ENERGY DEVELOPMENT CORPORATION,
Plaintiff Below, Appellant
NANCY LOUISE MOSS, ET AL.,
Defendants Below, Appellees
WEST VIRGINIA COALBED METHANE REVIEW BOARD,
Appeal from the Circuit Court of McDowell County
Honorable Rudolph J. Murensky, II, Judge
Civil Action No. 98-C-173
Submitted: September 23, 2003
Filed: November 20, 2003
Donald R. Johnson, Esq.
Attorney for Nancy Louise Moss, Appellee
Thomas N. McJunkin, Esq.
Blair M. Gardner, Esq.
Stephanie H. D. Mullett, Esq.
Jackson & Kelly
Charleston, West Virginia
Attorneys for GeoMet, Inc.
Darrell V. McGraw, Jr.
Christie S. Utt
Assistant Attorney General
Charleston, West Virginia
Attorneys for West Virginia Coalbed
Methane Review Board, Appellee
JUSTICE McGRAW delivered the Opinion of the Court.
CHIEF JUSTICE STARCHER concurs and reserves the
right to file a concurring opinion.
JUSTICE ALBRIGHT dissents and reserves the right
to file a dissenting opinion.
reviewing challenges to the findings and conclusions of the circuit court made
after a bench trial, a two-pronged deferential standard of review is applied.
The final order and the ultimate disposition are reviewed under an abuse of
discretion standard, and the circuit court's underlying factual findings are
reviewed under a clearly erroneous standard. Questions of law are subject to
a de novo review. Syl. pt. 1, Public Citizen, Inc.
v. First Nat'l Bank in Fairmont, 198 W. Va. 329, 480 S.E.2d 538 (1996).
2. 'The finding of a trial court upon facts submitted to it in lieu of a jury will be given the same weight as the verdict of a jury and will not be disturbed by an appellate court unless the evidence plainly and decidedly preponderates against such finding.' Daugherty v. Ellis, Point 6 Syllabus, 142 W. Va. 340, 97 S.E.2d 33 . Syl. pt. 6, Cotiga Development Company v. United Fuel Gas Company, 147 W. Va. 484, 128 S.E.2d 626 (1962).
3. The mere fact that parties do not agree to the construction of a contract does not render it ambiguous. The question as to whether a contract is ambiguous is a question of law to be determined by the court. Syl. pt. 1, Berkeley Co. Pub. Ser. Dist. v. Vitro Corp., 152 W. Va. 252, 162 S.E.2d 189 (1968).
4. A deed will be interpreted and construed as of the date of its execution. Syl. pt. 2, Oresta v. Romano Bros., 137 W. Va. 633, 73 S.E.2d 622 (1952).
5. The general rule as to oil and gas leases is that such contracts will generally be liberally construed in favor of the lessor, and strictly as against the lessee. Syl. pt. 1, Martin v. Coal & Oil Corp., 101 W. Va. 721, 133 S. E. 626 (1926).
6. Oral testimony of the general usages of the gas business, which must have been in the minds of the parties at the time of entering into the contract, is admissible to explain an ambiguity in a written contract for the purchase of gas, whether the ambiguity be latent or patent. Syl. pt. 2, Bell v. Wayne United Gas Co., 116 W. Va. 280, 181 S.E. 609 (1935).
7. In order for a usage or custom to affect the meaning of a contract in writing because [it was] within the contemplation of the parties thereto, it must be shown that the usage or custom was one generally followed at the time and place of the contract's execution. Syl. pt. 1, West Virginia-Pittsburgh Coal Co. v. Strong, 129 W. Va. 832, 42 S.E.2d 46 (1947).
the absence of specific language to the contrary or other indicia of the parties'
intent, an oil and gas lease does not give the oil and gas lessee the right to
into the lessor's coal seams to produce coalbed methane gas.
The parties in this appeal contest the ownership of what is called coalbed
methane, which many refer to simply as CBM. Coalbed methane, as its name suggests,
originates in a coal seam. Traditionally viewed as a dangerous waste product of coal mining,
in more recent years coalbed methane has emerged as a useful, and thus valuable, source of
energy. The specific question asked in this case is whether a standard oil and gas lease
executed in 1986 conveyed to the lessee the right to drill into the lessor's coal seams in order
to produce the coalbed methane. This is the only question that we address in this opinion.
We note at the outset that West Virginia contains huge reserves of coalbed
(See footnote 1)
and that the safe and efficient development of this resource can be of great benefit
to the citizens of this state by increasing property values, jobs, royalties, commerce, and tax
revenues. Moreover, the production (versus the waste) of coalbed methane can help reduce
our national dependence on imported fuels, and can have a beneficial impact on the
(See footnote 2)
As we examine the legal arguments of the parties, the statutes, and applicable
case law, we bear in mind that the state would benefit from the safe, efficient, and prompt
production of this valuable natural resource.
In a case we discuss at greater detail, infra, the United States Supreme Court
has recently described coalbed methane and the process by which it is formed. After
recounting the process by which decaying biological matter turns first into peat, and is then
compressed into coal, the Court explained:
The process in which peat transforms into coal is referred to as coalification. The coalification process generates methane and other gases. Because coal is porous, some of that gas is retained in the coal. CBM gas exists in the coal in three basic states: as free gas; as gas dissolved in the water in coal; and as gas adsorped (See footnote 3) on the solid surface of the coal, that is, held to the surface by weak forces called van der Waals forces. These are the same three states or conditions in which gas is stored in other rock formations. Because of the large surface area of coal pores, however, a much higher proportion of the gas is adsorped on the surface of coal than is adsorped in other rock. When pressure on the coalbed is decreased, the gas in the coal formation escapes. As a result, CBM gas is released from coal as the coal is mined and brought to the surface.
Amoco Production Co. v. Southern Ute Indian Tribe, 526 U.S. 865, 873, 119 S.Ct. 1719, 1724, 144 L.Ed.2d 22, 29 (1999) (internal citations omitted).
