By: John E. Rhine, Rhine Ernest LLP
Commercial production of coalbed methane gas in the United States was very limited and sporadic until a few years ago. Coalbed methane was merely an enemy to the coal producer because dealing with it added danger and cost to underground mining and sometimes even caused a mine to permanently close. It is still a serious safety hazard, but now technology and the market have merged to make a former waste produce a valuable resource. In the United States, coalbed methane produced as a commercial energy source rose from virtually nothing in 1980 to an estimate of nearly one trillion cubic feet in 1996, produced by thousands of wells.[1]
Commercial production began in Illinois a few years ago, but it is still certainly in the infant stage. Producers have faced the question addressed by this article: "Who owns the coalbed methane gas in Illinois?"
Gas is a fugacious mineral and Illinois is among the "nonownership" states[2] so technically, the real question is "Who has the right to capture the coalbed methane?" There is no direct Illinois precedent but application of Illinois cases on ownership of the coal seam, and application of principles cited in coalbed ownership cases from our sister states, lead many who have studied the question to believe that in Illinois, it is the owner of the coal who has this right, at least so long as the gas remains in the coal or in the voids created by room and pillar mining. Indeed, those currently producing in Illinois have relied on this conclusion in leasing coalbed methane from the owner of the coal.
Understanding the ownership question requires a knowledge of the nature of coalbed methane gas and how it is produced. Coalbed gas is almost entirely methane and is often referred to as coalbed methane, though it has traces of other hydrocarbon gases, such as propane and ethane. Because it is a component of coal, coalbed methane is not found in conventional gas reservoirs. It is always present in coal seams and even the smallest particle of coal contains at least some coalbed gas and when exposed will emit that gas. Conversely, coalbed methane contains microscopic coal dust which often must be filtered out for commercial use. Reducing pressure on coal by exposure causes the coalbed methane to desorb. The gas, which is commonly referred to as natural gas, is similar to coalbed methane, though identifiably different and of course without coal dust, and is generally found in strata below the coal veins.
Coalbed methane can be produced from coal in place by various methods which cause fractures in the coal and the desorbed gas to flow to the wellbore. These methods may render the directly affected coal unmineable. Depending on a variety of factors, surrounding coal may have its mineability reduced but it may also be enhanced due to the reduction in dangerous gases. Indeed major coal operators are producing methane for the purpose of commercial sale and degasification. Coalbed methane is also produced by directly tapping into the rooms of abandoned room and pillar mines. The methane comes from the coal in the pillars, and simply accumulates in the voids. Another coalbed methane production method captures the gas released during longwall mining. It involves drilling to the longwall gob created by the fractures of strata above the roof which occur when all the coal is removed and subsidence occurs.
Coal owners claim ownership of coalbed methane primarily on the simple point that coalbed methane is within the coal and is indeed a part of the coal, just like other carbon components of the coal. They point out that no one questioned the control of coalbed methane for the centuries they have vented it away. Methane gas must be removed under ventilation laws and it is impossible to mine coal without removing it and thus, the coal owners argue, it must necessarily belong to the owner of the coal Those who control the oil and gas claim ownership primarily on the equally simple theory that gas is gas, whether it occurs in stone, sand, a dome, or in coal. They do not need to own the limestone to produce gas from a limestone formation so, the argument goes, why do they need to own the coal to produce gas from it? Even surface owners have an argument for ownership, albeit a weak one, on the premise that at the time of severance of coal, oil and gas, production of coalbed methane could not have been contemplated, and therefore a grant of it was not intended by the parties.
The leading case on the question of control of coalbed methane is U.S. Steel Corp. v. Hoge, 468 A.2d 1380 (1983), in which the Pennsylvania Supreme Court decided that the owner of the coal also owns the coalbed methane. This case is a leading case not only because it was the first to address the question but also because of its compelling analysis and the fact that it comes from a state with a long history of coal production, a long history of oil and gas production and a well-developed body of mineral law. The court first noted that coalbed methane is always found in coal and that methane which may be separately produced still originates as a component of the coal. The court then cited the long-established mineral law principle that gas is controlled by whoever has title to the property in which the gas is located and concluded:
In accordance with the foregoing principles governing gas ownership, therefore, such gas as is present in coal must necessarily belong to the owner of the coal, so long as it remains within his property and subject to this exclusive domination and control. The landowner, of course, has title to the property surrounding the coal, and owns such of the coalbed gas as migrates into the surrounding property.
We do not regard as inconsistent with this analysis the fact that the coal owner's interest in the situs occupied by the coal may be less than perpetual. In addressing questions of title to coal, and of rights of access to and through coal to secure its removal, this Court has not construed the conveyance of coal alone as a grant of a fee simple estate in the situs where the coal is located. Rather, the coal owner's interest in that situs has been regarding as being in the nature of an estate determinable, which reverts to the surface landowner by operation of law at some time subsequent to removal of the coal. Webber v. Vogel, 189 Pa. 156, 160, 42 A. 4, 5 (1899); Chartiers Block Coal Co. v. Mellon, 152 Pa. 286, 296-297, 25 A. 597, 599 (1892). The potential for reversion of the situs, however, does not diminish the character of the coal as property of its grantee, or of the gas contained therein as a mineral ferrae naturae resting inside the coal owner's property and falling within the dominion and control of the coal estate. The owner of coal may, as may any property owner, exercise dominion over his property so as to maximize his right of enjoyment thereover, within bounds limiting impingement upon the rights of other property owners. Chartiers Block Coal Co. v. Mellon, 152 Pa. at 295, 25 A. at 598. Hence the coal owner may mine his coal, extract the gas from it, or both. If he chooses to extract the gas, drilling as well as hydrofracturing are available means, so long as their utilization does not impinge upon the rights of owners of the surrounding property, since the damage to coal inflicted by these processes is within his dominion to inflict. (468 A.2d at 1383-84, emphasis by the court.)
