Vines v. McKenzie Methane Corp.

• Decision Date: 19 February 1993
• Citation: 619 So.2d 1305
• Parties: James Harold VINES v. McKENZIE METHANE CORPORATION, et al. J. Morris TRAYWICK and Ruth Traywick v. McKENZIE METHANE CORPORATION. 1911093, 1911488.
• Court: Alabama Supreme Court

Page 1305

619 So.2d 1305

James Harold VINES v. McKENZIE METHANE CORPORATION, et al.

J. Morris TRAYWICK and Ruth Traywick v. McKENZIE METHANE CORPORATION.

1911093, 1911488.

Supreme Court of Alabama.

Feb. 19, 1993.

Rehearing Denied April 9, 1993.

William J. McDaniel and Edward E. Angwin of McDaniel, Hall, Conerly & Lusk, P.C. and Mac Parsons, Birmingham, for appellant James Harold Vines.

Alton B. Parker, Jr. and Pamela F. Colbert of Spain, Gillon, Grooms, Blan & Nettles, Birmingham, for appellants J. Morris Traywick and Ruth Traywick.

Isaac P. Espy of Espy, Nettles and Scogin, P.C., Tuscaloosa, for appellee McKenzie Methane Corp.

Conrad P. Armbrecht, Edward A. Dean and Duane A. Graham of Armbrecht, Jackson, DeMouy, Crowe, Holmes & Reeves, Mobile, for amicus curiae Jim Walter Resources, Inc.

Victor T. Hudson and William W. Watts III of Reams, Philips, Brooks, Schell, Gaston & Hudson, P.C., Mobile, for amicus curiae NCNB Tex. Nat. Bank.

PER CURIAM.

This opinion addresses two appeals, which present the same issue of first impression.

James Harold Vines sued McKenzie Methane Corporation ("McKenzie Methane") and Daniel Clark, land manager for McKenzie Methane, alleging that the company had wrongfully extracted coalbed methane gas from beneath land that he owned in Shelby County. McKenzie Methane counterclaimed, arguing that it holds a leasehold interest for the coalbed methane gas via a lease executed in 1902 between the landowners and the previous mineral owner, USX Corporation. Through subsequent assignments, McKenzie now has this leasehold interest in "all of the coal, iron ore, and other minerals, in, under, and upon" Vines's property. The trial court held that McKenzie Methane's estate in coal included the right to drill for coalbed methane, and it entered a summary judgment for the company. Vines appeals.

While Vines's suit was pending, McKenzie Methane brought a declaratory judgment action against J. Morris Traywick and Ruth Traywick, asking the court to declare that the company was entitled to extract coalbed methane gas from a parcel of land owned by the Traywicks. The land is subject to an 1898 mineral lease held by Southern Electric Company, which grants a leasehold interest in "all the coal and other minerals, in, under, or upon" the land and also grants an easement for the "conveying and transporting to and from any of said lands all material or implements that may be of use in the mining and removal of said coal and other minerals, or in the preparation for market." In 1989, Southern Electric leased its mineral rights to McKenzie Methane "for the purposes of investigating, exploring and prospecting for coalbed methane gas." The court entered a summary judgment for McKenzie Methane, holding that the 1898 lease of "coal and other minerals" entitled McKenzie Methane to drill for coalbed methane gas as the assignee of this lease. The Traywicks appeal.

