Albright, Justice, dissenting:
The ultimate question presented to this Court by the case before us requires an
identification of who acquires the right to drill a coalbed methane gas well under the statutory
scheme adopted in 1994 and set forth in Article 21, Chapter 22 of the Code of West Virginia
of 1931, as amended. The immediate question posed to the Court, however, is whether,
under leases executed in 1986, a lessor of “all of the oil and gas and all of the constituents
of either” in and underlying certain tracts of land, acquired the right to explore for, extract
and market coalbed methane gas from those tracts.
The majority answers the immediate question by skillfully: (1) finding
ambiguity in the leases, (2) avoiding the determination of whether coalbed methane is “gas”
within the meaning of the leases, and (3) proceeding to construe the leases in a manner that
prevents the lessee from applying for a permit to explore for and produce coalbed methane.
Moreover, the majority simply ignores the ultimate question of identifying the party or parties
who may be entitled to drill a coalbed methane well. I respectfully suggest that the majority
erred on the three points and by failing to address the ultimate issue.
We have consistently held that, in the absence of an ambiguity, a lease or other
instrument may not be construed by the courts but must be applied according to its clear
terms. Cabot Oil & Gas Corp. v. Pocahontas Land Corp., 180 W.Va. 200, 376 S. E.2d 94
(1988). This Court has also consistently defined ambiguity as follows:
Ambiguity in a statute or other instrument consists of
susceptibility of two or more meanings and uncertainty as to
which was intended. Mere informality in phraseology or
clumsiness of expression does not make it ambiguous, if the
language imports one meaning or intention with reasonable
certainty.
HN Corp v. Cyprus Kanawha Corp., 195 W.Va. 289, 294, 465 S. E.2d 391, 396 (1995)
(quoting Syl. Pt. 13, State v. Harden, 62 W.Va. 313, 58 S. E. 715 ( 1907)).
Under our law an oil and gas lease grants first a contingent title - an inchoate
right or mere license - to explore for oil and natural gas; if either is found, a right vests in the
lessor to produce such minerals and, in turn, to take title to the oil or gas produced as
personalty when either is actually extracted from the land. See South Penn Oil Co. v.
Haught, 71 W. Va 720, 78 S. E. 759 (1913); McGraw Oil Co. v. Kennedy, 65 W.Va. 595, 64
S. E. 1027 (1909); Lowther Oil Co. v. Miller-Sibley Oil Co., 53 W.Va. 501, 44 S. E. 433
(1903).
At the time of the execution of the leases at issue here, “natural gas” had been
defined as:
A gas issuing from the earth's crust through natural openings or
bored wells and frequently accompanied by petroleum. It occurs
especially in the Paleozoic rocks of the United States and is of
industrial importance in more than a dozen States. When
combustible it consists chiefly of methane . . . .
Webster's New Intl. Dictionary 1631 (2nd ed 1958).
The same dictionary notes that in popular usage the term “gas” includes “[a]ny
combustible gaseous mixture used for illuminating or as a fuel; as, natural gas, coal gas, etc.”
and recites that a typical analysis of the composition of natural gas revealed the sample to
be 92% methane, 3% hydrogen and 2% nitrogen. See id. at 1035-36 (defining “gas”). Under
the Energy Policy Act of 1992, the United States Congress defined “coalbed methane gas”
as “occluded natural gas produced (or which may be produced) from coalbeds and rock strata
associated therewith.” 42 U.S.C. §13368(p)(2) (2000). In West Virginia's response to the
Energy Policy Act of 1992, as one of the named “affected states” particularly addressed by
that federal legislation, our legislature adopted a somewhat more expansive definition:
“'Coalbed methane' means gas which can be produced from a coal seam, the rock or other
strata in communication with a coal seam, a mined-out area or a gob well.” W.Va. Code
§ 22-21-2(c) (1994) (2002 Repl. Vol.). Finally, it is noted that the leases in question granted
the lessee rights to explore for and exploit all of the oil and gas underlying the tracts of land
covered by the leases.
