CHAPTER 2 COALBED GAS EXPLORATION AND DEVELOPMENT ON FEDERAL AND OTHER LANDS IN THE WEST

• Jurisdiction: United States

Coalbed Gas Development
(Apr 1992)
CHAPTER 2
COALBED GAS EXPLORATION AND DEVELOPMENT ON FEDERAL AND OTHER LANDS IN THE WEST
Charles L. Kaiser and Mark D. Bingham
Davis, Graham & Stubbs
Denver, Colorado

TABLE OF CONTENTS

SYNOPSIS

Page

I. INTRODUCTION

II. THE "SOURCE ROCK" OF COALBED GAS IN THE WEST—THE FEDERAL GOVERNMENT

A. The Statutory Scheme

B. The 1981 Solicitor's Opinion

1. The Ownership Issue

2. The Development Issue

C. The Essence

III. INDIAN LANDS

A. Interests In Land Granted By The United States To Indian Tribes Pursuant To The Indian Reorganization Act of 1934 And Like Authority

B. The 1990 Solicitor's Opinion

IV. STATE LANDS

V. FEE LANDS

VI. PENDING LITIGATION

A. The Southern Ute Indian Tribe v. Amoco

B. Carbon County v. Mary R. Baird

VII. CONCLUSION

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I. INTRODUCTION.

The "rags to riches" story of coalbed gas has often been told.¹ Not many years ago coalbed gas was viewed as a hazard to coal miners, and failure to vent properly that colorless, odorless gas often resulted in tragedy.² Today coalbed gas is seen as an enormous resource — experts currently estimate coalbed gas reserves of 400 trillion cubic feet, the equivalent of total conventional gas reserves in the United States,³ and thousands of coalbed gas wells have been drilled.⁴ That evolution is undoubtedly one of the brightest spots in the oil and gas industry over the past decade.

In the western United States a critical player in that evolution has been the federal government. Technical works published in the 1970s by federal government scientists played an important role in changing the perception of coalbed gas from a hazard to be avoided to a valuable resource to be exploited.⁵ Tax policy, particularly the Section 29 tax credit, has significantly encouraged coalbed gas exploration and

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development.⁶ And in the public land states where title emanates from the federal government, where the federal government continues to own or control hundreds of millions of acres of land, and where other lands are surrounded by and developed in association with public lands, the federal government greatly influences who owns coalbed gas and how it is developed.⁷

II. THE "SOURCE ROCK" OF COALBED GAS IN THE WEST — THE FEDERAL GOVERNMENT.

A. The Statutory Scheme.

A central theme in public land law is how change is wrought.⁸ Not infrequently critical lands and resources are withdrawn from entry and new statutes are then enacted that permit renewed entry but under different conditions than formerly prevailed.⁹ That is the history of lands essential to coalbed gas exploration and development — lands that embrace coal deposits.

In the early 1900s President Theodore Roosevelt directed that over 75 million acres of western lands containing coal deposits be withdrawn from homestead, agricultural, or mineral entry so that those coal deposits would remain in the hands of the United States.¹⁰ That action heralded in a wave of protests from those who wished to acquire interests in those lands, and two important statutes were

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soon enacted.¹¹ First, the Act of March 3, 1909, 30 U.S.C. § 81 (1988) ("1909 Act"), provided that those who had previously occupied coal lands that were later withdrawn from entry could perfect their entries and obtain patents that granted them all rights in those lands, except that "all coal...and the right to prospect for, mine, and remove the same" was reserved to the United States.¹² Second, the Act of June 2, 1910, 30 U.S.C. §§ 83 -85 (1988) ("1910 Act"), opened withdrawn coal lands to entry for agricultural purposes, again subject to a reservation in the United States of "all coal in the lands so patented, together with the right to prospect for, mine, and remove the same."¹³ Millions of acres of land — much of the land in the west of greatest interest to those who wish to explore for and develop coalbed gas — were granted under authority of the 1909 and 1910 Acts.¹⁴

Moreover, Congress' treatment of coal lands soon became the paradigm for federal lands that could embrace other valuable mineral deposits. The Act of June 17, 1914, 30 U.S.C. §§ 121 -123 (1988) ("1914 Act"), for instance, authorized agricultural and other nonmineral entry of lands withdrawn or classified as valuable for

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specified minerals such as phosphate, nitrate, potash, and oil and gas, but reserved to the United States "the deposits on account of which the lands so patented were withdrawn or classified or reported as valuable, together with the right to prospect for, mine, and remove the same."¹⁵ Similarly, the Stock-Raising Homestead Act, 43 U.S.C. § 299 (1988), permitted entry of lands for stock-raising purposes but reserved to the United States "all the coal and other minerals in the lands so entered and patented, together with the right to prospect for, mine, and remove the same." Although those statutes were not expressly directed at lands containing coal as were the 1909 and 1910 Acts, certain lands of interest to those who wish to exploit coalbed gas were patented under them.

