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Low Cost U.S. Natural Gas Production Put at Risk

A lawsuit in Pennsylvania has put the state’s natural gas production at risk.  Thousands of oil and gas properties in the Marcellus Shale thought to have the ownership of the underlying oil and gas and mineral rights solidly set have been put to doubt.

Gas production in Pennsylvania increased to about 2.8 billion cubic feet a day in July 2011, up from about 0.6 billion cubic feet in January 2010, according to the U.S. Energy Information Administration.  This is no small matter for the Northeast’s supply for the 2011-12 winter heating season and industrial production.

Locally about 218,000 Pennsylvanians worked in Marcellus Shale-related industries at year-end 2010, helping drive the state’s unemployment rate below the national average.  The oil and gas industry’s beating on about energy jobs they could provide is ringing very true now that nearly a quarter million jobs are suddenly at risk.

The case is John E. and Mary Josephine Butler v. Charles Powers Estate et al filed in the Superior Court of Pennsylvania.  The Butlers are relying on previous rulings that established ownership of oil or gas doesn’t change hands unless it’s specified in a deed. In opposition the Powers’ heirs argue that the deed gave them the right to other minerals such as coal — and that they own the gas trapped in the shale the same way they would own the gas trapped in a coal seam.

For over a century Pennsylvania has required landowners to consider oil and gas rights separate from the more general and common “mineral rights” when transferring ownership of resources beneath the surface of their property.

The Powers argue shale gas is different and should be considered part of the mineral rights because it is contained inside rock.  It’s going to be a very hard sell that any hydrocarbon isn’t lodged in “rock” so to speak.

The Butlers leased the property about two years ago with a coalition of neighbors to Talisman Energy of Calgary who believes the lease is valid.

In the middle of all this is an 1881 deed for 244 acres in Pennsylvania’s Susquehanna County transferring “half the minerals and petroleum oils” under the land to Charles Powers.  The Butlers say they own all the gas because the deed transferring minerals to Powers’ heirs failed to specifically mention gas.

The key in this seems to be around the natural gas being a mineral or a petroleum product.  The Butler’s hope to keep gas in the petroleum definition and the Powers want the natural gas to be a mineral within a rock.

How this got this far is a question for Pennsylvanian property lawyers.

The Superior Court, the second-highest court in Pennsylvania ruled that current law doesn’t sufficiently address whether “Marcellus shale constitutes a mineral,” sending the question back to be hashed out by the lower court.

Meanwhile – oil and gas companies will face uncertainty about whether they’ve signed drilling leases with the right people – owners of oil and gas rights who signed leases with gas producers could find that they don’t own the gas after all – the oil and gas companies may need to check the title to thousands of oil and gas properties they’ve leased – lots of leases will have to be renegotiated.

Cases like these can take years to work their way through the court system.  Most worrisome for the long term is that Powers wins and sets off a revolution in oil and gas mineral rights.

If Pennsylvania is like most states in reporting legal proceedings the Bulters sued the Powers for all the money.

With the gas production at risk, the jobs at risk, more uncertainty in an already way overloaded economic uncertainty, a whole new set of expenses to clear up leases there’d be a lot of pressure on to get this resolved.

For a non-attorney looking at the reports is certainly seems to be a hot fight over a few words that say pretty clearly that half the mineral rights and petroleum’s oils would cover the Powers right to half the money.  If natural gas is one of the petroleum products and petroleum means oil the Powers are in.  Even if the revolution sets in and natural gas isn’t a petroleum product and is a mineral product the Powers still have half.  The court has to decide if the missing natural gas words are still inclusive from a document made in 1881. 

Who would have thought that the nuisance of natural gas 1881 would be such a huge problem 130 years later.

Hopefully the folks in Pennsylvania will wake up and sort this out in short order. But don’t count on it.  There is a lot at stake there, right now.  That doesn’t mean the problem, which is a real one, will get the attention it deserves.

By. Brian Westenhaus

Source: Low Cost Abundant US Natural Gas at Risk

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