Susquehanna Court Considers 110-Year-Old Law – Is Gas A Mineral
By: Scott P. Borsack, Esq.
I joke about this quite often. You might have heard me comment about it at a seminar. There are deeds and leases which convey from one party to another the right to explore for “minerals” or to extract “minerals” from the property which is identified in the deed. It is natural to ask whether oil and gas are “minerals;” for if they are, the document conveys or retains the rights to oil and gas by the reference to “minerals.” To answer this timeless question, I think back to my fifth grade earth science class where the teacher said in life things can be reduced to three distinct categories – animal, vegetable or mineral. Since gas and oil are not living, breathing things, they could be neither animal nor vegetable. Thus, my fifth grade teacher would classify them as minerals. The Supreme Court of Pennsylvania, some 110-years ago, created an undefined fourth category finding that gas and oil are not minerals. Now, the Common Pleas Court in Susquehanna County is posed to reconsider that holding. First some background.
The Supreme Court of the Commonwealth held, in Dunham & Shortt v. Kirkpatrick, that the use of the phrase “all minerals,” contained in an agreement of sale did not include oil. The court noted that the term “minerals” in its broadest sense might include oil but in the “plain, ordinary and popular sense,” most people thought that “minerals” did not include petroleum products. The justices apparently did not go to my elementary school. The Court got a second chance at the subject 23 years later in Silver v. Bush, where a claim to natural gas was made through a reservation in a deed of “the minerals underlying” the land. Applying the rule from Dunham, in what has become known as the Dunham Rule, the Supreme Court held that since oil was not a mineral, neither was natural gas. Since the creation of the Dunham Rule, several courts in Pennsylvania have applied it to conclude that oil and gas are not minerals. The Dunham Rule now concludes that if, in connection with a land conveyance, there is a reservation or an exception of “minerals” without any specific mention of natural gas or oil, it is presumed that oil and gas rights are not reserved. Now let’s fast forward to modern day.
A Superior Court case which started in Susquehanna County started two years ago by John and Mary Butler seeks a determination that they owned the oil and gas rights to a 244-acre parcel of land. The Butlers’ property rights can be traced to a deed from 1881 where the seller conveyed the land but reserved “half of the minerals and petroleum oils.” A court below held that the law on the subject was not so clear, and now the Common Pleas court will decide whether the Dunham Rule is still good law today. The court may decide that the phrase “petroleum oils” is not specific enough to reach natural gas or that “minerals” do not include “natural gas” as would seem to be required by the Dunham Rule. I suppose that the court could also find that since there was a specific mention of a reservation of “petroleum oils” that, as result only “minerals” and “oil” were reserved and that natural gas is not included with either.
It’s not likely that the Common Pleas court will upset the apple cart here. The Dunham Rule has been cited as authority in Pennsylvania for 110 years. Scores of deeds and leases around the state rely upon the rule. In practice those who intend to reserve oil and gas rights specifically mention “oil and gas” and do not rely upon “minerals” to deal with gas and oil rights. Those who use “minerals” in this state have bargained for, and dealt with, rights to sands and stones and metal ores but not to “oil and gas.” To suddenly find 110 years later that those who used “minerals,” but did not intend to include “oil and gas,” now suddenly have a windfall because a court says so would deal a death blow to the oil and gas industry in this state. Claims for royalties would spring up today relying on deeds from generations ago where historically no rights were understood to exist. Thousands of leases would be invalidated. Those who received signing bonuses would suddenly be at risk to claims from others who would now have rights to gas royalties because in the chain of deeds from which they claim their property rights, mineral rights were reserved to someone else. Courts do not generally set 110 years of history aside without good reason. I cannot imagine that good reason exists here.
So while headlines are printed around the Commonwealth about how one county court is posed to stand the fledgling oil and gas industry up on its ear over the meaning of one simple word, I would not count on a ground breaking decision here. There is no good reason to make new law in this instance. Until finally resolved, the case will sell a few newspapers.