The majority found an ambiguity in the grant of a lease of “all of the oil and
gas and all of the constituents of either” where reasonable minds could not differ as to the
true and intended meaning of that language. Moreover, it appears beyond cavil that coalbed
methane is gas, that is natural gas. Each of the dictionary definitions clearly identify methane
as the principal component of natural gas and both the federal and state definitions of
“coalbed methane” describe it as a gas. Consequently, the majority erred in finding
ambiguity and, in the larger picture, in failing to clearly define coalbed methane as a gas, as
natural gas.
I turn now to a review of the impact of the decision of the majority to construe
the leases at issue here, rather than to apply their clear language. The majority construed the
leases in a manner that prevents the oil and gas lessees here from applying for a permit to
explore for and produce coalbed methane and led to the corollary decision to ignore the
ultimate question of who may apply for a permit to drill such a well. In setting forth its
reasoning, the majority relied heavily on the analysis employed by the trial court. In its
opinion, the trial court relied upon factors I consider extraneous, such as the regulatory
requirements for oil and gas wells drilled through workable coal seams, requiring such wells
to be sealed throughout the length of their passage through workable coal seams, and the
absence of coalbed methane wells throughout the long history of oil and gas exploration in
this state. The trial court also cited the lack of experience of the oil and gas lessees in this
case with coalbed methane exploration or production and the fixed state policy of
encouraging the safe handling and dispersal of methane gas during mining operations, etc.
The majority opinion continued this analytical theme throughout its fine discussion of the
issues the majority deemed dispositive of the case. I do not challenge these points. I simply
find them irrelevant to the question of whether an oil and gas lessee retains the right under
our law to search for and, with the proper permit, produce methane gas from a mined or
unmined coalbed. These factors, however important, are not determinative of whether the
leases executed in 1986 conferred on the lessees rights to explore for and produce coalbed
methane or who may drill a coalbed methane well under this state's statutory scheme for
permitting such wells.
Why do I say this? First, I note that the regulatory requirements for sealing
drill holes running through coal seams apply only to workable coal seams. For the purposes
of applying those requirements, “coal seam” and “workable coal bed” are interchangeably
defined by statute as “any seam of coal twenty inches or more in thickness, unless a seam of
less thickness is being commercially worked, or can in the judgment of the department
foreseeably [sic] be commercially worked and will require protection if wells are drilled
through it.” W.Va. Code § 22-6-1(e) (1994). In other words, for a coal seam of less than
twenty inches thickness that is neither being worked nor considered by the regulatory
authorities as capable of being worked, the statutory and regulatory sealing requirements
upon which the trial court and the majority relied are simply inapposite. The majority failed
to consider that as a result of the limitation of the sealing requirements to workable coal
seams, generally of twenty or more inches thickness, an oil and gas lessee always had the
expectation and the right to explore for and capture gas - including methane - in, under and
above any coal seam not considered workable. In other terms, the words in a lease granting
the right to explore for and extract “all” oil and gas have always included the right to extract
methane gas. The extraction of methane has not been limited by the terms of the lease; the
extraction of methane has heretofore been limited only by the state's regulatory scheme for
protecting coal miners and coal mining and the lack of technology for the commercially
justified production of methane gas from coalbeds.
Secondly, without regard to coal seams, it is simply a fact that methane can be
found in a variety of strata, near or far from coal seams, and there has never been any doubt
that such gas may be found, captured and extracted under standard oil and gas leases such
as the lease at issue in this case.
(See footnote 1)
Both the trial court and the majority ignore the historic ability of oil and gas
lessees to explore for and capture methane under the circumstances here described and
literally jump to the conclusion that coalbed methane found in workable or previously
worked coal seams cannot fall within the ambit of an older, standard oil and gas lease that
does not specifically mention coalbed methane. Put directly, a grant of the right to explore
for and exploit “all of the oil and gas” under a tract does not mean merely a right to explore
for and extract only some of that oil and gas; “all” means all. Accordingly, I particularly
dissent from the ruling forth in syllabus point eight of the majority opinion.