The Alabama Supreme Court in NCNB Texas National Bank v. West, 631 So.2d 212 (1993), did not fully agree with the rationale of U.S. Steel Corp. v. Hoge, but reached the same result as to coal found within the coal stratum. The court said that a grant of coal did not necessarily include coalbed methane gas, nor did a grant of gas. Nevertheless, "Careful analysis of the law of real property indicates that the ownership of coalbed gas depends upon its location at the time the gas is recovered or 'captured,' at which time it is reduced to possession." 631 So.2d at 223. The court found that so long as coalbed methane gas is within the coal seam, the holder of the coal estate has the right to extract it, but once the coalbed gas migrates out of the stratum in which it originated, the right to recover coalbed methane belongs to the holder of the gas estate. Vines v. McKenzie Methane Corp., 619 So.2d 1305 (Ala. 1993), rejected an argument that a surface owner who has conveyed the coal and other minerals can nevertheless claim control of the coalbed methane.[3] There have also been a handful of unreported lower court cases which follow the above precedents and ruled that, regardless of the theory applied, the owner of the coal estate controlled the coalbed methane. In Montana however, the state's highest court found that coalbed methane belonged to the owner of the gas. Carbon County v. Union Reserve Coal Co., 271 Mont. 459, 898 P.2d 680 (1995). The Montana court distinguished NCNB Texas National Bank v. West on the grounds it was based on the fact that Alabama was a nonownership state while Montana was an ownership-in-place state. It disagreed with the conclusions of the U.S. Steel Corp. v. Hoge court regarding the nature of the gas, finding that although methane was always found within coal, it was "not a chemical part" of the coal. Finally it relied on Montana statutory and regulatory definitions of "coal" and of "gas."
As we have noted, Illinois is a nonownership state, but it adheres to another rule of law which makes the case for the coal owner's claim to coalbed methane perhaps stronger than the coal owners in any of the precedents discussed in this article, even where the methane gas is captured in mined out areas. That rule is the "container space doctrine." Illinois may be the only state to strictly follow this doctrine, which holds that the owner of the coal also owns the space it occupied. Schobert v. Pittsburgh Coal Co., 254 Ill. 474, 98 N.E. 945, 40 LRA NS 826 Ann. Cas. 1913B 1104 (1912), held that a coal owner retained full right to use the space formerly occupied by coal for transportation for coal, even from other lands. The court relied heavily on the Pennsylvania case of Lillibridge v. Lackawanna Coal Company, 143 Pa. 293, 22 A. 1035 (1891), quoting the following passage from it:
If, then, the coal in place is pure corporeal hereditament, the title, in fee simple, to which passes to a purchaser by apt conveyance, there would be no more propriety in claiming a title in the grantor to the space it occupies than there would be in claiming a similar right in a vendor of the surface to the space developed by the vendee in digging the cellar and foundations of a house. We are altogether unwilling to adopt any such view of the rights of the parties in either of the cases. *** According to the averments of the bill, the tunnel or way is cut through a vein of coal two hundred feet below the surface and is twelve feet high, and extends in the vein all the way from the one side to the other of the tract. In this way or chamber, the plaintiffs, as owners of the surface, have no right or title. They have no access to it; they cannot use it; they are in no manner obstructed or injured by it. 254 Ill. at 479.
Combining the empty container doctrine and the nonownership theory, it is difficult to escape the conclusion that, in Illinois, methane gas captured either directly from the coal or from the space formerly occupied by the coal belong to the owner of the coal. The coal seam could be viewed as just another gas producing formation and whoever owns that seam owns the right to capture gas from it, just as someone who owns, for example, the Aux Vases formation, controls the right to produce gas from it.
Methane produced from longwall gob is a more difficult question. This gas has escaped the coal and even the coal stratum, due to collapse, some may be in the "space" formerly occupied by the coal. However, if recovery occurs in conjunction with longwall mining, the "escape" could be viewed as a planned release of methane from the coal, differing only in method from other in-place recovery methods, and thus the gas would be subject to capture by the coal owner.
There are many questions of law which remain undecided in Illinois, but which counsel must nevertheless answer based on the weight of precedent from other states and application of established theory. This is particularly true in mineral law, where counsel and their clients often rely on foreign state decisions or arcane and sometimes ancient Illinois common law theories regarding title, leasehold, operations, duties and a whole host of other legal questions relating to development of Illinois fossil fuels. Until there is a reported decision from an Illinois court, those wanting to participate in the growing Illinois coalbed methane industry have little choice but to operate on their counsel's opinions regarding ownership where minerals have been severed and split into multiple estates and it is impractical, as it usually is, to obtain authority to capture coalbed methane from all possible claimants. Of course, an opinion of counsel is just an opinion and it is not a guarantee. All those involved in the already risky business of mineral production should be aware that there is added risk in the coalbed methane industry-ownership of the methane is not absolutely certain.
1. In 1994, coalbed methane constituted five percent of the total natural gas production in the United States.
2. Murbarger v. Franklin, 18 Ill.2d 344, 163 N.E.2d 818 (1960), unlike solid minerals, which can be owned" title to oil and gas in a nonownership state does not pass until it is captured and reduced to possession.
3. See e.g. Rayborn v. USX Corp. (N.D. Ala 1987), unpublished, 1987 U.S. Dist. LEXUS 6920, aff'd without opinion 844 F.2d 796 (11th Cir. 1988).