NO. 93-426 INTHESUPREMECOURTOFTHESTATE OFMONTANA 1995

CARBONCOUNTY, apolitical subdivision of the State of Montana,

Plaintiff and Respondent

UNION RESERVECOALCO., INC., aMontana corporation; RED-LODGEBEARCREEKCOAL PARTNERS, alimited partnership; and NORBERTH. KMOCH;et al.,

Defendants andAppellants,

-vFLORENTINE EXPLORATION &PRODUCTION, INC., aMontana corporation,

Intervener, Respondent/Cross-Appellant. APPEAL FROM: District Court of the Thirteenth Judicial District,

In and for the County of Carbon, TheHonorable Robert W.Holmstrom, Judge presiding.

COUNSELOFRECORD:

For Appellants: Robert L. Stephens, Jr., Billings, Montana For Respondents: Anthony W.Kendall, RedLodge, 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

Filed: Decided: June 27, 1995Justice James C. Nelson delivered the Opinion of the Court.

The plaintiff, Carbon County, initiated this suit to quiet title in all of the mineral andmineral 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 abench 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 andplaintiff and intervenor cross-appeal. Wereverse and remand. The issues onappeal, as framed by this Court, are: 1. Is coal seam methane gas aconstituent 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. Dothe 1993 legislative amendments to §15-l-101, MCAand §82-11-101, MCA,and the enactment of §82-l-111, MCA, constitute

anunlawful taking of coal seammethane 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. OnNovember 1, 1984, Carbon

County executed and delivered to Red Lodge-Bear Creek Coal Partners, Union Reserve's predecessor in interest, adeedwhich conveyed 0[all1 coal andcoal rights with the right of ingress and egress to mine andremove the samefrom the following described acreage

. .I' Thedeeddid not makeanyreference to gas in general, coal
seammethane gas, nor anymineral orhydrocarbon other than coal. Thedeed reserved aroyalty of $.lO "per ton of 2,000 pounds of coal produced and saved from said lands." The deed madeno reference to anyroyalty ongasthat might beproduced andsaved,
nor anyother mineral which might beextracted from the property. OnAugust 21, 1990, Carbon County executed anddelivered to Florentine anoil andgas lease whereby Florentine received the right to operate for andproduce from the disputed property "oil andall gas including coal seammethane of whatsoever nature or kind

. .I' Thelease wasastandard Producer's 88lease form, which provided for aroyalty of l/8 of the proceeds from anygas produced from the property. After obtaining the lease from 

### Carbon County, Florentine solicited aprotective lease fromUnionReserve, but Union Reserve refused to provide suchalease. OnDecember7, 1990, CarbonCounty filed aquiet title action against Union Reserve andvarious other nameddefendants, asserting Carbon County's claims to all of the mineral andmineral rights, excluding the coal and coal rights, on the disputed property. Florentine movedto intervene, asserting that it ownedthe oil and

3gas lease and that Union Reserve had noestate, right or claim in

the oil andgas including the coal seammethane 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 seammethane gas. In its answer, Union Reserve asserted that it wasentitled to

ajudgment declaring that its ownership of the coal andcoal rights included the right to extract the coal seam methane gas. 1n addition, Union Reserve sought ajudgment canceling Florentine's oil andgas lease andmonetary damages for Florentine's trespass on Union Reserve's property. Following aJuly 23, 1992, bench trial, the District Court entered Findings of Fact and Conclusions of Lawwhich found that the coal seam methane gas was part of the coal estate and was included in the conveyance of coal andcoal rights byCarbon County toUnion Reserve's predecessor-in-interest. Thecourt further held that Florentine did not acquire by its lease aright to drill and produce coal seam methane gas and that atrespass occurred which resulted in nominal damages of $1.00. Thecourt ordered Florentine to remove its casing from the completed gas well sited on the disputed property. OnApril 20, 1993, the District Court entered aFinal Judgment andDecree consistent with its Findings of Fact and Conclusions of Law. Union Reserve appealed the District Court's judgment onthe issue of punitive damages. Florentine appealed asto the ownership of the coal seammethane gas.

