Steptoe & Johnson PLLC: Pennsylvania Supreme Court Reaffirms Dunham Rule

By Russell L. Schetroma and Nathaniel I. Holland 

In a unanimous opinion (Butler v. Charles Power Estate, No. 27 MAP 2012) by Justice Baer issued April 24, 2013, the Pennsylvania Supreme Court reaffirmed the Dunham Rule, holding that a reservation of minerals in a deed does not reserve the gas in unconventional formations, such as the Marcellus Shale [enhanced version available to lexis.com subscribers]. The nineteenth century case Dunham v. Kirkpatrick [enhanced version] created a rebuttable presumption that a reservation of "minerals" does not reserve the oil and gas. The Superior Court decision on appeal had cast doubt on whether the long-established Rule applied to unconventionally-produced gas, by reversing the trial court's judgment against the mineral owner and directing the trial court to take expert scientific evidence as to whether the gas in the Marcellus Shale was a "mineral."

The Supreme Court firmly rejected this conclusion. After reviewing the lengthy history of the Dunham Rule, including its numerous extensions and reaffirmations, the Court recognized that "the Dunham Rule has now been an unaltered, unwavering rule of property law for 131 years" and that the "Rule and its longstanding progeny that have formed the bedrock for innumerable private, real property transactions for nearly two centuries." The Court noted that no party had offered any reason to alter the Rule. The Court concluded that the reservation at issue did not reserve the natural gas, and more broadly stated that "Simply put, natural gas is presumptively not a mineral for purposes of private deeds."

The Court distinguished a prior decision holding that coalbed methane was owned by the coal owner, rather than the natural gas owner, noting that coalbed methane was a dangerous waste product that was not commercially viable at the time of the severance in that case. The Court found that there was no evidence that Marcellus gas was any different from conventionally-produced natural gas, and concluded that there was "no merit in any contention that because Marcellus shale natural gas is contained within shale rock, regardless of whether shale rock is or is not a mineral, such consequentially renders the natural gas therein a mineral."

Justice Saylor wrote a concurring opinion, noting that although he found the reasoning in the original Dunham decision "highly debatable," he nonetheless concluded that "since Dunham has effectively served to establish a governing rule of property law in Pennsylvania for over a century, too many settled expectations rest upon it for the courts to upset it retroactively."

The opinion is available here and the concurrence is available here

Russ Schetroma focuses his practice in the areas of energy and oil and gas law. He has published extensively on energy law and other topics for more than 30 years and continues to speak and to publish regularly on energy issues. Nate Holland assists clients with business transactions and litigation involving the oil and gas industry. In particular, Mr. Holland helps clients develop solutions for novel challenges or new applications of oil and gas law.

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