NO. 93-426
IN THE SUPREME COURT OF THE STATE OF MONTANA
1995
CARBON COUNTY, a political subdivision
of the State of Montana,
Plaintiff and Respondent
UNION RESERVE COAL CO., INC., a Montana
corporation; RED-LODGE BEAR CREEK COAL
PARTNERS, a limited partnership; and
NORBERT H. KMOCH; et al.,
Defendants and Appellants,
-v-
FLORENTINE EXPLORATION & PRODUCTION, INC.,
a Montana corporation,
Intervener, Respondent/Cross-Appellant.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Carbon,
The Honorable Robert W. Holmstrom, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Robert L. Stephens, Jr., Billings, Montana
For Respondents:
Anthony W. Kendall, Red Lodge, Montana; Hon.
Joseph Mazurek, Attorney General, Clay Smith,
Assistant Attorney General, Helena, Montana; James
P. Healow, Sweeney & Healow, Billings, Montana
(Florentine)
For Amicus Department of State Lands:
Tommy H. Butler, Special Assistant Attorney
General, Helena, Montana
Heard and Submitted: May 16, 1995
Decided: June 27, 1995
Filed:
Justice James C. Nelson delivered the Opinion of the Court.
The plaintiff, Carbon County, initiated this suit to quiet
title in all of the mineral and mineral rights, excluding the coal
and coal rights, on certain lands within the county. Florentine
Exploration & Production (Florentine) was allowed to intervene in
the action, aligning itself with Carbon County. Following a bench
trial, the District Court for the Thirteenth Judicial District,
Carbon County, entered judgment for defendant, Union Reserve Coal
Co. (Union Reserve), awarding Union Reserve nominal damages of
$1.00. From that judgment, the defendant appeals and plaintiff and
intervenor cross-appeal. We reverse and remand.
The issues on appeal, as framed by this Court, are:
1. Is coal seam methane gas a constituent part of the coal
estate?
2. Did the District Court err in determining that Union
Reserve has the right to produce coal seam methane gas from the
coal lands?
3. Do the 1993 legislative amendments to § 15-l-101, MCA and
§ 82-11-101, MCA, and the enactment of § 82-l-111, MCA, constitute
an unlawful taking of coal seam methane gas from the owners of coal
or coal lands?
4. Did the District Court err in not granting punitive
damages to Union Reserve?
FACTUAL. BACKGROUND
Prior to October 10, 1974, Carbon County became the owner,
through tax deed proceedings, of the entire mineral estate
2
underlying the disputed property. On November 1, 1984, Carbon
County executed and delivered to Red Lodge-Bear Creek Coal
Partners, Union Reserve's predecessor in interest, a deed which
conveyed 0 [all1 coal and coal rights with the right of ingress and
egress to mine and remove the same from the following described
acreage . .I'
The deed did not make any reference to gas in general, coal
seam methane gas, nor any mineral or hydrocarbon other than coal.
The deed reserved a royalty of $.lO "per ton of 2,000 pounds of
coal produced and saved from said lands." The deed made no
reference to any royalty on gas that might be produced and saved,
nor any other mineral which might be extracted from the property.
On August 21, 1990, Carbon County executed and delivered to
Florentine an oil and gas lease whereby Florentine received the
right to operate for and produce from the disputed property "oil
and all gas including coal seam methane of whatsoever nature or
kind . .I' The lease was a standard Producer's 88 lease form,
which provided for a royalty of l/8 of the proceeds from any gas
produced from the property. After obtaining the lease from Carbon
County, Florentine solicited a protective lease from Union Reserve,
but Union Reserve refused to provide such a lease.
On December 7, 1990, Carbon County filed a quiet title action
against Union Reserve and various other named defendants, asserting
Carbon County's claims to all of the mineral and mineral rights,
excluding the coal and coal rights, on the disputed property.
Florentine moved to intervene, asserting that it owned the oil and
3
gas lease and that Union Reserve had no estate, right or claim in
the oil and gas including the coal seam methane gas. (At the time
of the lawsuit, Florentine had drilled three wells, one of which
Was in the coal owned by Union Reserve.) Florentine sought
injunctive relief and quiet title to the coal seam methane gas.
