Ownership of Coalbed Methane Gas Linked to the Ownership of the Coal

In Kennedy v. Consol Energy Inc., 116 A.3d 626 (Pa. Super. Ct. 2015), Earl Kennedy and other interest holders (the “Kennedys”) brought an action to quiet title to coalbed methane gas and for trespass and conversion against the owner and operator of the coal, Consol Energy Inc. and CNX Gas Co. (“Consol”).

The first issue involved the ownership rights to coalbed methane gas.[1] The Kennedys owned the gas rights under a 790-acre tract of land, and contended that such rights also included the rights to the coalbed methane gas. Consol owned the Pittsburgh or River coal seam and had been drilling wells and extracting coalbed methane gas from underneath the tract for several years.

In United States Steel Corp. v. Hoge, 468 A.2d 1380 (Pa. 1983), Pennsylvania’s highest court held that if gas is present in coal it must necessarily belong to the owner of the coal. Applying Hoge, the trial court concluded that Consol Energy owned the coalbed methane gas. Kennedy, 116 A.3d at 630. On appeal, the Kennedys argued that the trial court acted in error because this case was distinguishable from Hoge. The Kennedys asserted that the court should have reviewed the deeds to examine the intent of the predecessors in interest to determine whether or not the coalbed methane gas was also conveyed with the coal. Id. at 631.

The Superior Court disagreed, and concluded that both cases involved a subdivided mineral estate, with one party owning the coal and the other owning the oil and gas. The Superior Court read Hoge as “establishing the general rule that, when a coal severance deed is silent as to ownership of the coalbed methane, or does not expressly reserve coalbed methane 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.” Id. at 633. In analyzing the reservation in Consol’s chain of title, the Court determined the 1932 deed, which did not expressly include coalbed methane gas but did expressly reserve the right to drill for natural gas, did not reflect any intent of the grantor to retain the right to the coalbed methane gas. Id. at 634. Consequently, the coalbed methane gas was conveyed with the coal and subsequently acquired by Consol.

The second issue raised by the Kennedys was whether Consol trespassed on their land by drilling through strata adjacent to the Pittsburgh seam in order to ventilate and carry away the coalbed methane gas. The court analyzed the coal reservation in the 1961 Deed to Consol, and found that it contained express language allowing Consol to enter adjacent strata “‘in such manner as may be considered proper and necessary for the advantageous and economical operation . . . in the digging, mining, ventilating, draining and transporting of said coal and without liability thereof.'” Id. at 636. The Superior Court concluded that Consol’s coalbed methane gas drilling activities were consistent with the rights granted them in the conveyance and thus, the trespass claim was unsupported.

The Kennedys third claim was that Consol wrongfully converted their gas. To prove conversion, the Kennedys had to show that Consol “intended to assert control over the Kennedys’ gas that was inconsistent with the Kennedys’ rights.” Id. at 637. The Superior Court agreed that there was evidence of migration of Kennedys’ gas to Consol’s wells, but found that the Kennedys failed to offer evidence of the value of the converted gas, a necessary element of a conversion claim. Id. However, the Kennedys contended that the court should apply the confusion of goods doctrine because Consol did not differentiate the source of gas produced, which would entitle the Kennedys to the value of the entire production of Consol’s wells. Id. However, the Superior Court explained that the application of the confusion of goods doctrine is only applicable when there is evidence of fraud or willful conduct, which was not present in this case. Id. at 638. Accordingly, the Superior Court refused to apply the doctrine, and thus the trial court’s summary judgment on the conversion claim was proper.

This case demonstrates the importance of a thorough review of the mineral conveyances within the chain of title of your leased land, especially if your leases contain references to coalbed methane gas. It is the general rule that, absent a specific reservation or grant, the coalbed methane gas is owned by the owner of a coal estate. Lessees should be careful before producing coalbed methane gas, as it is likely that the Lessor did not own the coalbed methane gas when they executed a lease covering that interest, if the coal estate has been severed from the oil and gas estate.

[1] Coalbed methane gas is extracted by a process called degasification, which is required to prevent explosions during the coal mining process. Until recently, coalbed methane gas was not commercially marketable. As such, it was not expressly referenced in the chain of title in Kennedy v. Consol Energy Inc., 116 A.3d 626 (Pa. Super. Ct. 2015). The coal estate was severed by a deed in 1932 (“1932 Deed”) and subsequently acquired by Consol by a deed in 1961 (“1961 Deed).