The appellees in this case, Hall Mining Company, Inc., and several
(See footnote 4)
own two tracts of land in McDowell County, a 300-acre tract described by the
lower court as the Upper Slate Creek Tract and a 340-acre tract described as the Lower
Slate Creek Tract. The appellees jointly own the surface and all the minerals under the land,
including the coal, oil and gas. Although one of the appellees is a mining company, it
appears from the record that all the appellees jointly own all the possible interests in the two
tracts, and that there had been no severance of the coal or any of the other minerals prior to
the events at issue in this appeal.
(See footnote 5)
At some point in the mid-1980's, representatives of appellant Energy
Development Corporation, Inc. (sometimes abbreviated as EDC), approached Hall Mining
and inquired about leasing the oil and gas under the tracts in question. Counsel for Energy
Development Corporation prepared the final versions of the leases, and on September 15,
1986, the parties entered into two essentially identical lease agreements, one for each tract.
These leases purported to let lease and demise to Energy Development Corporation:
all of the oil and gas and all of the constituents of either in and under the land hereinafter described in all possible productive formations therein and thereunder within the definition and meaning of the term shallow well as set forth and defined in [the West Virginia Code]. (See footnote 6)
Nowhere in the leases is there a explicit reference to coalbed methane, coalbed gas, or other such specific term.
The appellees maintain that, although Energy Development Corporation drilled
as many as seven conventional gas wells on the leased tracts, at no time did Energy
Development Corporation attempt to produce any coalbed methane. Sometime in 1998, a
dispute arose between the parties concerning the payment of royalties, and the appellees filed
suit against Energy Development Corporation. During the course of this dispute, Energy
Development Corporation filed an answer and counterclaim on August 18, 1999, in which
it asked the circuit court to declare that EDC has the right to drill into the coal formations
on the properties in question and produce natural gas therefrom, including coalbed methane.
The record indicates that this is the first time the parties had any dispute over the issue of
While the lower court action was pending, on August 15, 2001, the appellees
entered into a new and separate agreement with another gas operator, GeoMet, Inc. The
record indicates that GeoMet either specialized in, or had some prior experience in, the
development of coalbed methane. The new leases expressly granted GeoMet the right to
extract coalbed methane and explicitly required GeoMet to develop coalbed methane wells
withing a certain time period.
After negotiations not detailed in the record, the parties settled all other issues
in the case, and by order dated October 22, 2001, the court re-aligned the parties, so that
Energy Development Corporation became the plaintiff and the appellees became the
defendants. By order dated December 12, 2001, the court denied Energy Development
Corporation's motion for summary judgment and rejected its claim that the leases were
The circuit court conducted a bench trial on March 4, 2002, in which it heard
testimony from both sides regarding the circumstances surrounding the execution of the
leases and the knowledge or understanding the parties had with respect to coalbed methane
at the time they entered into the leases.
Witnesses for Energy Development Corporation testified that the company
entered into its first oil and gas lease in 1975, and though Energy Development Corporation
had drilled numerous conventional gas wells, it had never drilled a coalbed methane well
prior to the signing of the leases in question, nor had it drilled a coalbed methane well in the
sixteen years between the signing of the leases and day of the bench trial.
(See footnote 7)
The lower court
found that Energy Development Corporation, as it drilled through the coal-containing strata
when drilling its conventional wells, failed to take that opportunity to conduct any tests or
observations before sealing off the coal-containing strata with concrete casing.
(See footnote 8)
witness for the appellees testified that this practice was inconsistent with the future
production of coalbed methane. Testimony from both sides indicated that Energy
Development Corporation did not conduct certain specific tests after the drilling equipment
passed through the coal seams but before casing the well, which would have helped it
evaluate the potential of the coal seams for the future production of coalbed methane.
Because the lower court considered the language in the leases to be ambiguous,
it heard testimony regarding what knowledge the parties had about coalbed methane in 1986.
Energy Development Corporation president William Evans testified that he first became
aware of the economic potential of coalbed methane when Congress addressed the topic in
the 1978 Tax Reform Act. He stated that his familiarity with a 1983 Pennsylvania case on
the subject, his contacts with one of the parties in that case, and his reading of trade journals,
all contributed to make him aware of the potential economic value of coalbed methane at the
time he signed the 1986 leases with the appellees. Mr. Evans also testified that all, or most,
of Energy Development Corporation's conventional gas leases contained the same all oil
and gas language at issue in this case.
Mr. Evans and his son both testified that they had specifically discussed the
issue of coalbed methane with Mr. C. Henry Harman (an original lessor, since deceased) and
had actually traveled to Mr. Harman's home to discuss this matter. Dale Harman, a named
lessor and a witness for the appellees testified that he had not heard of the economic potential
of coalbed methane until 1990, and, to his (Dale Harman's) knowledge, Mr. C. Henry
Harman had never met with anyone regarding the leases without having either himself (Dale
Harman) or counsel for Hall Mining present.
(See footnote 9)
The lower court entered a lengthy and thoughtfully reasoned order dated
June 19, 2002. The court held that the question of whether ambiguity exits in a lease is a
question of law to be decided by the court. The court then noted that a lease may contain a
latent ambiguity, and that when considering a latent ambiguity, a court may look to
extrinsic evidence, including common industry practices, and that a lease should be construed
as of its date of execution. The court also found that a gas lease should be construed against
the lessee, especially when the lessee solicits and prepares the lease.
The court found that the leases in question were, in its terms, not unambiguous in granting to Energy Development Corporation the right to develop coalbed methane, and made two broader conclusions that are contested by the appellants.
An oil and gas lease entered into before any commercial coalbed methane wells had been permitted and drilled in West Virginia and before West Virginia law contemplated coalbed methane development which leased to the lessee all oil and gas does not unambiguously grant the lessee the right to drill into the lessor's coal seams to produce coalbed methane. Because coalbed methane is unavoidably associated with coal and is not unambiguously part of the gas estate and since the leases were executed before any coalbed methane development had commenced in West Virginia, the 1986 leases are latently ambiguous on the issue of whether they granted EDC the right to drill into lessors' coal seams to develop coalbed methane.