Obvious questions are raised by this statutory scheme. Did the United States reserve coalbed gas under those authorities, particularly under the 1909 and 1910 Acts that were specifically directed at coal and that reserved the United States "coal...and the right to prospect for, mine, and remove the same." To the extent that the United States reserved coalbed gas, how is it to be explored for and developed under federal law? Coalbed gas exploration and development in the west could not proceed in any substantial way until those questions were addressed.¹⁶

B. The 1981 Solicitor's Opinion.

On May 12, 1981 the Department of the Interior Solicitor issued a seminal legal opinion addressing those questions. See Solicitor's Opinion M-36935, 88 I.D. 538 (1981) ("1981 Solicitor's Opinion"). The Solicitor concluded (i) that the United States did not reserve coalbed gas where it reserved coal under the 1909 and 1910 Acts, (ii) that the United States did reserve coalbed gas under the 1914 Act and

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similar authorities where gas was reserved by the federal government,¹⁷ and (iii) that coalbed gas that was reserved by the federal government is leased and exploited under the oil and gas rather than the coal provisions of the Mineral Leasing Act. See, e.g., 1981 Solicitor's Opinion at 540, 549. The rationale for 1981 Solicitor's Opinion, holding as it does that coalbed gas is part of the oil and gas rather than the coal estate and that rights to explore for and develop coalbed gas are granted under oil and gas rather than coal leases, is considered below.

1. The Ownership Issue. The Solicitor's resolution of the question who owns coalbed gas rested on a number of grounds, including the following. First, relying on both case law and scientific works, the Solicitor held that coalbed gas "is both scientifically defined and legally regarded as a gas," found that coalbed gas does not satisfy the standard definition of coal as "[a] solid, brittle, more or less distinctly stratified, combustible carbonaceous rock, formed by partial to complete decomposition of vegetation; not fusible without decomposition and very insoluble;" and concluded that "although coalbed gas exists in coal deposits, the two resources are distinct, and are potentially severable." See, e.g., 1981 Solicitor's Opinion, 88 I.D. at 540, 545. Second, based on the 1909 and 1910 Acts' statutory language reserving in the United States only "coal," legislative history reflecting congressional intent to reserve coal and no other mineral resource, and subsequent statutory history where Congress later reserved minerals in addition to coal, the Solicitor concluded that the United States had not reserved coalbed gas under the 1909 and 1910 Acts. See, e.g., 1981 Solicitor's Opinion, 88 I.D. at 540, 542.¹⁸ Third, relying on the Uraniferous Lignite Act, 30 U.S.C. § 541 (1988), and the Act of March 4, 1933, 30 U.S.C. § 124 (1988), the Solicitor found that Congress has repeatedly recognized that the commingling of two minerals does not alter the individual identity of either of them; that Congress grants or reserves individual minerals rather than strata in which they are found, even if two or more minerals are commingled or intertwined; and that the right to one mineral does not include the right to another commingled or intertwined mineral.¹⁹ See, e.g., 1981 Solicitor's Opinion, 88 I.D. at 542-544. Fourth, based on

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the 1914 Act's statutory language, legislative history reflecting congressional intent to reserve only specified minerals, the historical evolution of federal mineral reservations, and pertinent case law, the Solicitor held that where the United States reserved gas under the 1914 Act that reservation includes coalbed gas, even where coal had been granted to the entryman. See 88 I.D. at 544, 545.²⁰

2. The Development Issue. The Solicitor's resolution of the question how coalbed gas that was reserved to the federal government is to be explored for and developed rested on a number of grounds, including the following. First, on reasoning similar to that employed in analyzing the ownership question, the Solicitor concluded that coalbed gas is "gas" as that term is defined in the Mineral Leasing Act. See, e.g., 1981 Solicitor's Opinion, 88 I.D. at 545-546. Second, the Solicitor concluded that Department of the Interior oil and gas regulations (i) have long defined "gas" broadly in a manner that includes coalbed gas and (ii) do not distinguish between mixtures or forms of gas, the pressure at which gas is produced, or formations from which gas is recovered. See, e.g., 1981 Solicitor's Opinion, 88 I.D. at 546-547. Third, the Solicitor held that under controlling case law "gas" is to be defined broadly under the Mineral Leasing Act, and where Congress intended to carve out a gas it did so expressly. See, e.g., 1981...