(See footnote 2)
I suspect that a substantial factor in the majority's narrow decision in this case
proceeds from a belief that the ruling protects surface owners, who, in the case before us,
also retained ownership of the coal in and underlying their land, free and clear of any coal
lease or deed severing ownership of the coal from ownership of the surface. I fear that in
more instances than not the majority's position accomplishes the opposite effect: It may well
freeze out of the permit process for drilling a coalbed methane well the economic interests
of the very small landowners the majority intended its ruling to protect.
Consider this scenario. In 1900, landowners' predecessor in title gave a
severance deed for all the coal in and underlying their land, which coal is now owned by A.
In later years it was determined that the coal seem was only 30 inches thick at best and is too
gaseous and of such low quality as to not justify efforts to extract the coal. In 1986,
landowners gave B an ordinary oil and gas lease, reserving “the usual 1/8th” royalty. In
2004, A elects to grant to C the right to “drill into C's coal seam to produce coalbed methane
gas” horizontally from adjoining coal lands owned by A, and gives the necessary written
consent to C so that C can obtain a coalbed methane permit. Under the majority's ruling, the
oil and gas lessee, B, has no standing to claim an ownership interest; landowners will get no
royalty under their oil and gas lease; and such landowners will have a royal fight on their
hands to get one dime from the production of coalbed methane “occluded” in the coal under
their land. Their sole recourse is to litigate an assertion that the severed coal owner has no
right to allow the extraction of the coalbed methane gas from the coal owner's coal.
On the other hand, had the majority preserved the oil and gas lessee's ability
to search for and produce gas even from a coalbed, such a lessee would have been entitled
to negotiate with the coal owner for its permission to “drill through the coal seams to produce
coalbed methane gas,” and, if successful, would be duty bound to pay lessor land and surface
owners the agreed upon royalty had the well or wells proven productive. Alternatively, if the
coalbed owner desired to extract and commercially market coalbed methane found in the coal
seams, both the owner of unleased oil and gas and an owner-lessor of the oil and gas in place
could then expect to share in the proceeds, at least to the extent of the usual royalty, if not
more. In my view, the majority's opinion achieves the opposite result. It enhances the ability
of holders of severed interests in minerals to grant methane rights on properties where the
surface owner or the owner's lessee holds oil and gas rights. The reality is that the majority's
ruling is not a victory for most small landowners in this state. Nor is it simply a defeat for
active oil and gas operators under a current oil and gas lease. Rather, it is a huge victory for
the owners of large tracts of coal who hold that coal by virtue of severance deeds made
decades ago, often long before the economic potential of coalbed methane or, for that matter,
the economic potential of natural gas generally had been recognized.
(See footnote 3)
The majority erred
in not definitively preserving the right of owners of oil and gas in place, under lease or not,
to share in the fruits of the production of coalbed methane extracted from their lands by
virtue of the ownership of oil and gas rights in the real property. It appears that the
majority's failure to preserve those rights proceeded, at least in part, from the fact that the
majority considered this case in a virtual vacuum, without thorough attention to its
ramifications upon the system suggested by the Congress, and adopted by our Legislature
with modifications, to encourage the production of coalbed methane gas from coal seams,
nearby strata, mined-out areas and gob wells.
By adopting West Virginia Code § 22-21-1, et seq., the Legislature established
a system whereby the production of coalbed methane might be encouraged while also
stringently safeguarding the safety and economic viability of coal mining and providing at
least the framework for protecting the economic interests of all owners or potential owners
of rights in any given source of coalbed methane. The majority's opinion effectively
excludes from that process both the lessors and the lessees under most existing oil and gas
leases, in favor of owners of coal in place, be they also owners of the surface or, as is the
case in so many situations, simply the owners of a coalbed, the title to which was long ago
severed from the ownership of the surface. A frequent result of the majority's limited
analysis of the issues presented by this case may well be that landowners who are lessors or
potential lessors of oil and gas rights in and under their lands will be excluded from the
coalbed methane income stream because the title to the coal in and underlying their land has
long since been severed from the ownership of the surface.