An oil and gas lease entered into before any commercial coalbed methane wells had been permitted and drilled in West Virginia and before West Virginia law provided for the drilling and fracing of coal seams to extract and market coalbed gas does not give the oil and gas lessee the right to produce gas from coal seams retained by the lessor, absent language specifically providing for or clearly indicating the intention of the parties to allow for that right.
Appellant Energy Development Corporation maintains that the broad all gas language in
the 1986 deeds conveyed to it the right to develop the coalbed methane, and that the lower
court erred in finding to the contrary. While we believe the lower court's decision was
broader than necessary,
(See footnote 10)
for the reasons set forth below, we affirm the decision of the lower
What we today call coalbed methane or CBM has also been called fire damp,
coal gas, coal seam methane, or mine gas, and has long been regarded as one of a coal
miner's greatest foes. Coalbed methane may have produced more widows and orphans than
any other workplace hazzard. In two single West Virginia accidents, coalbed methane killed
440 miners, leaving 362 dead in the Monongah Mine Disaster in 1907, the worst mining
disaster in American History, and 78 dead in the Farmington Mine Disaster of November 20,
(See footnote 11)
Literally thousands of miners have been killed by it in America and throughout the
world. The danger of coalbed methane, in part, prompted the federal government to act, as
this court noted:
The Federal Coal Mine Health and Safety Act of 1969, Pub.L. No. 91-173, 83 Stat. 742 (codified as amended at 30 U.S.C. §§ 801 et seq.) was enacted in response to the Farmington Mine Disaster of November 20, 1968, wherein 78 coal miners lost their lives in a coal mine explosion. The Act's main purpose is to establish safety standards for the coal mining industry. See H.R.Rep. No. 563, 91st Cong. reprinted in 1969 U.S.Code Cong. & Ad.News 2503.
Zirkle v. Zirkle, 172 W. Va. 211, 212 n.2, 304 S.E.2d 664, 665 n.2 (1983). See also, United Mine Workers of America International Union v. Parsons, 172 W. Va. 386, 393 n.3, 305 S.E.2d 343, 348-49 n.3 (1983). This disaster also prompted the passage of West Virginia's Black Lung compensation law, the first in the nation (now codified at W. Va. Code, § 23-4B-1, et seq.), as well as the aforementioned national Act (now codified at 30 U.S.C. § 901 et seq.).
Having acknowledged that coalbed methane is dangerous, we also recognize
that it is now also considered quite valuable. Our research indicates that operators have
drilled several thousand wells in Appalachia. Our neighboring state of Virginia alone
produced over seventy billion cubic feet of coalbed methane in the year 2002. Operators
have drilled several hundred coalbed methane wells in West Virginia.
(See footnote 12)
The majority of this
activity has occurred in McDowell and Wyoming Counties, although many other West
Virginia counties contain substantial reserves of coalbed methane. As we have stated, we
wish to take no action that would impede the safe production of coalbed methane, with the
highest possible priority placed upon the safety of miners and due consideration given to our
long established case law regarding mineral interests. We turn now to a consideration of the
reasons the lower court provided for its decision.
But the precise question we must answer in this opinion is not whether coalbed
methane, for all purposes and in all cases, is coal or is gas. The specific question we
must answer is whether a gas lease executed in 1986, before the widespread commercial
production of coalbed methane in West Virginia, signed by a lessor who owned the land,
coal, oil and gas,
(See footnote 14)
conveyed to the oil and gas lessee the right to develop the coalbed
methane, absent any specific language on the issue.
Although we are considering a lease in this case, much of our case law
concerning contracts, in general, and deeds, in particular, offers us guidance. Clearly the
question of whether or not these leases are ambiguous presents a question of law for the court
to decide: The mere fact that parties do not agree to the construction of a contract does not
render it ambiguous. The question as to whether a contract is ambiguous is a question of law
to be determined by the court. Syl. pt. 1, Berkeley Co. Pub. Ser. Dist. v. Vitro Corp., 152
W. Va. 252, 162 S.E.2d 189 (1968); accord, syl. pt. 1 International Nickel Co., Inc. v.
Commonwealth Gas Corp., 152 W. Va. 296, 163 S.E.2d 677 (1968); syl. pt. 3 Fraternal
Order of Police, Lodge Number 69 v. City of Fairmont, 196 W. Va. 97, 468 S.E.2d 712
(1996); Tolliver v. The Kroger Co., 201 W. Va. 509, 517, 498 S.E.2d 702, 710 (1997).
We also agree with the lower court that a document that may appear on its face to be free from ambiguity, may be deemed latently ambiguous. A latent ambiguity, which does not appear upon the face of the document, however, may be created by intrinsic facts or extraneous evidence. Kopf v. Lacey, 208 W. Va. 302, 307, 540 S.E.2d 170, 175 (2000) (per curiam) (citing Black's Law Dictionary 794 (5th ed 1979)). See also, Snider v. Robinett, 78 W. Va. 88, 88 S.E. 599 (1916) ([when] evidence discloses a latent ambiguity, such, for instance as that there are two objects, to either of which the terms of the writing apply with equal fitness, then prior and contemporaneous transactions and collocutions of the parties are admissible for the purpose of identifying the particular object intended.); Farmers and Merchants Bank v. Farmers and Merchants Bank, 158 W. Va. 1012, 1017, 216 S.E.2d 769, 772 (1975) (A latent ambiguity is one that is not apparent upon the face of the instrument alone and that is discovered when it is sought to identify the property, the beneficiaries, etc.); Collins v. Treat, 108 W. Va. 443, 446, 152 S.E. 205, 206 (1930) (A latent ambiguity arises when the instrument upon its face appears to be clear and unambiguous, but there is some collateral matter which makes the meaning uncertain.).
