The West Virginia Supreme Court of Appeals has weighed in on a issue of great importance (and many dollars) in coal producing areas: whether a 1938 deed reserving “oil and gas” includes coalbed methane (CBM). As often happens with weighty legal questions, the answer is … “it depends.”
Poulos owns an undisputed 25% interest in the royalties flowing from “oil and gas” production from the subsurface estate. LBR Holdings owns 100% of the royalties flowing from coal production. Since methane is scientifically classified as a “gas” (as opposed to a solid or a liquid), Poulos argued that “gas is gas” and the reservation unambiguously entitled them to payments. The trial court disagreed and the Supreme Court affirmed. Poulos v. LBR Holdings, LLC, #15-0907 (Oct. 26, 2016).
The Court focused on the intent of the parties to the deed containing the reservation when it was made in 1938. It analyzed the history of CBM production and determined that efficient extraction and capture of CBM was not feasible until the 1980’s. Thus, it held that in 1938, CBM “was commonly considered a deadly hazard for which the general custom and usage was to get rid of it.” Given that evidence, the Court found it difficult to imagine the grantor intended to reserve an interest in a hazardous by-product at the time the reservation was made.
Of course, this approach begs the question of whether a blanket reservation of “oil and gas” in a deed made subsequent to the advent of profitable CBM production was intended to include it. Further, could a more nuanced reservation dating from an earlier time be construed to include CBM? Additional complications arise from West Virginia’s “Coalbed Methane Wells and Units” statute, which regulates CBM production independently from conventional gas (seeming to imply CBM is not “gas”), even as it “completely avoids and eschews any attempt at deciding ownership of coalbed methane.”