In its answer, Union Reserve asserted that it was entitled to
a judgment declaring that its ownership of the coal and coal rights
included the right to extract the coal seam methane gas. 1n
addition, Union Reserve sought a judgment canceling Florentine's
oil and gas lease and monetary damages for Florentine's trespass on
Union Reserve's property.
Following a July 23, 1992, bench trial, the District Court
entered Findings of Fact and Conclusions of Law which found that
the coal seam methane gas was part of the coal estate and was
included in the conveyance of coal and coal rights by Carbon County
to Union Reserve's predecessor-in-interest. The court further held
that Florentine did not acquire by its lease a right to drill and
produce coal seam methane gas and that a trespass occurred which
resulted in nominal damages of $1.00. The court ordered Florentine
to remove its casing from the completed gas well sited on the
disputed property.
On April 20, 1993, the District Court entered a Final Judgment
and Decree consistent with its Findings of Fact and Conclusions of
Law. Union Reserve appealed the District Court's judgment on the
issue of punitive damages. Florentine appealed as to the ownership
of the coal seam methane gas.
4
Subsequent to the District Court's judgment in this case,
Senate Bill 294 was introduced to the 53rd Legislature of the State
of Montana proposing changes in the statutory definitions of coal,
oil and gas. Sections 15-I-101, MCA, and 82-11-101, MCA, were
amended and a new provision, 5 82-l-111, MCA, was added. These
amendments will be discussed later in this opinion.
DISCUSSION
An explanation of the nature of coal seam methane gas and how
it is produced and extracted is necessary in understanding the
issues presented in this case. This discussion is derived from the
following sources: Jeff L. Lewin et al., Unlocking the Fire: A
Proposal for Judicial or Legislative Determination of the Ownership
of Coalbed Methane, 94 W. Va. L. Rev. 563 (Spring 1992); Jeff L.
Lewin, Coalbed Methane: Recent Court Decisions Leave Ownership "Up
in the Air," But New Federal and State Legislation Should
Facilitate Production, 96 W. Va. L. Rev. 631 (Spring 1994); and
NCNB Texas Nat. Bank, N.A. v. West (Ala. 1993), 631 So.2d 212.
Coal seam methane gas, also called "coalbed gas" or "coalbed
methane," is formed as a by-product of the "coalification" process.
Carbon dioxide and water are incorporated into plants to form
various hydrocarbon-based compounds which in turn decay to form
peat. When peat is buried under other sediments, the pressure and
temperature eventually convert it to coal, methane, and other
gaseous byproducts.
Although it is not a chemical part of coal, coal seam methane
gas has a weak physical attraction to coal. It can exist freely in
5
the cracks or fractures within the coal seam, but pressure causes
most of the gas to be adsorbed within the coal, adhering to the
internal surface of micropores in the structure of the coal.
Hence, the coal acts as a container for the gas. When the pressure
on the surrounding coal is reduced, the gas is released.
Highly combustible and poisonous, coal seam methane gas must
be ventilated from coal mines to protect miners from disastrous
explosions or inhalation. Originally thought of as only a waste
product of the mining process, technological developments in the
1980s and changes in federal law made the gas a commercially viable
alternative energy source.
Extraction of coal seam methane gas from coal seams and
surrounding strata is generally accomplished by one of three
methods: vertical degasification wells, horizontalboreholes or gob
wells. Vertical degasification wells are drilled from the surface
directly into an unmined coal seam to extract the gas that is
trapped or collected there. The release of coal seam methane gas
from the coal seam into the well may be increased by various
methods of "fracturing'F the coal seam near the bottom of the well.
Hydrofracturing is the forcing of fluids under pressure into the
well so as to cause a fracturing of the coal seam. This process
creates fractures in the coal which serve as conduits through which
gas can flow to the well's shaft.
A horizontal borehole is a hole bored into the coal seam from
a point within the coal mine itself. The coal seam releases some
of its adsorbed or trapped gas into the borehole where the gas is
6
then captured and extracted.