Having determined that a document is ambiguous, a court must embark upon a search for the intent of the parties. With regard to a contract, the Court has explained:
If an inquiring court concludes that an ambiguity exists in a contract, the ultimate resolution of it typically will turn on the parties' intent. Exploring the intent of the contracting parties often, but not always, involves marshaling facts extrinsic to the language of the contract document. When this need arises, these facts together with reasonable inferences extractable therefrom are superimposed on the ambiguous words to reveal the parties' discerned intent.
Fraternal Order of Police, Lodge Number 69 v. City of Fairmont, 196 W. Va. 97, 101 n.7, 468 S.E.2d 712, 716 n.7 (1996). In reference to a coal severance deed, this Court has explained: It must be borne in mind in construing this paper [the coal severance deed] that the purpose of all construction is to give effect to the intention of the parties. Rock House Fork Land Co. v. Raleigh Brick & Tile Co., 83 W. Va. 20, 22, 97 S.E. 684, 685 (1918).
With respect to the applicable time period, the Court has stated, with regard to
deeds that [a] deed will be interpreted and construed as of the date of its execution. Syl.
pt. 2, Oresta v. Romano Bros., 137 W. Va. 633, 73 S.E.2d 622 (1952); accord, syl. pt. 3,
Quintain v. Columbia Natural Resources, 210 W. Va. 128, 556 S.E.2d 95 (2001). We find
both of these principles applicable to the case at hand, and correctly applied by the lower
The lower court also found that the leases should be construed in favor of the
appellees, who were the lessors, and against appellant Energy Development Corporation, the
lessee. We concur. The general rule as to oil and gas leases is that such contracts will
generally be liberally construed in favor of the lessor, and strictly as against the lessee. Syl.
pt. 1, Martin v. Coal & Oil Corp., 101 W. Va. 721, 133 S. E. 626 (1926). See also, Jackson
v. Kent, 106 W. Va. 37, 46, 145 S.E. 572, 575 (1928) ([L]eases for oil and gas development
should be construed most strongly against the lessee rather than the lessor.); accord,
Charlton v. Chevrolet Motor Co., 115 W. Va. 25, 174 S.E. 570 (1934); Moore v. Johnson
Serv. Co., 158 W. Va. 808, 219 S.E.2d 315 (1975); United Fuel Gas Company v. Cabot, 96
W. Va. 387, 122 S.E. 922 (1924); Eclipse Oil Company v. South Penn Oil Company, 47
W. Va. 84, 34 S.E. 923 (1899).
The lower court emphasized the fact that Energy Development Corporation
solicited and prepared the leases. While the sophistication of at least some of the lessors in
this case may have been greater than average, this Court has noted that a lessor may often be
at an informational or technical disadvantage, and must often rely upon the advice of the
lessee or his or her agent:
[T]hose engaged in the production of oil send agents armed with printed leases to solicit leases, and they take leases for great areas, and they are forms already prepared, and the people in many instances know little of them, are inexperienced in oil operations, and are without legal advice. They rely on the agent.
Bettman v. Harness, 42 W. Va. 433, 448, 26 S. E. 270, 276 (1896); accord, Moody v. Smoot
Advertising Co., 98 W. Va. 261, 267, 126 S.E. 919, 921 (1925). Although this quotation
discusses oil leases, we believe this to be equally true in the gas business or coal business.
The court also noted that counsel for Energy Development Corporation had the final say in
the wording of the leases. As this Court noted in Moody, concerning the lease of a building:
The writing was prepared by the lessee through its representative and attorney, and should therefore be construed against it in favor of the lessor. It is well settled in West Virginia, where a lease is prepared by the lessee, and there is doubt as to its construction, it must be construed against the lessee as the party who selected the terms and expressions used.
Moody v. Smoot Advertising Co., 98 W. Va. 261, 267, 126 S.E. 919, 920 (1925) (emphasis in original) (quoting Bettman v. Harness, 42 W. Va. 433, 26 S. E. 270 (1896)). We believe that the decision of the lower court to construe the leases in favor of the appellees and against Energy Development Corporation is in accord with this longstanding authority.
The circuit court also determined that it could examine the custom and usage
of the gas industry at the time the leases were executed in its search for the parties' intent.
This, too, is a principle of long standing: Oral testimony of the general usages of the gas
business, which must have been in the minds of the parties at the time of entering into the
contract, is admissible to explain an ambiguity in a written contract for the purchase of gas,
whether the ambiguity be latent or patent. Syl. pt. 2, Bell v. Wayne United Gas Co., 116
W. Va. 280, 181 S.E. 609 (1935); accord, Cotiga Development Company v. United Fuel Gas
Company, 147 W. Va. 484, 128 S.E.2d 626 (1962).
Two other issues shed light on the intention of the parties and helped persuade
the lower court that the appellees did not intend to convey a right to develop the coalbed
methane in the leases: First, if the leases included the right to develop coalbed methane, then
they would also carry an implied right for Energy Development Corporation to invade the
coal seams of the appellees and stimulate them in a fashion that could make it more difficult
or dangerous to later produce the coal; second, that the production of coalbed methane was
not a common practice in McDowell County at the time the leases were executed. When
considering a deed that conveyed an interest in coal, this Court found:
[W]here implied as opposed to express rights are sought, the test of what is reasonable and necessary becomes more exacting, since the mineral owner is seeking a right that he claims not by virtue of any express language in the mineral severance deed, but by necessary implication as a correlative to those rights expressed in the deed.
Buffalo Mining Co. v. Martin, 165 W. Va. 10, 18, 267 S.E.2d 721, 725 (1980). (See footnote 15) Although these cases concerned rights under coal deeds, and not an oil and gas lease, we believe the same logic applies. When an agreement is ambiguous, a court is loath to adopt a construction that places a large and possibly never-considered burden on one of the parties; generally, a court will not find an implied right to conduct a given activity (not mentioned in the lease) unless that activity is clearly demonstrated to have been a common practice in the area, at the time of the lease's execution: (See footnote 16)
In order for a usage or custom to affect the meaning of a contract in writing because [it was] within the contemplation of the parties thereto, it must be shown that the usage or custom was one generally followed at the time and place of the contract's execution.