4

### Subsequent to the District Court's judgment in this case,

Senate Bill 294wasintroduced tothe 53rdLegislature ofthe State of Montanaproposing changes inthe statutory definitions of coal, oil and gas. Sections 15-I-101, MCA,and82-11-101, MCA,were amendedandanewprovision, 582-l-111, MCA,wasadded. These amendmentswill bediscussed later in this opinion. DISCUSSION Anexplanation ofthe nature of coal seammethanegasandhow it is produced andextracted is necessary in understanding the issues presented inthis case. This discussion is derived from the following sources: Jeff L. Lewin et al., Unlocking the Fire: A Proposal for Judicial orLegislative Determination oftheOwnership of Coalbed Methane, 94W.Va. L. Rev. 563 (Spring 1992); Jeff L. Lewin, Coalbed Methane: Recent Court Decisions LeaveOwnership "Up in the Air," But New Federal and State Legislation Should Facilitate Production, 96W.Va. L. Rev. 631 (Spring 1994); and NCNBTexas Nat. Bank, N.A. v. West (Ala. 1993), 631So.2d 212. Coal seammethane gas, also called "coalbed gas" or "coalbed methane," is formed asaby-product ofthe "coalification" process. Carbon dioxide and water are incorporated into plants to form various hydrocarbon-based compoundswhich in turn decay to form peat. Whenpeat isburied under other sediments, the pressure and temperature eventually convert it to coal, methane, and other gaseous byproducts. Although it isnot achemical part of coal, coal seammethane gashasaweakphysical attraction tocoal. It canexist freely in

5the 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 asacontainer for the gas. Whenthe pressure onthe surrounding coal is reduced, the gas is released. Highly combustible and poisonous, coal seammethane gas must beventilated from coal mines to protect miners from disastrous explosions or inhalation. Originally thought of as only awaste product of the mining process, technological developments in the 1980s and changes in federal law madethe gas acommercially 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 orgob 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 seammethane gas from the coal seam into the well may be increased by various methods of "fracturing'F the coal seamnear the bottom of the well. Hydrofracturing is the forcing of fluids under pressure into the well so as to cause afracturing of the coal seam. This process creates fractures in the coal which serve asconduits through which gas can flow to the well's shaft. Ahorizontal borehole is ahole bored into the coal seam from

apoint within the coal mine itself. The coal seam releases some of its adsorbed or trapped gas into the borehole where the gas is

6then captured and extracted.

Finally, agob well is awell 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. Asthe 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

seammethane gas collect in this area. Thecollapse 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. Gasfrom the gobmaytravel upward into non-coal strata, where it maybe 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. Abrief examination of someof these cases is appropriate in resolving the issues presented in the case before usonappeal. In 1983, the Pennsylvania Supreme Court was confronted with determining the ownership of coal seammethane 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 byHoge's predecessors in title. Thedeed conveyed the coal "[tlogether with all the rights andprivileges necessary anduseful in the mining and removing of said coal, including the right ofventilation

. . .II Hoge's predecessors retained the "right todrill 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, solong asit remains within his property and subject to his exclusive dominion and control." Hoqe, 468A.2d at 1383. (Emphasis omitted.) The court determined that Hogeowned only the coal bedgas that migrated into his property surrounding the coal. The court in Hoqe did not attempt to determine the intent of the parties bylooking to the plain meaning of the grant. Instead, the court considered the characteristics, origins and history of coal seammethane gas. While this analysis maybeappropriate 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 andgas is clear. However, the court went beyond the plain meaning of the reservation anddetermined that the parties could not have intended to reserve what was considered, at the time of the conveyance, merely awaste product. While coal seam methane gas wasconsidered

awaste 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.