Finally, a gob well is a well drilled from the surface to an
area near the coal seam. During the longwall mining method, a
machine grinds into the wall of the coal seam tearing away the
coal. As the machine grinds further and further into the wall, it
leaves behind it a void into which the ceiling of the mine
collapses creating a "gob" of rubble. Large quantities of coal
seam methane gas collect in this area. The collapse of the ceiling
of the mine also leaves the overlying strata unsupported, and
gravity causes it to subside and to fracture as well, releasing
more gas. Gas from the gob may travel upward into non-coal strata,
where it may be collected and extracted through the gob well.
While the ownership of, and right to develop, coal seam
methane gas are questions of first impression in Montana, courts in
other jurisdictions have struggled with this issue for more than a
decade. A brief examination of some of these cases is appropriate
in resolving the issues presented in the case before us on appeal.
In 1983, the Pennsylvania Supreme Court was confronted with
determining the ownership of coal seam methane gas in United States
Steel Corp. v. Hoge (1983), 468 A.Zd 1380. In Hoqe, a 1920
severance deed conveyed to United States Steel Corporation's
predecessors in title "all of the coal" contained in tracts of land
owned by Hoge's predecessors in title. The deed conveyed the coal
"[tlogether with all the rights and privileges necessary and useful
in the mining and removing of said coal, including the right
of ventilation . . .II Hoge's predecessors retained the "right to
drill and operate through said coal for oil and gas without being
held liable for any damages."
The Pennsylvania Supreme Court quieted title to the coal seam
methane gas in United States Steel Corporation, the owner of the
coal. The court concluded that any gas present in the coal "must
necessarily belong to the owner of the coal, so long as it remains
within his property and subject to his exclusive dominion and
control." Hoqe, 468 A.2d at 1383. (Emphasis omitted.) The court
determined that Hoge owned only the coal bed gas that migrated into
his property surrounding the coal.
The court in Hoqe did not attempt to determine the intent of
the parties by looking to the plain meaning of the grant. Instead,
the court considered the characteristics, origins and history of
coal seam methane gas. While this analysis may be appropriate in
Pennsylvania, in Montana, when construing a phrase within a
contract, "the intention of the parties is to be ascertained from
the writing alone if possible . . .'I Section 28-3-303, MCA.
In Hoqe, the reservation of the right to drill for oil and gas
is clear. However, the court went beyond the plain meaning of the
reservation and determined that the parties could not have intended
to reserve what was considered, at the time of the conveyance,
merely a waste product. While coal seam methane gas was considered
a waste product in 1920, its value was certainly established by
1984, the time of the conveyance to Union Reserve. Thus the
rationale of ~oqe is distinguishable from the case before us on
appeal.
8
MOreOVer, while a reservation of the right to drill for oil
and gas is not found in the deed to Union Reserve, the express
grant of one specific mineral does not imply the grant of all other
minerals not referred to in the grant. The maxim exoressio unius
est exclusio alterius (the expression of one thing is the exclusion
of another) is routinely cited in Montana case law. See Matter of
Estate of Donovan (19761, 169 Mont. 278, 282, 546 P.2d 512, 514;
Teters v. Montana Eastern Pipe Line Co. (1945), 117 Mont. 477, 482,
159 P.2d 515, 517; Berne v. Stevens (1923), 67 Mont. 254, 258, 215
P. 803, 804. Furthermore, this principle has been directly applied
to mineral law in Smoot v. Consolidated Coal Co. (1904), 114 111.
App. 512, 517.
Additionally, in decidinq Hoqe, the Pennsylvania Supreme Court
considered the characteristics of coal seam methane gas in situ,
but Montana law currently and historically has provided that the
determination of whether or not a substance is considered gas is
made "at the wellhead." See 5 82-l-111(2), MCA (1993); § 82-ll-
101(6) , MCA (1983); and § 60-126, RCM (1947).
Four years after Hoqe, United States Steel Corporation (now
USX Corp.) again found itself embroiled in a case to determine the
ownership of coal seam methane gas. In Rayburn v. USX Corp. (N.D.
Ala. 1987), No. CIV.A.85-G-2661-W, 1987 U.S. Dist. LEXIS 6920,
aff'd 844 F.2d 796, (11th Cir. 1988), a 1960 warranty deed granted
to USX Corp. "the minerals and mining rights, except oil and gas
and the right to explore for and remove the same. . .' The
grantors also covenanted that all coal seams "shall be encased or
9
grouted offW during the exploration for or production of oil and
gas unless specifically exempted by LJSXCorp. in writing.