Syl. pt. 1, West Virginia-Pittsburgh Coal Co. v. Strong, 129 W. Va. 832, 42 S.E.2d 46 (1947); syl. pt. 1, Lowe v. Guyan Eagle Coals, Inc., 166 W. Va. 265, 273 S.E.2d 91 (1980); Phillips v. Fox, 193 W. Va. 657, 663, 458 S.E.2d 327, 333 (1995). (See footnote 17)
As we have observed, the lower court made findings of fact that Energy
Development Corporation solicited the leases and had its counsel prepare them, that any right
to develop coalbed methane would include an implied right to invade the appellees' coal
seams, that representatives of Energy Development Corporation may have been aware of the
value of coalbed methane but that the appellees were not, and that no coalbed methane wells
had been drilled in the area as of 1986. In light of the foregoing authority, we find that the
lower court did not err in finding the leases ambiguous, in construing them against Energy
Development Corporation, the lessee, and in considering the custom and usages of the gas
industry in McDowell County in 1986.
With due consideration to the foregoing authority, we hold that, in the absence
of specific language to the contrary or other indicia of the parties' intent, an oil and gas lease
does not give the oil and gas lessee the right to drill into the lessor's coal seams to produce
coalbed methane gas.
(See footnote 18)
We express no opinion as to what result may obtain in a different
factual scenario, as such a question is not before the Court at this time.
One of the earliest modern cases is United States Steel Corp. v. Hoge, 503 Pa. 140, 468 A.2d 1380 (1983), which considered a dispute between successors in interest to the original fee owners (and their gas lessee) and a coal owner. In 1920, the original fee owners had sold [a]ll the coal of the Pittsburgh or River Vein to U.S. Steel and reserved the rights to drill and operate through said coal for oil and gas without being held liable for any damages. Id. 503 Pa. at 144, 468 A.2d at 1382. In 1978, the successors in interest to the original owners leased the gas to a third party who began drilling test wells and making plans to develop the coalbed methane by hydro fracturing the coal seams. (See footnote 22) The Supreme Court of Pennsylvania held that the coal owner, U.S. Steel, had title to the coal strata, which included any coalbed methane found within it.
At the center of this decision was the basic theory of mineral ownership in
Pennsylvania, coupled with a concern that the proposed method of production would
probably damage the coal seam and increase the danger for miners. Consistent with the
ownership in place theory that applies in Pennsylvania, the court ruled:
[S]uch 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 his exclusive dominion 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.
Id. 503 Pa. at 147, 468 A.2d at 1383 (emphasis in original). However, in West Virginia, we follow the rule of capture for oil and gas. This Court has stated:
West Virginia recognizes the venerable common law doctrine of capture: [Oil and gas] belong to the owner of the land, and are part of it, so long as they are on it or in it subject to his control; but when they escape and go into other land, or come under another's control, the title of the former owner is gone. If an adjoining owner drills his own land, and taps a deposit of oil or gas, extending under his neighbor's field, so that it comes into his well, it becomes his property.
Powers v. Union Drilling, Inc., 194 W. Va. 782, 787, 461 S.E.2d 844, 849 (1995) (quoting, Trent v. Energy Development Corp., 902 F.2d 1143 (4th Cir.1990) (citation and internal quotations omitted). That difference between our states duly noted, we believe the important fact about Hoge is not so much our different theories of ownership, but that the court found that a limited reservation of a right to drill through the coal did not include the right to drill into the coal and develop the coalbed methane. Focusing on the intent of the parties, the court stated:
The reservation to the grantor of the right to drill through the coal seam deeded away for oil and gas is stated generally.
Although the unrestricted term gas was used in the reservation
clause, in light of the conditions existing at the time of its
execution we find it inconceivable that the parties intended a
reservation of all types of gas. . . . We find more logical and
reasonable the interpretation offered by the Appellant [coal
owner] that the reservation intended only a right to drill through
the seam to reach the unconveyed oil and natural gas generally
found in strata deeper than the coal.
Id. 503 Pa. at 149-50, 468 A.2d at 1384-85. Thus the intention of the parties was a paramount concern, giving consideration to common usage and practice at the time of the conveyance.
The Supreme Court of Alabama has also considered this issue. In NCNB Texas
National Bank, N.A. v. West, 631 So.2d 212 (Ala.1993), the Alabama Court also considered
the difference between the rule of capture (which it described as a nonownership theory)
and the concept of ownership in place in a dispute between a coal owner and the successor
in interest to the original fee owner. The original owner had severed the coal and coal
mining rights in a 1954 deed conveying all the coal, but reserving all the oil, gas,
petroleum and sulphur. In a detailed and complex holding, the court ruled that the coal
owner owned the coalbed methane when it was still in the coal, and the gas owner owned
it when it migrated out of the coal strata:
We hold that the appellant gas owners have no interest in coalbed gas recovered from horizontal or vertical wells drilled directly into coalbeds before the coal is mined, although the gas owners do have a 22½% interest in coalbed gas that migrates out of the coal seams, such as that gas collected within the gob zone.
Id., 631 So.2d at 229. Without reaching the same sweeping conclusions of the Alabama Court, we feel that its decision is notable in that it focused upon the intent of the original grantors at the time they conveyed away the coal.