It is clear that the majority intended its decision to apply only to the narrow issue the majority addressed in its opinion: Whether the lease at issue contemplated that the lessee might explore for and extract coalbed methane gas from the leased premises.
Accordingly, this Court retains some ability to further examine the ramifications of its ruling
in future cases. If that opportunity arises, this Court should, as the majority did not, give
careful consideration to the framework adopted by the Legislature in West Virginia Code §
22-21-1, et seq. for (1) encouraging the production of coalbed methane from workable coal
seams, mined out areas and potential gob wells, (2) protecting as a first priority the safety
of ongoing mining operations, and (3) providing a means of apportioning both the cost and
profit from the production of coalbed methane among all the parties with legitimate claim
to an economic interest in the coalbed methane.
To be sure, the process spelled out by the legislation is not without some uncertainty or even ambiguity. (See footnote 4) However, the legislation clearly contemplates that methane is a gas to be explored for, captured and marketed by an “operator,” under a permit issued by our state's oil and gas regulatory authorities. The legislation, enacted to remove coalbed methane wells in West Virginia from the direct regulatory control of the United States Secretary of the Interior under the national Energy Policy Act of 1992, closely mirrors the procedures established by that federal act for the authorization of coalbed methane wells in workable coal seams.
The state law contemplates that, with the permission of the owner of the
workable or mined out coal seam involved, an “operator” may be permitted to drill and
operate a coalbed methane well. It does not undertake to define who is the “owner” of the
coalbed methane nor does the legislation specify who may or may not be an “operator” of
such a coalbed methane well. However, the law does provide three separate, alternative
means of allocating the cost and, in due course, the profit, from such an operation.
It appears that this comprehensive legislation was intended to broadly
encourage the development of the coalbed methane resources of this state by providing that
either the owner or the owner's lessee of the oil and gas in an underlying a tract of land, or
the owner or the owner's assignee of a workable coal seam underlying a tract of land may
become the “operator” of a coalbed methane gas well on such a tract. The legislation appears
to also contemplate that the owner or lessor of such oil and gas would, in all events, be
entitled to the payment of a royalty on the extraction of such gas, subject to the resolution by
the owner of the working interest in the oil and gas and by the owner of the coalbed of the
means by which, under the statute, the costs of drilling the well are to be recovered and the
profits allocated. Of course, the legislation expressly provides that the owner of the coal
must consent to the drilling of such a coalbed methane well. Correspondingly, the legislation
appears to contemplate that the owner of the coalbed in which methane may be found may
elect to become the “operator” of a coalbed methane well, directly or by an assignee, again
subject to the resolution by the owner of the working interest in the oil and gas and by the
owner of the coal in place of the means by which, under the statute, the well costs and profits
are to be allocated. I suggest that the owner of the coal in place holds an equal right to be
an operator because, while the methane is in the coal (“occluded” in the words of the federal
Energy Policy Act of 1992) it is a constituent part of the coal. The right to mine the coal has
always been seen to include the right, indeed the duty, to disperse such methane in the
interests of the safety of miners and mining operations. By failing to recognize and
underscore the goals of the legislation to encourage in appropriate circumstances, the “fullest
practical recovery of coal and coalbed methane,” as set out among the statements of policy
and purpose found in the coalbed methane well act in West Virginia Code § 22-21-1, the
majority has set the our law on this subject upon an unduly restrictive course. Hopefully, this
misguided result will be rectified at the first opportune moment, without lasting damage to
the landowners whose rights to compensation for methane gas removed from their lands has
been seriously eroded as the result of the majority decision.
I regret that the majority did not address the ultimate issue of who might be an
“operator” under the coalbed methane well act and did not embrace the view that the lessees
here, as well as the owners of the coal in place and all other parties having an interest in the
land, could be an “operator” under the coalbed methane well act.
For the reasons assigned, I respectfully dissent.