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Who owns coalbed methane gas?

By Paul R. Yagelski, Esquire

Coalbed methane gas is present in coal.  At one time, it was thought to be worthless, being a highly combustible and poisonous gas.  It has, however, proved to be commercially marketable and hence, valuable.  Consequently, wells are drilled to extract coalbed methane gas from the coal, a process called degasification.  Degasification is undertaken prior to the mining of the coal in order to prevent explosions in the mine with the goal being to remove fifty to eighty percent of the coalbed methane gas.  See Kennedy v. Consol Energy, Inc., 2015 PA. Super. 93 (2015).

In United States Steel Corp. v. Hoge, 503 Pa. 140, 468 A.2d 1380 (1983), before the Pennsylvania Supreme Court was the issue of who owned and had the right to develop coalbed methane gas.  The Supreme Court held that such gas as is present in the coal belongs to the owner of the coal, so long as it remains within his property and subject to his exclusive domain and control.

The Hoge case was decided in 1983, but more recently the issue was before Pennsylvania’s Superior Court in Kennedy v. Consol Energy, Inc., 2015 PA. Super. 93 (2015).  Therein Consol Energy argued that the Hoge decision was a per se ruling dictating the result; namely, that as Consol Energy was the owner of the coal, it was also the owner of the coalbed methane gas.

In the Kennedy case, the Plaintiffs, the Kennedys, owned the oil and gas rights in a 790 acre tract of land in Gilmore Township, Greene County, Pennsylvania.  Consol Energy owned the Pittsburgh coal seam under this tract, and CNX Gas Company drilled wells and extracted coalbed methane from this coal seam.

In 2007, the Kennedys filed a multi-count complaint against Consol Energy and CNX Gas Company seeking, inter alia, to quiet title to the ownership of the coalbed methane gas in the Pittsburgh seam under the 790 acres.  Applying Hoge, the trial court concluded that Consol Energy owned the coalbed methane gas.

On appeal, the Kennedys argued that the facts in their case were distinguishable from those in Hoge.  They also argued that the trial court incorrectly applied Hoge as a universal rule that the coal owner always owns the gas in the coal.  The Kennedys maintained that the trial court should have examined the deeds to determine the intent of the parties as the Hoge court did.  Had it done so, the Kennedys argued, the court would have interpreted the reservation in a 1932 deed for “all of oil and gas in place” as just that, all of the gas, including the coalbed methane gas, in the Pittsburgh seam.

In response, Consol Energy relied on Hoge as definitively establishing the owner of the coal as the owner of the coalbed methane gas.  Consol Energy argued that as the Kennedys’ predecessors did not expressly reserve and except the coalbed methane gas when they conveyed the coal to Consol Energy’s predecessor, there was no intent to retain coalbed methane gas.  Consequently, Consol Energy owned exclusive title to the coalbed methane gas in the Pittsburgh seam.

The Superior Court did not agree with Consol Energy’s view that Hoge is a hard and fast rule.  It is not a per se rule.  Rather, the Superior Court read Hoge as establishing a general rule that, when a coal severance deed is silent as to the ownership of the coalbed methane, or does not expressly reserve coalbed methane gas from the coal conveyance, or specifically define coalbed methane as a gas, the coalbed methane gas contained in the coal belongs to the owner of the coal.

Although the Superior Court did not agree with Consol’s reading of Hoge as a per se rule, it, nevertheless, found Hoge’s reasoning applicable to the facts in the Kennedy case.  In fact, the Superior Court found the Kennedy case to be virtually indistinguishable from Hoge.

In Kennedy, there was no mention of coalbed methane gas in the deed; the only gas referenced in the oil and gas reservation was natural gas.  Since coalbed methane was explosive and perceived as a nuisance at the time, the circumstances made it highly improbable that anyone would retain rights to the coalbed methane gas.  This construction of the deed was buttressed by the fact that the grantors in 1932 did not reserve the right to lease the land for the purpose of drilling for coalbed methane gas, only natural gas and petroleum oil.  Since the reservation in the deed for oil and gas did not expressly include coalbed methane gas, but expressly reserved the right to drill for natural gas, the Superior Court found no evidence that the grantor intended to retain any right to the coalbed methane gas.  Accordingly, the Superior Court concurred with the trial court that based on Hoge, the gas reserved was only natural gas; the coalbed methane gas was conveyed with the coal.

If a landowner is offered an oil and gas lease that grants the rights to coalbed methane gas, but the landowner does not own the coal, the landowner does not own the coalbed methane gas.  Accordingly, any reference to a grant of coalbed methane gas in a proposed oil and gas lease should be stricken from the lease, normally by an addendum.