The U.S. Supreme Court has also recently considered a coalbed methane case
in Amoco Production Co. v. Southern Ute Indian Tribe, 526 U.S. 865, 119 S.Ct. 1719, 144
L.Ed.2d 22 (1999). The Southern Ute Tribe ceded certain lands to the federal government
in 1880. In the early 1900's, much of this land was distributed by the federal government to
homesteaders as land grants. Because of an early 20th Century coal shortage in the western
United States, Congress enacted new land grant legislation in 1909 and 1910. The 1909 and
1910 laws, unlike earlier legislation, did not grant the land in fee simple absolute, but instead
included a reservation to the United Stated of all coal in said lands, and the right to prospect
for, mine, and remove the same. Id. 526 U.S. at 869-70, 119 S.Ct. at 1722-23, 144 L.Ed.2d
In 1938, the federal government returned, in trust, some of the traditional Ute
lands to the Tribe, including the reserved coal in lands patented under the 1909 and 1910
Acts. As a result, the Tribe now has equitable title to the coal in lands within its reservation
settled by homesteaders under the 1909 and 1910 Acts. Id., 526 U.S. at 870, 119 S.Ct. at
1723, 144 L.Ed.2d at 27-28. In 1991, the Ute Tribe filed suit against Amoco, who held a gas
lease from the successors in interest to the original homesteaders, claiming that the coalbed
methane had been reserved along with the coal, so that the Tribe now owned the coalbed
The Court focused its inquiry upon the intent of the Congress in passing the
1909 and 1910 acts, finding that, [i]t is evident that Congress viewed CBM gas not as part
of the solid fuel resource it was attempting to conserve and manage but as a dangerous waste
product, which escaped from coal as the coal was mined. Id., 526 U.S. at 875, 119 S.Ct. at
1725, 144 L.Ed.2d at 31 . Ultimately the Court concluded that the coalbed methane did not
belong to the Ute Tribe, who owed the coal, but rather to the successors in interest to the
original homesteaders. The Court largely based its decision on the limited nature of the
reservation made by Congress:
When it enacted the 1909 and 1910 Acts, Congress did not reserve all minerals or energy resources in the lands. It reserved only coal, and then only in lands that were specifically identified as valuable for coal. It chose not to reserve oil, natural gas, or any other known or potential energy resources.
The limited nature of the 1909 and 1910 Act reservations is confirmed by subsequent congressional enactments. (See footnote 23)
Id., 526 U.S. at 877, 119 S.Ct. at 1726, 144 L.Ed.2d at 32. Thus, one might argue that the Amoco Court took the view that, when one makes a reservation of rights, one only gets what one named explicitly and specifically in the reservation.
The Amoco Court also
considered the traditional right of the coal owner or
operator to vent gas:
It may be true, nonetheless, that the right to mine the coal implies the right to release gas incident to coal mining where it is necessary and reasonable to do so. The right to dissipate the CBM gas where reasonable and necessary to mine the coal does not, however, imply the ownership of the gas in the first instance. Rather, it simply reflects the established common-law right of the owner of one mineral estate to use, and even damage, a neighboring estate as necessary and reasonable to the extraction of his own minerals.
Id., 526 U.S. at 879, 119 S.Ct. at 1727, 144 L.Ed.2d at 33 (emphasis added). The appellant argues that the decision in Amoco is dispositive on the issue of coalbed methane ownership in West Virginia. Appellant claims that, because the Amoco Court found that Congress's reservation of coal did not include coalbed methane, and found that the right to vent does not ipso facto amount to ownership, that coalbed methane is conclusively a gas and thus passed under the all gas language of the 1986 leases.
While seductively simple, this logic does not persuade us. We believe that
what the Court determined was that a limited reservation (recall that Congress had previously
made these land grants in fee simple absolute) reserved only that which was specifically and
explicitly mentioned. Moreover, the Court in Amoco concerned itself primarily with the
intent of the Congress and what it would have understood about the industry at the time of
the enactments. Just as in the instant case, the focus was on what a party, at the time of the
conveyance, would have intended to pass, or not pass, in the conveyance. Thus, we conclude
that Amoco is not at odds with our holding in this case, and does not require a blanket finding
by this Court that coalbed methane is gas.
In a dispute between a coal operator and gas owner, the Wyoming Supreme
Court determined that a deed that conveyed all coal and minerals commingled with coal,
but reserved to the grantor all oil, gas and other minerals, did not convey the coalbed
methane to the coal owner, but, instead, reserved it for the grantor. In a decision at odds with
the Pennsylvania case of Hoge, but consistent with U.S. Supreme Court in Amoco, the
Wyoming court focused on the intent of the parties:
To conclude that the landowners intended to separate the coalbed methane and convey it along with their outstanding royalty interest through the language of all coal and minerals commingled with [the] coal is simply not plausible. . . .
Newman v. RAG Wyoming Land Company, 2002 WY 132, 53 P.3d 540, 549 (2002). The court went on to hold:
On the basis of the unambiguous language of the deed and the surrounding facts and circumstances, we conclude the parties generally intended the coal to be conveyed and the gas, wherever it may be located within the property, to be reserved to the landowners. Coalbed methane, being a gas, remained the landowners' property.
Id. 53 P.3d at 550. Again, although this decision ultimately favored the gas owner, the court considered the intent of the parties at the time of the conveyance and found that it was unlikely that the party making a specific conveyance of one mineral, the coal, would have silently included another interest, the coalbed methane. Thus, we feel that the underlying logic of the Wyoming case is not entirely inconsistent with our view.
The Montana Supreme Court reached a similar conclusion that the conveyance
of all coal and coal rights did not include coalbed methane. In Carbon County v. Union
Reserve Coal Co., Inc., 271 Mont. 459, 898 P.2d 680 (1995), the Montana Court considered
a dispute between the county and its gas lessee on one side, and the coal owner on the other.
The deed in question had conveyed all coal and coal rights but was silent as to gas. The
county later granted a lease to a gas operator that specifically included the right to develop
coalbed methane. When the gas operator started to drill wells into the coal, the coal owner
objected, and the county filed suit to quiet title to the coalbed methane.
