No. 45 W.D. Appeal Docket 1983, Appeal from the Order of the Superior Court of Pennsylvania entered August 27, 1982, at No. 1072 Pittsburgh, 1980, affirming the Final Decree of the Court of Common Pleas of Greene County, Pennsylvania, entered September 29, 1980, at Nos. 682 and 691 in Equity, Civil Division,
Roberts, C.j., and Nix, Larsen, Flaherty, McDermott, Hutchinson and Zappala, JJ. Flaherty, J., filed a dissenting opinion in which Hutchinson, J., joined.
The question presented by this appeal is which of the parties to a coal severance deed, or more precisely which of their successors in interest, is to be recognized as owner of coalbed gas. The Superior Court affirmed a final decree of the Court of Common Pleas of Greene County and quieted title to the gas in favor of the surface owners, permitting them to lease rights to drill into the coal seam to extract the coalbed gas contained therein, subject to restrictions imposed to prevent unreasonable damage to the coal owner's property. U.S. Steel v. Hoge, 304 Pa. Super. 182, 450 A.2d 162 (1982).
The Appellant, United States Steel Corporation (hereinafter "coal owner"), is owner of the "Pittsburgh" or "River" Vein of coal underlying certain tracts of land in Greene County owned by Appellees Hoge, Cowan, and Murdock (hereinafter "surface owners"). This coal seam is located
approximately 800 feet beneath the earth's surface. Appellant's predecessor in title acquired rights to the coal from Appellees' predecessors in title via a severance deed dated July 23, 1920.
The deed, which contained language common to most coal severance deeds executed in 1920 and in later years, read in pertinent part as follows, conveying
All the coal of the Pittsburgh or River Vein underlying all that certain tract of land . . .
Together with all the rights and privileges necessary and useful in the mining and removing of said coal, including the right of mining without leaving any support . . ., the right of ventilation and drainage and of access to the mines for men and materials . . .
The parties of the first part [surface owners] hereby reserve the right to drill and operate through said coal for oil and gas without being held liable for any damages.
Together with all and singular the improvements, ways, waters, water courses, rights, liberties, privileges, hereditaments and appurtenances . . . (Emphasis added)
In 1976 and 1977, Appellee Cunningham (hereinafter "gas lessee") acquired all of the foregoing reserved gas and oil rights from the surface owners. In 1978, the gas lessee began drilling wells for the purpose of recovering coalbed gas from the "Pittsburgh" coal seam. Upon learning of the drilling operations and the gas lessee's intention to stimulate recovery of coalbed gas through a process known as hydrofracturing,*fn1 the Appellant coal owner initiated actions in equity to terminate the intrusion upon its coal seam and to determine the ownership of, and right to develop, the coalbed gas. The chancellor entered a decree permitting
the drilling for such gas in Appellant's coal seam, but prohibiting the use of hydrofracturing methods to stimulate gas recovery. Superior Court affirmed.
The ownership of, and right to develop, coalbed gas are questions of first impression. Consideration of the characteristics, origins, and history of development of gas is necessary to a determination of the issues presented. The following factual background is condensed from the chancellor's findings. Coalbed gas is found in and around coal veins, having long been recognized by the mining industry as a highly combustible and deadly poisonous gas which must be, at all times during the active coal mining process, ventilated to prevent explosion or inhalation; hence, the gas has traditionally been wasted into the atmosphere. Coalbed gas is always present in coal seams; its molecules are absorbed in micropores of coal, and even the smallest particle of coal always contains, and when exposed emits, some coalbed gas. Coal and coalbed gas are, nevertheless, separate physical entities.
The gas which has commonly been referred to as "natural gas" is generally found in strata deeper than coal veins, though it shares many of the characteristics of coalbed gas. Both gases evolved, through natural processes, from carbonaceous material beneath the earth's surface, and both contain mixtures of various hydrocarbons, including methane, ethane, propane, butane, carbon dioxide, carbon monoxide, and hydrogen sulfide. Both are, as are all gases, migratory, thus being capable of escaping their natural habitats to enter other strata, and both are found in the same geographic areas of Pennsylvania. Due to its fugacious character, natural gas is capable, under certain circumstances, of commingling with coalbed gas in the upper strata.
Natural gas and coalbed gas have value as energy sources, the latter having approximately a 90 percent heating value as compared to the former. The energy value of the coalbed gas is far less, however, than that of the coal
itself; the value of the coalbed gas is only one percent of the b.t.u. value of the coal.
Extensive and costly drilling operations are required in order to extract coalbed gas or natural gas from strata where they are found. As early as the year 1900, certain wells were drilled in Greene County into the subject Pittsburgh Vein of coal, and not deeper, and some of these wells produced coalbed gas in paying quantities. Commercial exploitation of coalbed gas, however, has remained very limited and sporadic until recently. As a result of our nation's high energy demands and shortage of energy supplies, conditions which gained much attention during the past decade, both the gas industry and the mining industry have come to regard coalbed gas as having sound market potential. There has recently developed an industrial capacity to drill into coal seams both horizontally and vertically to recover coalbed gas. With either drilling approach, the process of hydrofracturing facilitates recovery of coalbed gas in greater volumes and over longer periods of time. Nevertheless, in some areas coalbed gas can be recovered in paying quantities without any artificial stimulation of the coal seam. As noted previously, certain gas companies have through the years produced coalbed gas from wells in Greene County and in other portions of western Pennsylvania. More recently certain coal owners, including Appellant, have drilled into and in some cases hydrofractured their own coal seams in various regions -- as experimental determinations of coalbed gas production capacities and as a means of alleviating the presence of the gas in areas soon to be mined. Against this background, we examine the ownership and development rights to coalbed gas.
The fact that gas is of a fugacious character does not prevent ownership in it from being granted prior to its being reduced to possession. We have long recognized that gas may be owned prior to being recovered from its natural underground habitat. Hamilton v. Foster, 272 Pa. 95, 102, 116 A. 50, 52-53 (1922). Gas is a ...