8MOreOVer, while areservation 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 onething is the exclusion of another) is routinely cited in Montana case law. SeeMatter of Estate of Donovan (19761, 169 Mont. 278, 282, 546 P.2d 512, 514; Teters v. Montana Eastern Pipe Line Co. (1945), 117Mont. 477, 482, 159P.2d 515, 517; Berne v. Stevens (1923), 67Mont. 254, 258, 215 P. 803, 804. Furthermore, this principle hasbeen 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 seammethane gas 

### in situ, but Montana law currently and historically has provided that the determination of whether or not asubstance is considered gas is made "at the wellhead." See 582-l-111(2), MCA(1993); §82-ll101(6) ,MCA(1983); and §60-126, RCM(1947). Four years after Hoqe, United States Steel Corporation (now USXCorp.) again found itself embroiled in acase to determine the ownership of coal seammethane gas. In Rayburn v. USXCorp. (N.D. Ala. 1987), No. CIV.A.85-G-2661-W, 1987 U.S. Dist. LEXIS 6920, aff'd 844F.2d 796, (11th Cir. 1988), a1960 warranty deed granted to USXCorp. "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 beencased or

9

### grouted offW during the exploration for or production of oil and

gasunless specifically exempted byLJSXCorp. in writing. The court in Ravburn looked to the language of the deed regarding encasing andgrouting off the coal seamaswell asthe intention of the parties anddid not determine whether coal seam methane gasis part of the coal. Thecourt determined that "[tlhe clearly expressed intention isthat themethane inthe coal bednot beavailable to anywell drilled bythe grantors whoreserved the 'oil andgas' ortotheir assigns." Ravburn, 1987U.S. Dist. LEXIS 6920, at *a. Thecourt also determined that in 1960whenthewarranty deed
wasgranted, coal seammethanegaswasnot considered "commercially recoverable." Ravburn, 1987U.S. Dist. LEXIS6920, at *9. Once again, while the value of coal seammethane gasmaynot havebeen knownin 1960, it wascertainly considered avaluable resource by 1984whenCarbon County granted the coal andcoal rights to Union Reserve. And, unlike the deedinRavburn, there is nolanguage in thedeedtoUnion Reserve regarding "encasing andgrouting off" the coal seamif wells were tobedrilled. There is also no language in the deed from Carbon County granting "other minerals" toUnion Reserve aswasthe caseinVines

v. McKenzie Methane Corp. (Ala. 1993), 619So.2d 1305. InVines -, McKenzie Methane argued that it held aleasehold interest for the coalbed methane gaspursuant to alease executed in 1902between the landowners andthe previous mineral owner, USXCorp. 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 onthis grant of "other minerals," the Supreme Court of Alabama did not feel it necessary in Vines to address the issue of whether coal seammethane gas is part of the coal estate or part of the gas estate. However, the court wasfaced with addressing this very issue afewmonths later in NCNBTexas Nat. Bank, N.A. v. West (Ala. 1993), 631So.2d 212. 1nm, two almost identical deeds from 1953 and 1954granted to West's predecessors "all of the coal, andmining 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 andowncoal seammethane gas from horizontal boreholes andvertical degasification wells drilled into the coal seam. NCNB

-I 631So.2d at 229. Additionally, the court held that the gas estate has the right to recover coal seammethane gas from the gob area above the coal seam. m, 631So.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, 631So.2d at 222. The court stated: Wecanfind noscientific or legal basis to support the proposition that coalbed methanegasshould betreated as aresource separate anddistinct fromother natural gas, orfrom anyother gas. Thefact that the coalbed methane gasis produced by, andstored within, coal seamsdoes not require the conclusion that agrant 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 631So.2d at 222-23. -r Although this statement wouldappear to favor theownerofthe gas estate, the court concluded that since Alabama follows the nonownership theory of oil andgas, the coal seammethane gas belonged to the owner of the coal estate. Thecourt explained that: Thenonownership theory of gas ownership, because it recognizes themigratory nature of oil andgas, requires actual possession toestablish ownership ofthe resource, andthe right held by the landowner is "the right to reduce the oil andgasto possession or to sever this right for economic consideration." NCNB 631So.Zd at 223. -I Unlike Alabama, Montana is anownership-in-place state, and oil andgas, aslong asthey remain inthe ground, arepart of the realty. Stokes v. Tutvet (1958), 134Mont. 250, 255, 328 P.2d 1096, 1099. Montana also recognizes the rule that the title to mineral interests in land, including oil andgasinterests, maybe segregated in whole or in part from the rest of the fee simple title. Stokes, 328P.2d at 1099. This difference in theories of ownership of mineral interests distinguishes NCNBfrom the case 12before uson appeal.