After concluding that methane gas is not a constituent part of coal, id., 271
Mont. at 471, 898 P.2d at 687, the Montana Court held that the county had not conveyed the
coalbed methane to the coal owner:
[W]e hold that as the lessee of Carbon County, the owners of the gas estate, Florentine [the gas developer] has the right to drill for and to produce the coal seam methane gas at issue here. We also hold that Union Reserve [the coal operator] has a mutual, simultaneous right to extract and to capture such gas for safety purposes, incident to its actual coal mining operations (See footnote 24)
Id., 271 Mont. at 474, 898 P.2d at 689. Again, this decision turned upon the intent of the original owner at the time of making a specific and limited conveyance of the coal. While we are considering a lease, and not a deed, and while we are not making any sweeping statements regarding the true nature of coalbed methane, that underlying logic of the Montana Court is not inconsistent with our holding.
Finally, we note that the Supreme Court of our neighboring state of Virginia
has before it a similar dispute in Ratliff, et al. v. Harrison-Wyatt, LLC, et al., Case No.
187-00 (29th Va. Cir. Ct. 2002), which as of the writing of this opinion, has not yet been
decided. Understanding that the Virginia Supreme Court will have the final word on the
matter, we still find an examination of the Virginia case valuable. The lower court in Ratliff
considered a dispute between a coal owner and the successors in interest to the original
surface/fee owner who had conveyed by deed in 1873 and 1877 all coal and reasonable
surface and underground use of the property in connection with mining the coal.
As we have done in the instant case, the Virginia Court in Ratliff considered
what the language meant to the parties at the time of conveyance . . and examin[ed] the
terms used in light of the common understandings, along with other facts and circumstances
during the time period. Id. It is notable that the court, as we have, resisted the temptation
to declare coalbed methane to be either coal or gas. The Ratliff court stated: [T]he only
finding that would allow the Court to rule in favor of the coal owners is that the CBM is a
constituent of the coal itself. The Court cannot make such a finding. Id. The Virginia
Court concluded by making the following specific holdings:
The Court cannot find that the CBM implicitly passed to the coal owners by virtue of the grant of the coal estate. To rule otherwise would, contrary to Virginia law, have the effect of requiring the grantor to have expressly reserved the rights to every resource contained within the coal seam that it did not intend to grant along with the coal.
The Court now holds that the surface owners' right to the CBM only extends to that which has separated from the coal. The Court does not hold that the surface owners have the right to frac the coal in order to retrieve the CBM
The Court holds that a grant of coal rights does not include title to the CBM absent an express grant of CBM, natural gases, or minerals in general; and that the surface owner holds right to the CBM once it has separated from the coal.
Ratliff, et al. v. Harrison-Wyatt, LLC, et al., Case No. 187-00 (29th Va. Cir. Ct. 2002).
We find no fault with the Virginia decision, though it may be reversed on
appeal. The basic premise of that decision, that one making a grant of one interest need not
specifically reserve every other possible interest, is in harmony with West Virginia law; the
court's focus of inquiry, the intent of the parties, is precisely the same as ours. We believe
the underlying, intent-focused rationale of Virginia holding is consistent with our view in the
Once these areas are defined, the operators must then contact all the parties that might have an interest in the coalbed methane.
(a) Prior to filing an application for a permit for a coalbed methane well under this article, the applicant shall deliver by personal service or by certified mail, return receipt requested, copies of the application, well plat and erosion and sediment control plan to the following:
(1) The owners of record of the surface of the tract on which the coalbed methane well is to be located;
(2) The owners of record of the surface of any tract which is to be utilized for roads or other land disturbance;
(3) Each coal owner and each coal operator (i) from whom a consent and agreement provided for in section seven of this article is required, or (ii) whose coal seam will be penetrated by the proposed coalbed methane well or is within seven hundred fifty feet of any portion of the well bore; and
(4) Each owner and lessee of record and each operator of natural gas surrounding the well bore and existing in formations above the top of the uppermost member of the Onondaga Group or at a depth less than six thousand feet, whichever is shallower. Notices to gas operators shall be sufficient if served upon the agent of record with the office of oil and gas.
W. Va. Code § 22-21-9 (1994). We find it noteworthy that the statute requires notice to all parties who might have some interest in the coalbed methane: surface owners, coal owners, coal operators, and the owners, lessees, and operators of oil and gas wells. Also worthy of note is the way the statute completely avoids and eschews any attempt at deciding ownership of coalbed methane. The statute provides in part:
The review board shall take evidence, making a record thereof, and consider: . . .
(6) The nature and extent of ownership of each coalbed methane owner or claimant and whether conflicting claims exist;
(7) Whether the applicant for the drilling unit proposes to be the operator of the coalbed methane well or wells within the unit; and if so, whether such applicant has a lease or other agreement from the owners or claimants of a majority interest in the proposed drilling unit;
(8) Whether a disagreement exists among the coalbed
methane owners or claimants over the designation of the
operator for any coalbed methane wells within the unit, and if
so, relevant evidence to determine which operator can properly
and efficiently develop the coalbed methane within the unit for
the benefit of the majority of the coalbed methane owners;
W. Va. Code § 22-21-17 (1994) (emphasis added). After considering these issues, the review board issues an order, either granting or denying the pooling request, and giving anyone with a claim to the coalbed methane several options:
(e) Upon issuance of the pooling order, the coalbed methane owners or any lessee of any such owners or any claimants thereto may make one of the following elections within thirty days after issuance of the order:
(1) An election to sell or lease its interest to the operator on such terms as the parties may agree, or if unable to agree, upon such terms as are set forth by the board in its order;
(2) An election to become a working interest owner by participating in the risk and cost of the well; or
(3) An election to participate in the operation of the well as a carried interest owner.
Any entity which does not make an election within said thirty days prescribed herein shall be deemed to have elected to sell or lease under election (1) above.
W. Va. Code § 22-21-17 (1994). Presuming that all those who think they have an interest in the coalbed methane agree, the review board then issues and order establishing how to distribute the profits. In the case of a conflict, any profits from production go into an escrow account:
(j) After each coalbed methane owner has made, or has
been deemed to have made, an election under subsection (e) of
this section, the review board shall enter a division order which
shall set out the net revenue interest of each working interest
owner, including each carried interest owner and the royalty
interest of each coalbed methane owner. Thereafter payments
shall be made to working interest owners, carried interest
owners and royalty interest owners in accordance with the
division order, except that payments attributable to conflicting
claims shall be deposited in the escrow account. The fractional
interest of each owner shall be expressed as a decimal carried to
the sixth place.
