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PA Supreme Court Upholds Dunham Rule on Mineral Rights

The Pennsylvania Supreme Court recently ruled on Butler v Powers, a case with big consequences for the natural gas industry. The Court was tasked with determining whether or not natural gas rights should be part of the broader concept of “mineral rights” in Pennsylvania.

Since natural gas comes from a mineral – shale rock – deeds or lease agreements in most states include natural gas. This has not historically been the case in Pennsylvania. As early as 1882, the “Dunham Rules” has separated natural gas rights from the concept of mineral rights.

A case was filed in Susquehanna County to overturn the Dunham rule and combine mineral and gas rights, similar to other states. Removing the Dunham rule from the books would have caused chaos in the state’s drilling industry and been disastrous to the thousands of leases and royalty agreements already in place.

The Supreme Court’s review was prompted by the lower Superior Court’s action in 2011 that suggested that perhaps the precedent set in an 1882 case, Dunham v. Kirkpatrick, could not be used to separate mineral rights from gas rights in instances involving the Marcellus Shale.

But the Supreme Court soundly rejected that view, saying that natural gas is not a mineral, regardless of what it is trapped in or what method is used to extract it from the ground. Further siting over 130 years of precedent, the Court unanimously ruled to keep the Dunham rule in place.

“In our view, neither the Superior Court nor appellees have provided any justification for overruling or limiting the Dunham Rule and its long-standing progeny that have formed the bedrock for innumerable private, real property transactions for nearly two centuries,” the court wrote.