The Oil and Gas Addendum

Let’s assume you inherited a 150 acre farm in Lycoming County that has been owned by your family since 1909. In 2020, you are approached by ABC Drilling about a new oil and gas lease for the farm. You retain counsel and negotiate a favorable new lease with a 18% cost free royalty. Shortly thereafter you start to receive monthly production royalties from ABC Drilling.  However, in December 2024, you receive an unusual letter from ABC Drilling informing you that there is now a “competing” ownership claim to the oil and gas rights underlying the farm and that all royalty payments will be held in “suspense” until the dispute is resolved. You contact ABC Drilling. They inform you that the heirs of the original grantor to the 1909 deed, Kirby Wilson, are claiming ownership of the oil and gas underlying the farm. The Wilson heirs contend that the 1909 deed excepted the “minerals” from the conveyance of the farm to your great-grandfather. As such, they claim that the oil and gas rights were not conveyed to your family in 1909 – they remained with Kirby Wilson. And as the direct descendants of Kirby Wilson, they now claim ownership of the oil and gas rights. You are frustrated, angry and confused. How can obscure language in an ancient deed impact current oil and gas ownership? And is oil and gas really a mineral? The Pennsylvania Superior Court recently addressed these questions in Comerford Family Limited Partnership v. Ainbinder, et al. (849 MDA 2022, November 14, 2024).

At issue in Comerford Family Limited Partnership were several deeds concerning approximately 4,045 acres in Cherry and Colly Townships, Sullivan County, Pennsylvania. The first deed, dated June 16, 1955, conveyed 4,045 acres from William A. Monahan to the White Ash Land Association (the “1955 Deed”)[1]. In the 1955 Deed, William A. Monahan excepted and reserved “all mineral rights and all minerals. . . including, without limitation, all natural gas, petroleum, oil, coal and iron. . . .” from the conveyance (the “WALA Reservation”). Monahan further excepted and reserved the right of “ingress and egress” upon, over and through the surface of the 4,045 acres in order to access and develop the underlying coal, oil and gas. By virtue of the WALA Reservation in the 1955 Deed, William A. Monahan retained ownership of the oil and gas estate underlying the entire 4,045 acres.

Three years later, on April 11, 1958, William A. Monahan conveyed to his nephew, John E. Monahan, “all of the mineral and surface rights” to a portion (i.e. 951 acres) of the WALA Reservation (the “1958 Deed”). At the time of this conveyance, the only surface rights William A. Monahan had were limited to the specific “ingress” and “egress” rights he reserved in the 1955 Deed. Nonetheless, the 1958 Deed purported to transfer and convey the “minerals” underlying the entire 4,045 acres previously conveyed to the White Ash Land Association in 1955 along with certain limited surface rights.

In 2017, the successors of William A. Monahan, the Comerford Family Limited Partnership (“Comerford”), filed suit seeking to quiet title to a portion of the original 4,045 acres.  Comerford argued that the quit claim deed recorded by Robert Ainbinder and Robert Barr (“Ainbinder”)[2] in August 2016 did not, and could not, convey the oil and gas rights underlying the disputed acreage (the “2016 Deed”).  The 2016 Deed, Comerford noted, relied exclusively on the 1958 Deed as the source of title for the oil and gas rights. Because the 1958 Deed only conveyed the purported “minerals” to John E. Monahan, Comerford argued that the grant in the 1958 Deed did not, and could not, include the oil and gas estate. Under the auspices of the so-called Dunham Rule, Comerford asserted that oil and gas are not “minerals” under the Pennsylvania law. As such,  Comerford further argued that Ainbinder’s reliance on the 1958 Deed was misplaced and that the 2016 Deed itself was invalid and ineffective as a matter of law: the 2016 Deed simply conveyed no oil and gas rights to Ainbiner.

In the summer of 2021, the Court of Common Pleas of Sullivan County conducted a bench trial on Comerford’s quiet title claim. The trial court agreed with Comerford and ruled that the 1958 Deed did not convey any oil and gas rights to Ainbinder’s predecessor. The 1958 Deed only conveyed the “minerals”, which did not include the oil and gas. As such, the 2016 Deed was ineffective and the oil and gas remained with Comerford:

“Comerford Family Limited Partnership is the owner of all the oil and gas . . . with the exception of the mineral rights and surface access rights set forth and conveyed in the 1958 Deed between William A. Monahan and John E. Monahan. . .”

The trial court further ruled that the 2016 Deed should be stricken and removed as a cloud on Comerford’s oil and gas title.  Ainbinder appealed to the Superior Court.

Before we address the substance of the Superior Court opinion, a brief primer on deed exceptions and reservations, as well as the seminal Dunham Rule, is warranted. 