The court in Ravburn looked to the language of the deed
regarding encasing and grouting off the coal seam as well as the
intention of the parties and did not determine whether coal seam
methane gas is part of the coal. The court determined that "[tlhe
clearly expressed intention is that the methane in the coal bed not
be available to any well drilled by the grantors who reserved the
'oil and gas' or to their assigns." Ravburn, 1987 U.S. Dist. LEXIS
6920, at *a.
The court also determined that in 1960 when the warranty deed
was granted, coal seam methane gas was not considered "commercially
recoverable." Ravburn, 1987 U.S. Dist. LEXIS 6920, at *9. Once
again, while the value of coal seam methane gas may not have been
known in 1960, it was certainly considered a valuable resource by
1984 when Carbon County granted the coal and coal rights to Union
Reserve. And, unlike the deed in Ravburn, there is no language in
the deed to Union Reserve regarding "encasing and grouting off" the
coal seam if wells were to be drilled.
There is also no language in the deed from Carbon County
granting "other minerals" to Union Reserve as was the case in Vines
v. McKenzie Methane Corp. (Ala. 1993), 619 So.2d 1305. In Vines
-,
McKenzie Methane argued that it held a leasehold interest for the
coalbed methane gas pursuant to a lease executed in 1902 between
the landowners and the previous mineral owner, USX Corp. Through
subsequent assignments, McKenzie held the leasehold interest in
10
"all of the coal, iron ore, and other minerals, in, under, and
upon" Vine's property. Vines , 619 So.2d at 1306.
The Supreme Court of Alabama engaged in a plain meaning
analysis and held that "the ownership of methane gas, with the
accompanying rights to drill for this substance, was necessarily
included in the mineral estates granted in the instruments."
Vines, 619 So.2d at 1309.
Based on this grant of "other minerals," the Supreme Court of
Alabama did not feel it necessary in Vines to address the issue of
whether coal seam methane gas is part of the coal estate or part of
the gas estate. However, the court was faced with addressing this
very issue a few months later in NCNB Texas Nat. Bank, N.A. v. West
(Ala. 1993), 631 So.2d 212.
1n m, two almost identical deeds from 1953 and 1954 granted
to West's predecessors "all of the coal, and mining rights. . .I8
The deeds reserved in favor of the Bank's predecessors everything
that was not conveyed, including "all of the oil, gas, petroleum,
and sulphur. .I'
The Supreme Court of Alabama held that the coal owners have
the "exclusive right" to produce and own coal seam methane gas from
horizontal boreholes and vertical degasification wells drilled into
the coal seam. NCNB
-I 631 So.2d at 229. Additionally, the court
held that the gas estate has the right to recover coal seam methane
gas from the gob area above the coal seam. m, 631 So.2d at 229.
In reaching this conclusion, the Supreme Court of Alabama
determined that the language of the deed was unambiguous and did
11
not require it to resort to arbitrary rules of construction to
determine what the parties intended. m, 631 So.2d at 222. The
court stated:
We can find no scientific or legal basis to support the
proposition that coalbed methane gas should be treated as
a resource separate and distinct from other natural gas,
or from any other gas. The fact that the coalbed methane
gas is produced by, and stored within, coal seams does
not require the conclusion that a grant of "all coal"
includes coalbed methane gas, nor does it require the
conclusion that a reservation of "all gas" does not
include coalbed methane gas.
NCNB 631 So.2d at 222-23.
-r
Although this statement would appear to favor the owner of the
gas estate, the court concluded that since Alabama follows the
nonownership theory of oil and gas, the coal seam methane gas
belonged to the owner of the coal estate. The court explained
that:
The nonownership theory of gas ownership, because it
recognizes the migratory nature of oil and gas, requires
actual possession to establish ownership of the resource,
and the right held by the landowner is "the right to
reduce the oil and gas to possession or to sever this
right for economic consideration."
NCNB 631 So.Zd at 223.