We begin by noting the evidence in the record concerning the nature of coalbed methane gas. Coalbed methane gas is produced from coal seams, formed during and as a by-product of the coalification process. Murray, "Coalbed Methane: A Significant New Source of Clean Energy for the 21st Century," IV Interstate Oil & Gas Compact Comm. Bull., 67 (1990). Coal is a reservoir for the gas, like any other stratum containing natural gas reserves. While some of the gas generated during the coal-forming process migrates out of the coal, a large amount is retained within the coal itself; that is, the gas is physically bound to and absorbed into the coal. Murray. As the coal is mined, the draining of water out of the cracks of the coal and the stresses placed on the coal cause increasing quantities of the methane to become free from the coal and to accumulate in the mining area. Murray. Because the gas is toxic and highly explosive, its release from the coal causes a significant hazard to the miners, as well as to the mining machinery and the mining process itself. Olsen, "Coalbed Methane: Legal Considerations Affecting Its Development as an Energy Resource," 13 Tulsa L.J. 377 (1978). Because of this hazard, the mine operator is required by federal and state law to monitor and control the rate of methane seepage from the coal during the mining process. 30 U.S.C. § 863; § 25-9-82(b), Ala.Code 1975. While mining operators use ventilation fans to remove most of the methane from the coal, they also drill "vertical" and "horizontal" wells to remove the methane gas that is released prior to the intensive mining procedures and drill "gob" wells to remove the gas that is released immediately after active mining. Bowles, "Coalbed gas: Present Status of Ownership Issue and Other Legal Considerations," 1 Eastern Mineral Law Institute, 7-1 (1980). The existence of coalbed methane in commercial quantities was recognized in Alabama as early as the 1920's; however, coalbed methane did not support a significant industry until the 1980's, when technological developments and changes in federal law made the gas a commercially viable alternative energy source.

The dispositive issue in these appeals is whether the mineral leases in question conveying interests in coal also gave McKenzie Methane the right to drill for coalbed methane gas. The meaning of the term "minerals" as that word is used in any particular grant or reservation is not to be determined by rigid and arbitrary definitions, but from the language of the grant or reservation, the surrounding circumstances, and the intention of the grantor, if it can be ascertained. Exxon Corp. v. Waite, 564 So.2d 941 (Ala.1990). When the leases in question in these appeals were drafted, coalbed methane gas had little or no commercial value and was not removed from the earth for the sake of its own value. Vines and the Traywicks thus conclude that the lessors of interests in the coal and other minerals could not have intended to give the lessees the right to drill for coalbed methane.

Because drilling coalbed methane gas has only recently become a profitable business, there are few cases addressing the issue of whether that gas is necessarily included within the lease of an interest in coal. The first case to address the issue was United States Steel Corp. v. Hoge, 503 Pa. 140, 468 A.2d 1380 (1983). United States Steel Corporation owned "all of the coal" contained in certain tracts of land owned by the individual defendant, Hoge, as well as "all the rights and privileges necessary and useful in the mining and removing of said coal, including ... the right of ventilation." 503 Pa. at 144, 468 A.2d at 1382. Hoge retained the "right to drill and operate through said coal for oil and gas without being held liable for any damages." Id. After considering the nature of methane gas, the Pennsylvania Supreme Court held that the gas as it is present in coal intrinsically belongs to the owner of the coalbed, so long as it remains part of the coalbed, and that ownership would be lost only upon a grant of rights or when the gas left the coalbed through the process of migration. In determining that coalbed methane gas was included in the grant of rights contained in the 1920 deed, the court ascertained the intent of the parties according to the following rationale:

"[A]t the time this coal severance deed was entered into, although commercial exploitation of coalbed gas was known such operations were very limited and sporadic. Indeed for the most part coalbed gas was a dangerous waste product which had to be vented from the coal seam to allow for safe mining of the coal....

"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. In so finding, we are unable to overlook a basic question: Why would a party retain the right to something which is only a waste product with well-known dangerous propensities? ... It strains credulity to think that the grantor intended to reserve the right to extract a valueless waste product with the attendant potential responsibility for damages resulting from its dangerous nature."

By this rationale, the court determined that "subterranean gas is owned by whoever has title to the property in which the gas is resting" and that the title holder "may mine his coal, extract the gas from it, or both." Hoge, 503 Pa. at 147, 468 A.2d at 1384.

In Rayburn v. USX Corp., No. 85-G-2261-W, July 28, 1987, (N.D.Ala.), affirmed, 844 F.2d 796 (11th Cir.1988), the district court for the Northern District of Alabama held that a 1960 deed conveying "minerals and mining rights," but reserving oil and gas rights, did not reserve the right to coalbed methane. The court noted that, at the time of the conveyance,...