Enervest Operating, LLC v. Sebastian Mining, LLC
2012 U.S. App. LEXIS 8585, 676 F.3d 1144, 2012 WL 1448549 (2012)
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Rule of Law:
Under Arkansas law, when interpreting mineral deeds, coal bed methane gas (CBM) is generally conveyed with broadly defined oil, gas, and other mineral rights rather than narrowly defined coal rights, if the objective intent of the grantor, derived from the plain language of the deeds, is clear.
Facts:
- The original fee simple absolute title holder (Grantor) owned lands in Sebastian County, Arkansas.
- In 1962, the Grantor conveyed an undivided one-half interest in "all of the oil, gas and other minerals" but expressly reserved "all coal rights" via an instrument known as the Wheeler Deed.
- In 1965, the Grantor conveyed "the surface and coal" rights via an instrument known as the Garland Deed, but "reserved unto the Grantor . . . all bauxite, oil, gas and all other minerals."
- In 1976, the Grantor conveyed its second undivided one-half interest "in the oil, gas and other minerals, EXCEPT coal" via an instrument known as the Texas & Pacific Deed.
- Anadarko Petroleum Corporation, Andromeda Partners, LP, Jack R. Crissup, Deborah M. Crissup, and Ream Interests, Inc. (collectively, Gas Owners) are the successors-in-interest to the rights conveyed in the Wheeler and Texas & Pacific Deeds.
- Sebastian Mining, LLC (Coal Owner) acquired the rights from the Garland Deed effective April 30, 2010.
- EnerVest Operating, LLC entered into various oil and gas leases and contracts with both the Coal Owner and Gas Owners to produce CBM from the lands.
- A dispute arose between the Coal Owner and Gas Owners regarding who was entitled to the CBM royalties.
Procedural Posture:
- EnerVest Operating, LLC initiated an interpleader action in the United States District Court for the Western District of Arkansas, seeking a ruling as to whether Sebastian Mining, LLC (Coal Owner) or the Gas Owners were entitled to coal bed methane gas (CBM) royalties.
- The parties moved for summary judgment on a stipulated record that included the Wheeler, Garland, and Texas & Pacific Deeds.
- The district court held that the CBM rights were conveyed to the Gas Owners and, therefore, that the Gas Owners were entitled to the CBM royalties.
- Sebastian Mining, LLC (Coal Owner), as intervenor defendant, appealed the district court's decision to the United States Court of Appeals for the Eighth Circuit.
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Issue:
Does Arkansas law consider coal bed methane gas (CBM) to be included in a deed conveying "oil, gas, and other minerals" or in a deed conveying "coal rights" when the deeds' language indicates a broad grant of general mineral rights and a narrow grant of coal rights?
Opinions:
Majority - Gruender, Circuit Judge
Yes, Arkansas law considers coal bed methane gas (CBM) to be included in a deed conveying "oil, gas, and other minerals" when the objective intent of the grantor, as determined by the plain language of the deeds, clearly indicates a broad grant of general mineral rights and a narrow grant of coal rights. Arkansas law requires courts to determine the grantor's objective intent by examining the language used in the deed and putting themselves in the position of the parties to the deed. The deeds in this case (Wheeler, Garland, and Texas & Pacific Deeds) consistently defined the general mineral rights broadly, including "oil, gas, and other minerals," while narrowly carving out only "coal rights." CBM, being a form of natural gas, falls squarely within the plain meaning of the broad "gas and other minerals" reservation. The court rejected the Coal Owner's contention that CBM could not have been intended for transfer because it lacked commercial value at the time the deeds were executed, noting that this principle (the Strohacker rule) primarily limits implicit reservations of substances by grantors, not broad conveyances. Furthermore, the argument that CBM production would interfere with coal mining was deemed insufficient to overcome the clear deed language, especially since the Gas Owners' right to extract CBM is limited by the requirement of reasonable and necessary use. Lastly, a coal owner's legal obligation to vent CBM for safety does not imply ownership of the gas itself, as this is merely an aspect of using the neighboring estate as necessary for coal extraction. Therefore, the plain language of the deeds evinced a clear intent to convey CBM rights as part of the broad grant to the Gas Owners.
Analysis:
This case clarifies the ownership of coal bed methane gas (CBM) in Arkansas, establishing that CBM is generally considered part of the "gas and other minerals" estate rather than the "coal" estate, especially when deed language broadly grants the former and narrowly defines the latter. It reinforces the paramount importance of the grantor's objective intent as expressed in the plain language of the deeds, even when technological advancements or commercial viability of substances like CBM change over time. The ruling provides clarity for future disputes involving CBM and similar previously 'valueless' resources, emphasizing that a broad 'other minerals' clause can encompass resources not explicitly named or commercially exploited at the time of conveyance.