-I
Unlike Alabama, Montana is an ownership-in-place state, and
oil and gas, as long as they remain in the ground, are part of the
realty. Stokes v. Tutvet (1958), 134 Mont. 250, 255, 328 P.2d
1096, 1099. Montana also recognizes the rule that the title to
mineral interests in land, including oil and gas interests, may be
segregated in whole or in part from the rest of the fee simple
title. Stokes, 328 P.2d at 1099. This difference in theories of
ownership of mineral interests distinguishes NCNB from the case
12
before us on appeal.
The most recent judicial determination of the ownership of
coal seam methane gas actually requires us to look as far back as
1907, when President Theodore Roosevelt ordered the Department of
Interior to withdraw from public entry and settlement, lands that
contained "workable coal" and to suspend issuance of patents on the
lands withdrawn. Southern Ute Indian Tribe v. AMOCO Production Co.
(D.Colo. 1995), 874 F.Supp. 1142. In 1909 and 1910, Congress
passed the Coal Lands Acts which reserved to the United States "all
coal" contained in the withdrawn lands upon which entry had been
made. In 1938, the federal government restored much of this land
to the Southern Ute Indian Tribe along with the reservation of "all
coal."
In -I
Ute the tribe claimed ownership of the coal seam methane
gas on the Southern Ute Indian Reservation in southwestern Colorado
based on the premise that the land restored to the tribe in 1938
containing the reservation of coal included a reservation of the
coal seam methane gas. The United States District Court for the
District of Colorado concluded that this reservation of coal by the
United States in the Coal Lands Acts did not include a reservation
Of coal seam methane gas. Ute, 874 F. Supp. at 1151-52.
Consequently, the court held that the tribe did not acquire title
to the gas when the coal was restored to the tribe in 1938 because
title to the gas had previously been conveyed to homesteaders under
the Coal Lands Acts of 1909 and 1910. Ute, 874 F.Supp. at 1152.
In arriving at its decision, the court in Ute looked to the
13
plain meaning of the words "coal" and "gas" to determine the intent
of Congress at the time the Acts were introduced. After examining
various dictionary and statutory definitions of coal and gas, the
court determined that "common sense dictates that in 1909 and 1910,
Congress intended 'coal' to mean the solid rock substance." Ute,
874 F.Supp. at 1153-54. In addition, the court examined a 1981
decision of the Solicitor of the Interior Department of the United
States wherein the Solicitor reached a similar conclusion.
Ownership of and Right to Extract Coalbed Gas in Federal Coal
Deposits (1981), 88 I.D. 538.
Although the Ute case dealt with federal statutes, a similar
analysis can be applied to the case before us on appeal, in that
the plain meaning of the language of the deed must be examined to
determine the intent of the parties.
ISSUE 1
Is coal seam methane gas a constituent part of the coal
estate?
The District Court concluded, as a matter of law, that 'I [cl oal
seam methane is part of the coal and of the coal estate. . . .II
Our standard of review relating to conclusions of law is whether
the trial judge's interpretation of the law is correct. Steer,
Inc. v. Department of Revenue (l.990), 245 Mont. 470, 474-75, 803
P.2d 601, 603.
Union Reserve argues that the owner of the coal estate is also
the owner of the coal seam methane gas because the gas is an
incident to the formation of coal and reposes within the coal
14
structure. Florentine contends that since coal seam methane gas is
not a chemical part of coal, it is potentially severable from the
coal estate
An examination of definitions from various sources reveals
that coal and gas are mutually exclusive terms. The American
Heritage Dictionary 285 (2d C. ed. 1985), defines coal as:
[al natural dark-brown to black solid used as a fuel,
formed from fossilized plants and consisting of amorphous
carbon with various organic and some inorganic compounds.
[Emphasis added.]
Gas is defined as:
[tlhe state of matter distinsuished from the solid and
liquid states by very low density and viscosity,
relatively great expansion and contraction with changes
in pressure and temperature, the ability to diffuse
readily, and the spontaneous tendency to become
distributed uniformly throughout any container.
[Emphasis added.]
American Heritage Dictionary 549 (2d C. ed. 1985). As these
definitions illustrate, coal is a "solid" and gas is "distinguished
from the solid."