I joke about this quite often. You might have heard me comment about it at a seminar. There are deeds and leases which convey from one party to another the right to explore for “minerals” or to extract “minerals” from the property which is identified in the deed. It is natural to ask whether oil and gas are “minerals;” for if they are, the document conveys or retains the rights to oil and gas by the reference to “minerals.” To answer this timeless question, I think back to my fifth grade earth science class where the teacher said in life things can be reduced to three distinct categories – animal, vegetable or mineral. Since gas and oil are not living, breathing things, they could be neither animal nor vegetable. Thus, my fifth grade teacher would classify them as minerals. The Supreme Court of Pennsylvania, some 110-years ago, created an undefined fourth category finding that gas and oil are not minerals. Now, the Common Pleas Court in Susquehanna County is posed to reconsider that holding. First some background.
The Supreme Court of the Commonwealth held, in Dunham & Shortt v. Kirkpatrick, that the use of the phrase “all minerals,” contained in an agreement of sale did not include oil. The court noted that the term “minerals” in its broadest sense might include oil but in the “plain, ordinary and popular sense,” most people thought that “minerals” did not include petroleum products. The justices apparently did not go to my elementary school. The Court got a second chance at the subject 23 years later in Silver v. Bush, where a claim to natural gas was made through a reservation in a deed of “the minerals underlying” the land. Applying the rule from Dunham, in what has become known as the Dunham Rule, the Supreme Court held that since oil was not a mineral, neither was natural gas. Since the creation of the Dunham Rule, several courts in Pennsylvania have applied it to conclude that oil and gas are not minerals. The Dunham Rule now concludes that if, in connection with a land conveyance, there is a reservation or an exception of “minerals” without any specific mention of natural gas or oil, it is presumed that oil and gas rights are not reserved. Now let’s fast forward to modern day.
A Superior Court case which started in Susquehanna County started two years ago by John and Mary Butler seeks a determination that they owned the oil and gas rights to a 244-acre parcel of land. The Butlers’ property rights can be traced to a deed from 1881 where the seller conveyed the land but reserved “half of the minerals and petroleum oils.” A court below held that the law on the subject was not so clear, and now the Common Pleas court will decide whether the Dunham Rule is still good law today. The court may decide that the phrase “petroleum oils” is not specific enough to reach natural gas or that “minerals” do not include “natural gas” as would seem to be required by the Dunham Rule. I suppose that the court could also find that since there was a specific mention of a reservation of “petroleum oils” that, as result only “minerals” and “oil” were reserved and that natural gas is not included with either.
It’s not likely that the Common Pleas court will upset the apple cart here. The Dunham Rule has been cited as authority in Pennsylvania for 110 years. Scores of deeds and leases around the state rely upon the rule. In practice those who intend to reserve oil and gas rights specifically mention “oil and gas” and do not rely upon “minerals” to deal with gas and oil rights. Those who use “minerals” in this state have bargained for, and dealt with, rights to sands and stones and metal ores but not to “oil and gas.” To suddenly find 110 years later that those who used “minerals,” but did not intend to include “oil and gas,” now suddenly have a windfall because a court says so would deal a death blow to the oil and gas industry in this state. Claims for royalties would spring up today relying on deeds from generations ago where historically no rights were understood to exist. Thousands of leases would be invalidated. Those who received signing bonuses would suddenly be at risk to claims from others who would now have rights to gas royalties because in the chain of deeds from which they claim their property rights, mineral rights were reserved to someone else. Courts do not generally set 110 years of history aside without good reason. I cannot imagine that good reason exists here.
So while headlines are printed around the Commonwealth about how one county court is posed to stand the fledgling oil and gas industry up on its ear over the meaning of one simple word, I would not count on a ground breaking decision here. There is no good reason to make new law in this instance. Until finally resolved, the case will sell a few newspapers.