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North America Oil and Gas
Client Alert
April 2013
www.bakermckenzie.com
Authors:
David M. Wildes
Associate - Houston
david.wildes@bakermckenzie.com
+1 713 427 5037
Jonathan B. Lancton
Associate - Houston
jonathan.lancton@bakermckenzie.com
+1 713 427 5029
Additional Contacts:
Michael J. Byrd
Partner - Houston
Chair, North America Oil & Gas Practice
michael.byrd@bakermckenzie.com
+1 713 427 5021
Louis J. Davis
Partner - Houston
Global Oil & Gas Steering Committee
louis.davis@bakermckenzie.com
+1 713 427 5031
David P. Hackett
Partner - Chicago
Chair, North America BFMP Practice
david.hackett@bakermckenzie.com
+1 312 861 6640
Douglas B. Sanders
Partner - Chicago
North America Shale Environmental
doug.sanders@bakermckenzie.com
+1 312 861 8075
Supreme Court of Pennsylvania Settles Butler,
Upholding Longstanding Precedent
On April 24, 2013, the Supreme Court of Pennsylvania issued an Opinion 1
upholding the long established Dunham Rule, distinguishing coalbed gas from shale
gas, and finding that the Superior Court erred in ordering a remand for scientific
evidence concerning the nature of gas contained in the Marcellus Shale.
Pennsylvania has long recognized the Dunham Rule, which establishes a rebuttable
presumption that the word “mineral,” when used in a deed reservation, does not
include oil or natural gas. 2 To rebut the presumption set forth in Dunham, there
must be clear and convincing evidence that the parties to the applicable conveyance
intended to include natural gas or oil within the word “mineral.” 3 In its Opinion, the
Supreme Court of Pennsylvania affirmatively upheld the Dunham Rule, stating that
its "progeny has been unwavering in its clarity" and that it "remains viable and
controlling." 4 Therefore, the Court in Butler concluded that because the term "natural
gas" was not contained in the plain language of the deed reservation at issue, and
no clear and convincing parol evidence was offered by the Appellees, the grantor of
the subject deed did not reserve the natural gas located in the Marcellus Shale, by
reserving "one-half the minerals and Petroleum Oils." 5
The Appellees in Butler argued that the statement in Hoge II that "gas is a mineral" 6
limited or overruled the Dunham Rule. 7 The Supreme Court of Pennsylvania
disagreed, stating that Hoge II was inapplicable because it dealt with coal and
coalbed gas, a type of substance that, while chemically similar to natural gas, is
legally distinct from it. 8 The Supreme Court went on to say that the statement "gas
is a mineral" was made by the Hoge II Court without discussing the Dunham Rule. 9
Finally, the Supreme Court found that the Superior Court erred in remanding the
case for an evidentiary hearing to determine if Marcellus Shale gas is a mineral as
contained in the deed reservation, "despite the clear jurisprudence established by
Dunham," and further held that Marcellus Shale natural gas cannot be considered a
mineral for private deed purposes. 10
1 Butler v. Charles Powers Estate, 2013 Pa. LEXIS 789.
2 Dunham v. Kirkpatrick, 101 Pa. 36 (Pa. 1882).
3 Highland v. Commonwealth, 161 A.2d 390 (Pa. 1960).
4 Butler v. Charles Powers Estate, 2013 Pa. LEXIS 789, at 18.
5 Id. at 21.
6 United States Steel Corporation v. Hoge, 468 A.2d 1380, 1383 (Pa. 1983) ("Hoge II").
7 Butler, at 22, 23.
8 Butler, at 23.
9 Butler, at 23.
10 Id. at 21.

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recognized leader in transactions ranging from
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and the largest NOCs, assisting with the
acquisition of acreage, negotiating and
executing host country granting instruments or
leases, negotiating joint operating agreements,
joint bidding agreements, farmins and
farmouts, among other areas.
The Supreme Court did not pass on all issues raised by the Appellees. The
Appellees argued that the reservation in question, which stated that grantor
reserves "one-half the minerals and Petroleum Oils . . . together with all
appurtenances, . . . issues and profits thereof . . . ." should be interpreted to include
natural gas. They argued that under the plain language of the reservation, natural
gas was such an appurtenance, issue, or profit of petroleum. The case was
therefore out of the purview of the Dunham Rule. The Supreme Court waived this
issue on the grounds that the issue was not raised in the lower courts. 11
For more information about legal issues related to shale plays or Baker &
McKenzie's experience with U.S. upstream oil and gas transactions, please contact
one of the authors or additional contacts listed above or the Baker & McKenzie
attorney you normally consult with.
Our team is integrated locally and globally
across practice areas to add value to any oil
and gas transaction ranging from acquisitions
and divestitures, to mergers, finance and
securities, tax, environmental, disputes, and
employment to IP anywhere in the world.
11 Id. at 19.
2 April 2013