A statutory definition of coal existing at the time the coal
and coal rights were conveyed to Union Reserve can be found at
§ 82-4-203(17), MCA (1983). This section provides:
"Minable coal" means that coal which can be removed
through strip- or underground-mining methods adaptable
to the location that coal is being mined or is planned
to be mined.
Since coal seam methane gas is not mined through "strip- or
underground-mining methods", it cannot be considered part of the
coal that was conveyed to Union Reserve under this statutory
definition.
15
In addition to the statute defining "minable coal, " a
statutory definition of gas existed at the time of the deed.
"'Gas' means all natural gases and all other fluid hydrocarbons a~
produced at the wellhead and not defined as oil . . . .I' Section
82-ll-101(6), MCA (1983) (emphasis added). Since coal seam methane
gas is a fluid hydrocarbon and is produced at the wellhead, it
falls within this statutory definition of gas and again it is
distinguishable from coal, a solid hydrocarbon.
The Montana Department of State Lands has had regulatory
definitions of coal and gas since 1980. In the regulations, coal
is defined as:
[al black or brownish-black solid fossil fuel which has
been subjected to the natural process of coalification
and which falls within the classification of coal by
rank: I, anthracite; II, bituminous; III, sub-bituminous;
IV, lignite.
26.3.302(l) (g), ARM (emphasis added). Gas is defined in these
regulations, along with oil, as:
all hydrocarbons and other substances and elements which
are present in the earth in a gaseous or liauid form and
produced therefrom. It shall not include coal, lignite,
oil shale or similar solid hydrocarbons.
26.3.202(7), ARM (emphasis added).
In addition, the Montana Department of Natural Resources and
Conservation defines gas as "all natural gases and all other fluid
hydrocarbons as produced at the wellhead and not defined as oil
. . I! 36.22.302(31), ARM (emphasis added). As these regulatory
definitions illustrate, gas is a fluid or gaseous hydrocarbon and
does not include coal
Furthermore, the Solicitor of the Department of the Interior
16
has concluded in two separate opinions that coal seam methane gas
is distinct from coal and is therefore potentially severable from
the coal estate. Rights to Coalbed Methane Under an Oil & Gas
Lease for Lands in the Jicarilla Apache Reservation (1990), 98 I.D.
59; and Ownership of and Right to Extract Coalbed Gas in Federal
Coal Deposits (1981), 88 I.D. 538.
Accordingly, we conclude that coal seam methane gas is not a
constituent part of coal and, thus, it may be severed from the coal
estate.
ISSUE 2
Did the District Court err in determining that Union Reserve
has the right to produce coal seam methane gas from the coal lands?
The District Court concluded that coal seam methane gas was
included in the conveyance of "coal and coal rights" from Carbon
county to Red Lodge Bear-Creek Partnership, Union Reserve's
predecessor in interest. In addition, the court concluded that
Florentine did not acquire a right to drill and produce the coal
seam methane gas when it entered into the oil and gas lease.
Again, our standard of review relating to conclusions of law is
whether the trial judge's interpretation of the law is correct.
Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 474-75,
803 P.2d 601, 603.
Florentine argues that the District Court erred in not
considering the plain meaning of the words in the deed to Union
Reserve and that, applying the plain meaning rule, Union Reserve's
ownership of "coal and coal rights" includes only coal and does not
17
include coal seam methane gas. Additionally, Florentine contends
that the absence of any royalty on oil, gas or any mineral other
than coal strongly implies the exclusion from the grant of any
other mineral including gas which may be produced or saved from the
coal formation.
Union Reserve argues that the term "coal rights" includes the
rights to coal seam methane gas and that one of the incidents of
the ownership of coal is the necessity, not merely the right, to
vent coal seam methane gas in the course of coal mining activities
for safety reasons. In addition, Union Reserve contends that it is
important for the coal mine operator to have sufficient control
over the drilling of wells into the coal to minimize the disruption
to the mining process caused by the well.
In reaching its conclusions, the District Court focused on the
physical properties of coal and gas without dealing with the
language of the grant, the intent of the parties, or title and
severance questions. "The words of a contract are to be understood
in their ordinary and popular sense . . . .II Section 28-3-501,
MCA; Moore v. Swanson (1976), 171 Mont. 160, 165, 556 P.2d 1249,
1252. We have already determined that, in their ordinary and
popular sense, coal is a solid and gas is a fluid or gaseous
substance. Hence, 9s I including coal seam methane gas, is
separate from coal and is not a constituent part of the coal
estate.