The presence of an “exception” or “reservation” in a deed has legal significance.  An “exception” is “. . . the withholding from the operation of the deed something existent which otherwise the deed would pass to the grantee.” See, Lacy v. Montgomery,  124 A.2d 492 (Pa. Super 1956). A “reservation” creates a new interest that did not exist prior to the grant “and vests it in the grantor.”  See, Lauderbach – Zerby Co. v. Lewis, 129 A. 83 (Pa. 1925).  Both an “exception” and a “reservation” have the same effect: title to the excepted or reserved property remains with grantor. See, Wright v. Misty Mountain Farm LLC.  125 A.3d 814 (Pa. Super 2015)(“title to the thing subject to an exception remains with the grantor”); Lacy v. Montgomery, supra (“an exception . . . withdraws the excepted property from the description”).  In sum, an “exception and reservation” clause in a deed identifies the property interests not being conveyed or transferred to the grantee.

The Dunham Rule was first announced by the Pennsylvania Supreme Court in Dunham & Shortt v. Kirkpatrick, 101 Pa. 36 (Pa. 1882). As we have written before, under the Dunham Rule, an exception or reservation of “minerals” in a deed will not include the oil and gas unless there is “clear and convincing evidence” that the parties intended to include the oil and gas estate as part of the conveyance.  See, Marcellus Shale Gas Is Not a Mineral (May 2013); Pennsylvania Superior Court Rules that Oil and Gas Rights Did Not Transfer to Buyer (February 2021). Pennsylvania courts have recognized the rule for over 140 years and have consistently observed that “natural gas and oil simply are not minerals because they are not of a metallic nature. . .” See, Butler v. Charles Powers Estate, 65 A.3d 885 (Pa. 2013); See also, Highland v. Commonwealth, 11 A.2d 390 (Pa. 1960)(“. . . if, in connection with a conveyance of land, there is a reservation or an exception of ‘minerals’ without any specific mention of natural gas or oil . . . the word ‘minerals’ was not intended by the parties to include natural gas or oil”). Pennsylvania, however, is in the minority. Most oil and gas jurisdictions do not follow this rule and typically include oil and gas as part of any “mineral” exception or reservation.

Back to the Superior Court’s opinion in Comerford Family Limited Partnership. On appeal, Ainbinder argued, inter alia, that the grant of “all mineral and surface rights” in the 1958 Deed vested the oil and gas estate in John E. Monahan. As such, Ainbinder further argued that he acquired the same oil and gas rights by virtue of the 2016 Deed. His theory also suggested that pursuant to the 1958 Deed, John E. Monahan also acquired a fee simple interest in the surface estate to the 951 acres. Ainbinder’s position was that the surface rights initially excepted and reserved by William A. Monahan in the 1955 Deed were subsequently transferred and conveyed to John E. Monahan in the 1958 Deed. In particular, Ainbinder relied upon the following language in the granting clause of the 1958 Deed:

“The said premises are part of the premise conveyed to William A. Monahan by the Bernice Land Corporation by deed dated June 14, 1955 . . .  and the mineral and surface rights herein conveyed are part of those reserved by the grantor in deed to White Ash Land Association dated June 16, 1955. . .”

The Superior Court rejected Ainbinder’s novel interpretation of the various deeds. First, the Superior Court observed that the surface rights excepted and reserved in the 1955 Deed were not as broad or expansive as Ainbinder suggested.  On the contrary, the Superior Court noted that the entire surface estate was conveyed, in fee, by William A. Monahan to the White Ash Land Association by virtue of the 1955 Deed.  That deed, the panel explained, excepted and reserved a limited right to access and use the surface in order to drill, mine and otherwise remove the underlying oil, gas and coal.  It was not an exception or reservation of a fee interest in the surface estate. As such, Ainbinder’s suggestion that the subsequent 1958 Deed conveyed a broader surface interest was without merit. 

Second, the Superior Court opined that the purported grant of “minerals” in the 1958 Deed did not include the underlying oil and gas rights.  The panel cited the Dunham Rule and noted that “there is a presumption that the natural gas or oil is not included within the word minerals”. Since Ainbinder had failed to adduce credible evidence rebutting the presumption, the Dunham Rule applied and the oil and gas was not conveyed as part of the 1958 Deed. Accordingly, the Superior Court affirmed the trial court’s conclusion that no oil and gas rights were transferred or conveyed by operation of the 2016 Deed.

The same logic and rationale applies to our example. An exception and reservation of “minerals” in the 1909 deed would not, absent clear and convincing evidence suggesting otherwise, include the underlying oil and gas rights.  Therefore, the Wilson heirs would not have a valid claim to the oil and gas and ABC Drilling should not suspend any production royalties. The Dunham Rule remains alive and well here in Pennsylvania. 

If you have any questions or concerns about the Dunham Rule or the nature, effect and scope of an oil and gas deed, please call Robert J. Burnett at 412.288.2221 or email him at rburnett@hh-law.com

[1] William A. Monahan acquired the 4,045 acres several days earlier by virtue of a deed from the Bernice Land Corporation dated June 14, 1955.

[2] Ainbinder was the successor in interest to John E. Monahan.