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Indiana Court of Appeals: Court Addresses Ownership Rights Of Coal Bed Methane Gas
Posted in Litigation

In Cimarron Oil Corp. v. Howard Energy Corp., the Indiana Court of Appeals addressed who is the rightful owner of rights to coal bed methane gas (“CBM”) when parties to the relevant lease in 1976 did not contemplate that technological advances would one day make it a valuable material.  The Court acknowledged there are divergent “regional rules” in other states.  The “eastern rule” says that CBM is a component of coal and its production should rest with the entity in control of coal mining.  The “western rule,” in contrast, says that “the holder of a broadly-defined gas and oil estate may have rights to CBM, which is a form of gas.” 

The Indiana Court of Appeals declined to adopt one of the regional rules because there was a lack of intent to convey CBM rights to the gas and oil estate holder.  Thus, the Court agreed with the trial court that public policy favors treating CBM as “part of the coal bed.”  Because miner safety is “the foremost concern,” “[p]ublic safety would be disserved by pitting the miner who needs to dissipate CBM to prevent explosions against the gas estate owner whose financial resource is being depleted.”  Thus, in this case, the mineral estate lessee, not the gas and oil estate holder, could produce CBM on the property.

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