High court affirms coalbed methane leases

In a major decision for gas companies, the U.S. Supreme Court has ruled that coalbed methane and coal reserves can be separately owned.

The high court ruled 7-1 that private landowners, not the Southern Ute Tribe, own the coalbed methane reserves in the vicinity of the reservationin southern Colorado (OGJ, Jan. 25, 1999, p. 34). The tribe had estimated it might be owed $1 billion in royalties and interest.

The case, Amoco Production Co. vs. Southern Ute Indian Tribe, is expected to affect other coalbed methane production in the West. The Independent Petroleum Association of Mountain States has said more than 20 million acres of western lands could be affected.

Historical considerations

In the Coal Lands Acts of 1909 and 1910, Congress claimed the rights to coal under the reservation and later awarded them to the tribe. Nothing was said about the methane, then considered both hazardous and worthless.

In the last 2 decades, oil companies have been producing coalbed methane from tribal and private lands in the reservation. In 1991 the tribe sued, claiming it owned the gas on what are now private lands because it owned the coal.

The tribe lost in district court but won before the 10th Circuit Court of Appeals. In the process, the Interior Department reversed itself and opposed the oil firms in the suit.

Justice Anthony Kennedy, writing for the Supreme Court, said Congress didn't consider the gas part of the coal 80 years ago when it passed two laws letting homesteaders claim the land while keeping the coal for the federal government.

He said, "The common conception of coal at the time Congress passed the 1909 and 1910 acts was the solid rock substance that was the country's primary energy source. The question is not whether, given what scientists know today, it makes sense to regard (coalbed methane) gas as a constituent of coal, but whether Congress so regarded it in 1909 and 1910."

Justice Ruth Bader Ginsburg dissented, relying on the legal canon that ambiguities in land grants are construed in favor of the government, so the government owned the methane gas and conveyed it with the coal to the tribe. Justice Stephen Breyer did not participate in the case.

Supporting the oil companies in the appeal were the National Association of Royalty Owners, the Independent Petroleum Association of America, and the states of Montana, New Mexico, North Dakota, Utah, and Wyoming.