W. Va. Code § 22-21-17 (1994).
However, the statute offers little guidance on what to do in the event that
potential claimants are unable to work out a solution on their own:
(k) Upon resolution of conflicting claims either by voluntary agreement of the parties or a final judicial determination, the review board shall enter a revised division order in accordance with such agreement or determination and all amounts in escrow shall be distributed as follows:
W. Va. Code § 22-21-17 (1994) (emphasis added).
(See footnote 27)
This reference to a final judicial
determination shows that the Legislature was reluctant, as are we, to make a sweeping
pronouncement about the general ownership of all coalbed methane. Instead, as evidenced
by the entire statute, the Legislature chose a path that would resolve conflicts on a
case-by-case basis, encourage cooperation among potential claimants, and foster the safe
production of coalbed methane, while protecting the safety of miners and the economic value
of the coal.
We do not feel that our decision in this case is at odds with the statute, or
adverse to the public policy goals expressed by the Legislature, nor does it prevent
conventional gas lessees in this state from participating in the production of coalbed methane.
A gas lessee, like Energy Development Corporation, holding a conventional gas lease need
only obtain the express right to produce coalbed methane from the lessor, or other party
deemed to have ownership of the coalbed methane. As the statute suggests, in those cases
where there is still a dispute over ownership, the parties may seek resolution of conflicting
claims . . . by voluntary agreement or a final judicial determination. In most cases, disputes
among multiple parties claiming the right to develop coalbed methane can be resolved via
the application of the West Virginia Coalbed Methane Act, W. Va. Code § 22-21-1, et seq.
(1994), and cooperation among the parties.
§ 22C-8-2 (1994).
Despite discrepancies in
their analyses and results, the courts share a common objective, namely,
the determination of the intent of the parties to the conveyance of the particular
property interest at issue. . . . [A] court's decision as to that intent will, many
times, turn on what it perceives to be the plain meaning of the language
employed, the application of a rule of construction, or the application of
a rule of law or statute established in the relevant jurisdiction.
Rocky Mountain Mineral Law Foundation, American Law of Mining § 84.05 (2003).
When Congress wanted to
reserve gas rights that might yield valuable fuel, it did so in explicit
terms. In 1912, for example, Congress enacted a statute that reserved oil
and gas in Utah lands. Act of Aug. 24, 1912, 37 Stat. 496. In addition, both the 1912 Act
and a later Act passed in 1914 continued the tradition begun in the 1909
and 1910 Acts of reserving only those minerals enumerated in the statute.
See ibid.; Act of July 17, 1914, 38 Stat. 509, as amended, 30 U.S.C. §§ 121-123
(providing that [l]ands withdrawn or classified as phosphate, nitrate,
potash, oil, gas, or asphaltic minerals, or which are valuable for those
deposits, could be patented, subject to a reservation to the United
States of the deposits on account of which the lands so patented were
withdrawn or classified or reported as valuable). It was not until
1916 that Congress passed a public lands Act containing a general reservation
of valuable minerals in the lands. See Stock-Raising Homestead Act, ch. 9,
39 Stat. 862, as amended, 43 U.S.C. § 299 (reserving all the coal
and other minerals in the lands in all lands patented under the Act).
See also Western Nuclear, 462 U.S., at 49, 103 S.Ct. 2218 (Unlike
the preceding statutes containing mineral reservations, the [1916 Stock-Raising
Homestead Act] was not limited to lands classified as mineral in character,
and it did not reserve only specifically identified minerals).
Id., 526 U.S. at 877-78, 119 S.Ct. at 1726, 144 L.Ed.2d at 32.
We leave to the agreement of the parties or to some future case
the issue of whether, and if so, to what extent, the gas estate
owner or lessee is entitled to be compensated by the coal owner
for gas extracted and captured incident to the coal owner's
(a) The Legislature hereby
declares and finds that the venting of coalbed methane from mine areas and
degasification of coal seams has been and continues to be approved by the state
for the purpose of ensuring the safe recovery of coal; that the value of coal
is far greater than the value of coalbed methane and any development of the
coalbed methane should be undertaken in such a way as to protect and preserve
coal for future safe mining and maximum recovery of the coal; that subject
to the above declarations and findings, commercial recovery and marketing of
coalbed methane should in some cases be facilitated because the energy needs
of this state and the United States indicate that the fullest practical recovery
of both coal and coalbed methane should be encouraged; that the Energy Policy
Act of 1992 was enacted in part to encourage coalbed methane development and
the state of West Virginia should enact legislation which carries out the purposes
of said act; that in order to encourage and ensure the fullest practical recovery
of coal and coalbed methane in this state and to further ensure the safe recovery
of both natural resources, it is in the public interest to enact this article authorizing coalbed methane well permits, regulating the design of coalbed
methane wells and recovery techniques, authorizing coalbed methane well units
and pooling of interests therein to provide all coalbed methane operators and
coalbed methane owners with an opportunity to recover their just and equitable
share of production.
W. Va. Code § 22-21-1(a) (1994).
(1) Each legally entitled working interest owner shall
receive its proportionate share of the proceeds attributable to the
conflicting ownership interests;
(2) Each legally entitled carried interest owner shall receive its proportionate share of the proceeds attributable to the conflicting ownership interests, after recoupment of amounts provided in subsection (h) of this section;
(3) Each legally entitled entity leasing, or deemed to have leased, its coalbed methane shall receive a share of the royalty proceeds attributable to the conflicting interests; and
(4) The operator shall receive the costs contributed to the escrow account by each legally entitled participating working interest owner.
W. Va. Code § 22-21-17(k).