EPA reduces natural gas GHG emission estimates; Pennsylvania reaffirms property law on "minerals"

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Two recent legal developments have provided some positive news for the US shale gas industry, which, despite a boom in natural gas production due to technological advances, is facing heightened scrutiny from regulators and legislators.

 

EPA cuts its estimates of greenhouse gas emissions from natural gas production

 

The United States Environmental Protection Agency in April 2013 revised its estimates of US greenhouse gas emissions during the period 1990–2010 and released its estimates for 2011. The EPA’s revisions changed the estimate for methane released in natural gas systems (including production, processing, transmission and storage, and distribution) from an increase of approximately 14 percent between 1990 and 2010 to a decrease of approximately 11 percent. As a result, the EPA’s new estimate of methane emissions from natural gas systems in 2010 is 33 percent lower than its original estimate.

 

This significant estimated decrease in emissions occurred despite an increase in US natural gas production of over 32 percent over the same time period, according to US Energy Information Administration statistics. Such decreased emissions could indicate recognition of greater efficiencies in the production process as well as more widespread use of leakage monitoring and control technologies than was previously assumed to occur in the industry.

 

The decrease in estimated methane emissions shown by the revised EPA report indicates that concerns over excessive methane leakage from natural gas production, including hydraulic fracturing or fracking, may have been exaggerated. Such concerns about the “lifecycle emissions” of natural gas have caused some environmentalists, politicians and regulators to question whether natural gas could be considered a cleaner alternative to coal and a potential bridge fuel on the path to renewable energy generation.

 

The EPA will continue to monitor methane emissions in the industry as part of its greenhouse gas monitoring program. The agency could further revise the emissions report as more data become available, but this recent development may bode well for the shale gas industry. Industry participants and observers largely expect that methane leakage rates will continue to decrease as control technologies improve and more producers adopt them.

 

Pennsylvania reaffirms longstanding property law, providing certainty for shale gas plays

 

In Pennsylvania, one of the most active states for shale gas plays in the US, a recent court ruling settled some confusion over the status of property rights to shale gas in the state.

 

On April 24, 2013, the Supreme Court of Pennsylvania issued its decision in Butler v. Charles Powers Estate, reversing a state court of appeals decision that had the potential to upend the status of some Marcellus Shale gas plays in Pennsylvania. The supreme court in Butler reinstated the ruling of the trial court, reaffirming Pennsylvania’s longstanding Dunham Rule (1882) and holding that natural gas is not a “mineral” in the context of a deed reservation, unless the reservation explicitly includes natural gas or clear and convincing parol evidence shows an intent by the parties to the grant to include natural gas in the reservation.

 

The Butler case arose from an 1881 deed that reserved “one-half the minerals and Petroleum Oils” of a property to Charles Powers and his heirs and assigns. The owners of the property in question filed a complaint to quiet title in 2009, claiming ownership of all of the natural gas beneath the property, including within the Marcellus Shale formation. The heirs of the Charles Powers estate appeared, seeking a holding that they rightfully owned one-half of the natural gas located beneath the property.

 

After the trial court dismissed the claim of the Powers heirs pursuant to the Dunham Rule, the court of appeals reversed and remanded the case to allow expert testimony on several issues, including whether Marcellus shale itself is a “mineral” and whether shale gas is comparable to coal-bed gas. The Supreme Court of Pennsylvania previously determined, in a case known as Hoge II (1983), that coal-bed gas belonged to the owner of the coal in which the gas was found. Had the appellate court’s ruling been affirmed by the supreme court, it could have destabilized the status of existing property rights to shale gas in Pennsylvania, and would have required an expensive and time consuming fact-finding process at the trial court.

 

The supreme court in Butler reversed, holding that the Dunham Rule, as it had been clearly and consistently applied for over a century, applied to the case and made the expert testimony requested by the court of appeals irrelevant. The supreme court distinguished Hoge II, and further found in Butler that Hoge II did not address, let alone revoke, the Dunham Rule. As a result, the supreme court reaffirmed the Dunham Rule.

 

It is now clear that, in Pennsylvania, natural gas is not included in a reservation of “minerals” unless it is explicitly named within the reservation or there is clear and convincing parol evidence that the parties intended for natural gas to be included within the reservation despite not being named.

For more information about these developments and their impact on your business, please contact Joseph Tato or Robert J. Alessi.

 

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