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Swords Creek Land P'ship v. Belcher - 288 Va. 206, 762 S.E.2d 570 (2014)

Rule:

The United States Supreme Court does not believe the term "coal," as it was used in the late 19th century, is ambiguous. As commonly understood at the time, the term "coal" meant a solid rock substance used as fuel, and nothing indicates that coal bed methane gas (CBM) is a part of coal itself. On the other hand, although CBM has a weak physical attraction to coal and escapes from coal when coal is mined, it is a gas that exists freely in the coal seam and is a distinct mineral estate.

Facts:

In 1887, grantors Christopher and Amanda Richardson, owned a 891 3/4-acre tract of land in Russell County, Virginia. On February 7, 1887, they executed a deed (1887 severance deed) conveying to Joseph I. Doran and W. A. *** “all of the coal, in, upon or underlying a certain tract of land and the timber and privileges hereinafter specified as appurtenant to said tract of land… and the rights hereinbefore granted, all the timber except as hereinbefore excepted on said tract of land that may be necessary to use to successfully and conveniently mine said coal and other things above mentioned.” The parties to this appeal are Dollie Belcher, Doris E. Dye and Ruby Lawson, successors-in interest to the grantors named in the 1887 severance deed (the Surface Owners) and Swords Creek Land Partnership, successor-in-interest to the grantees named in the deed (the Coal Owner).

In 1991, the Coal Owner entered into a lease with Pocahontas Gas Partnership, granting to the lessee "all rights [the lessor] has" to all the natural gas, including coal bed methane gas (CBM), underlying the Russell County tract described in the 1887 severance deed. The lessee was to pay the Coal Owner a royalty of 12.5% of the value of the gas produced. The lease granted the lessee the exclusive right to enter, drill, inject liquids into, explore and have access to the coal seams under the land. CNX Gas Company, LLC. (CNX) is the successor-in-interest to the original lessee. Neither CNX nor its predecessor lessees acquired any rights from the Surface Owners.

The Virginia Gas and Oil Act, Code §§ 45.1-361.1 et seq. (the Act), first adopted in 1982, was amended in 1990 to permit CBM production to go forward in cases in which there was conflict or uncertainty as to the ownership of the CBM produced. Code § 45.1-361.22 permits a CBM well operator, such as CNX, to produce and sell CBM when any claimant petitions the Virginia Gas and Oil Board (the Board), after giving notice to all other claimants, to enter a pooling order.

The Surface Owners filed this action in the circuit court against the Coal Owner, seeking a declaratory judgment that they were the sole owners of the CBM produced from their land and entitled to all the royalties therefrom, including those held in escrow by the Board and those yet to accrue. CNX was not had a party. The circuit court granted summary judgment in favor of the Surface Owners and entered an order declaring the Surface Owners' ownership of the CBM and right to receive the royalties therefrom. The Coal Owner sought further review by the Supreme Court of Virginia.

Issue:

Did the granting clause in the 1887 severance deed embrace CBM as well?

Answer:

No.

Conclusion:

The Court upheld its decision in a previous case Harrison-Wyatt, LLC v. Ratliff, that the title to the CBM did not pass to the Coal Owner. The term "coal," as it was used in the late 19th century, is ambiguous. As commonly understood at the time, the term "coal" meant a solid rock substance used as fuel, and nothing in the record indicates that CBM is a part of coal itself. On the other hand, although CBM has a weak physical attraction to coal and escapes from coal when coal is mined, it is a gas that exists freely in the coal seam and is a distinct mineral estate. Moreover, the parties could not have contemplated at the time the severance deeds were executed that CBM would become a very valuable energy source.

The Surface Owners have at all times owned all mineral estates within their lands except coal, and are entitled to all royalties accrued from the production of CBM therefrom and those yet to accrue.

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