When construing a phrase within a contract, the court must
determine the intent of the parties from the writing alone if
18
possible. Section 28-3-303, MCA; Glacier Campground v. Wild
Rivers, Inc. (1978), 182 Mont. 389, 394-95, 597 P.2d 689, 692. See
also § 70-20-202, MCA; New Home Sewing Mach. Co. v. Songer (1931),
91 Mont. 127, 132, 7 P.2d 238, 239-40. The plain language of the
deed says "coal and coal rights." The grant does not mention gas
of any kind.
In addition, 5 28-3-202, MCA, provides:
Effect to be given to every part of contract. The whole
of a contract is to be taken together so as to give
effect to every part if reasonably practicable, each
clause helping to interpret the other.
When looking to other parts of the deed as prescribed by § 28-3-
202, MCA, we see that the deed provided only for a per ton royalty
on coal but did not provide for a royalty on the coal seam methane
gas. It is not a reasonable assumption that Carbon County would
have conveyed its rights to the coal seam methane gas, a valuable
resource, without some sort of compensation. Moreover, the rules
of statutory construction prohibit such an interpretation.
Contract restricted to its apparent objects. However
broad may be the terms of a contract, it extends only to
those things concerning which it appears that the parties
intended to contract.
Section 28-3-305, MCA.
Contrary to the testimony of Donald Blackburn and Norbert
Kmoch that Union Reserve received the entire mineral estate that
Carbon County acquired through the tax deed, including silver and
gold, Union Reserve only acquired the coal and the incidental right
to mine and remove the coal. No other hydrocarbon or mineral
resource was conveyed under the narrow language used by the parties
19
in the deed.
Montana is an ownership-in-place state with regard to oil, gas
and other minerals.
Both petroleum and gas, as long as they remain in the
ground, are a part of the realty. They belong to the
owner of the land, and are a part of it as long as they
are on it or in it, or subject to his control.
Stokes v. Tutvet (1958), 134 Mont. 250, 255, 328 P.2d 1096, 1099.
In addition, title to the mineral interest in land may be
segregated in whole or in part from the rest of the fee simple
title. Stokes, 328 P.Zd at 1099. Under the language of its grant,
Carbon County, as owner of the land, conveyed the coal to Union
Reserve, but retained ownership of all other mineral interests
including coal seam methane gas.
Union Reserve argues that the owner of the coal estate needs
to protect its miners and to do so, it must control the gas estate.
Union Reserve's executives testified that they feared that
extraction of coal seam methane gas enhanced by stimulation, i.e.,
hydrofracturing, in advance of mining will damage the roof of the
coal seam, rendering entire tracts of coal unminable due to safety
concerns. However, testimony presented by experts at trial showed
that coal seam methane gas extraction does not harm the
marketability or the minability of coal. Rajen Puri, an expert in
coal seam methane gas recovery projects, testified that it is
beneficial to the coal estate to rid the mine of dangerous coal
seam methane gas prior to mining the coal. Additionally, Philip
Malone, president of GeoMet, a geologic consulting firm, testified
that hydrofracturing does not affect the safety of the mine and
20
that, if degasification is done in advance of mining, it makes the
mine safer.
It has long been the law of Montana that the grant of a
particular interest in property tacitly carries with the grant
those incidents without which the grant would be of no avail. See
§ 70-l-520, MCA; Yellowstone Valley Co. v. Associated Mortg.
Investors (1930), 88 Mont. 73, 80-81, 290 P. 255, 257. Similarly,
the transfer of a mineral interest includes, by implication, the
incidental rights reasonably necessary to extract the mineral. See
Hurley v. Northern Pacific Railway Company (1969), 153 Mont. 199,
202, 455 P.2d 321, 323. While we recognize the need and right of
the coal owner to extract and capture coal seam methane gas for
safety purposes during the mining process as such an incidental
mining right, the existence of that right does not, without a
specific grant, also encompass either actual title to the gas
estate or the right to produce it for commercial purposes.
