevant, the court said.

Advocates for drillers and landowners had said limiting the Dunham Rule’s scope risked throwing the rapidly developing shale gas industry into legal turmoil.

“Preservation of the Dunham Rule — which has served the Commonwealth well for more than 130 years — will provide continued legal certainty to landowners and their lessees and foster the continued growth of the Marcellus Shale industry, a major economic driver for Pennsylvania,” the Marcellus Shale Coalition said in an amicus brief it filed in the case.


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