Moreover, the evidence at trial clearly demonstrated that the
owner of the gas estate can also safely extract and produce coal
seam methane gas either in advance of or during coal mining
operations.
Accordingly, we hold that as the lessee of Carbon County, the
owner of the gas estate, Florentine has the right to drill for and
to produce the coal seam methane gas at issue here. We also hold
that Union Reserve has a mutual, simultaneous right to extract and
to capture such gas for safety purposes, incident to its actual
coal mining operations.
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We leave to the agreement of the parties or to some future
case the issue of whether, and if so, to what extent, the gas
estate owner or lessee is entitled to be compensated by the coal
owner for gas extracted and captured incident to the coal owner's
mining operations.
ISSUE 3
Do the 1993 legislative amendments to § 15-l-101, MCA, and
§ 82-11-101, MCA, and the enactment of § 82-l-111, MCA, constitute
an unlawful taking of coal seam methane gas from the owners of coal
or coal lands?
Prior to 1993, there was no specific reference in the Montana
statutes to coal seam methane gas, however, "gas" was defined at
§ 82-ll-101(9), MCA (19911, as "all natural gases and all other
fluid hydrocarbons as produced at the wellhead and not defined as
oil. . .'I
In 1993, the Montana Legislature deleted the definition of gas
from 5 82-11-101, MCA, and added a new section that defines coal,
gas and oil. Section 82-l-111, MCA, provides:
'I Coal"
(1) means a combustible carbonaceaous rock
formed from the compaction and induration of variously
altered plant remains. Coal does not include:
(a) methane gas or any other natural gas that may be
found in any coal formation;
(b) oil shale; or
(c) gilsonite.
(2) "Gas" means all natural gases and all other
fluid hydrocarbons, including methane gas or any other
natural gas found in any coal formation, as produced at
the wellhead and not defined as oil in subsection (3).
(3) "oil" means crude petroleum oil and other
hydrocarbons, regardless of gravity, that are produced at
the wellhead in liquid form by ordinary production
methods and that are not the result of condensation of
gas before or after it leaves the reservoir.
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In addition, the legislature inserted a new section into the
Montana Code to insure that all instruments regarding coal, oil and
gas are interpreted according to 5 82-l-111, MCA. Section l-4-110,
MCA, provides:
When used in any instrument, unless the clear and
express terms of the instrument provide otherwise, the
terms "coal", "gas", and "oil" must be construed as
defined in 82-l-111.
The legislature also inserted definitions of gas and natural
gas into f3 15-l-101, MCA. Section 15-1-101(g), MCA, now provides:
[tlhe terms "gas" and "natural gas" are synonymous and
mean gas as defined in 82-l-111(2). The terms include
all natural gases and all other fluid hydrocarbons,
including methane gas or any other natural gas found in
any coal formation.
Union Reserve argues that these legislative amendments were
simply regulatory and did not affect Union Reserve's ownership of
the gas. In the alternative, Union Reserve argues that if these
amendments serve to remove ownership from Union Reserve without
compensation, then there is an unconstitutional taking
Florentine contends that these legislative amendments merely
clarified the existing law. In addition, Florentine argues that
contrary to Union Reserve's claim that removal of coal seam methane
gas destroys or eliminates the rights enjoyed by the coal estate
owner, the extraction of coal seam methane gas actually enhances
the value of the coal estate by eliminating a safety hazard.
These amendments to Title 82 of the Montana Code do not take
away any rights a coal owner may have to coal seam methane gas.
Senate Bill 294 was prospective in nature. It provided that the
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"rights and duties that matured, penalties that were incurred, or
proceedings that were begun before [the effective date of this
act] " are not affected. In the case before us on appeal, we have
held that there was a severance of the gas estate from the coal
estate, hence, the owner of the coal estate did not have a right to
the coal seam methane gas under the plain language of the grant and
the question of taking without compensation is necessarily moot.
ISSUE 4
Did the District Court err in not granting punitive damages to
Union Reserve?
Because we reverse and remand this case on the central issue
of ownership of the coal seam methane gas, the issue of punitive
damages is necessarily moot.
Reversed and remanded for further proceedings consistent with
this opinion.
We Concur:
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