The most recent judicial determination of the ownership of coal seammethane 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" andto suspend issuance of patents onthe lands withdrawn. Southern Ute Indian Tribe v. AMOCOProduction 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 Ute

-I the tribe claimed ownership of the coal seammethane gasonthe 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 areservation of the coal seammethane gas. The United States District Court for the District of Colorado concluded that this reservation of coal bythe United States in the Coal Lands Acts did not include areservation

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 hadpreviously 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

13plain 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, asimilar analysis can be applied to the case before us on appeal, in that the plain meaning of the language of the deed must beexamined to determine the intent of the parties. ISSUE 1 Is coal seam methane gas a constituent part of the coal estate?TheDistrict Court concluded, asamatter of law, that 'I

### [cloal

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), 245Mont. 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

14structure. Florentine contends that since coal seammethane gas is

not achemical 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 andconsisting of amorphous carbon with various organic andsomeinorganic compounds. [Emphasis added.] Gasis 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" andgas is "distinguished from the solid." Astatutory definition of coal existing at the time the coal and coal rights were conveyed to Union Reserve can befound 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 bemined. 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.

15In addition to the statute defining "minable coal, " a

statutory definition of gas existed at the time of the deed. "'Gas' means all natural gases andall 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 seammethane 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, asolid 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 andother substances andelements which are present in the earth in agaseous 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 andall other fluid hydrocarbons asproduced at the wellhead and not defined asoil I!

. . 36.22.302(31), ARM(emphasis added). Asthese regulatory definitions illustrate, gas is afluid or gaseous hydrocarbon and does not include coal Furthermore, the Solicitor of the Department of the Interior 16has concluded in two separate opinions that coal seammethane 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), 98I.D. 59; and Ownership of and Right to Extract Coalbed Gas in Federal Coal Deposits (1981), 88 I.D. 538. Accordingly, weconclude that coal seammethane gas is not a constituent part of coal and, thus, it maybesevered from the coal estate. ISSUE 2 Did the District Court err in determining that Union Reserve has the right to produce coal seammethane 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 aright 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), 245Mont. 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 andcoal rights" includes only coal anddoes not

17include coal seammethane 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 maybeproduced or saved from the coal formation. Union Reserve argues that the term "coal rights" includes the rights to coal seammethane gas and that one of the incidents of the ownership of coal is the necessity, not merely the right, to vent coal seammethane 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 onthe 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 acontract are to beunderstood in their ordinary and popular sense

. . . .II Section 28-3-501, MCA; Moore v. Swanson (1976), 171Mont. 160, 165, 556 P.2d 1249, 1252. Wehave 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 aphrase within a contract, the court must determine the intent of the parties from the writing alone if

18possible. Section 28-3-303, MCA; Glacier Campground v. Wild

Rivers, Inc. (1978), 182Mont. 389, 394-95, 597P.2d 689, 692. See also §70-20-202, MCA;NewHomeSewing Mach. Co.v. Songer (1931), 91Mont. 127, 132, 7P.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, 528-3-202, MCA, provides: Effect to begiven to every part of contract. Thewhole 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, wesee that the deed provided only for aper ton royalty

oncoal but did not provide for aroyalty onthe coal seammethane gas. It is not areasonable assumption that Carbon County would have conveyed its rights to the coal seammethane gas, avaluable resource, without some sort of compensation. Moreover, the rules of statutory construction prohibit such aninterpretation. Contract restricted to its apparent objects. However broad maybethe terms of acontract, 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 andthe incidental right to mine and remove the coal. No other hydrocarbon or mineral

resource wasconveyed under the narrow language used bythe parties

19in the deed.

Montana is anownership-in-place state with regard to oil, gas and other minerals. Both petroleum and gas, as long as they remain in the ground, are apart of the realty. They belong to the owner of the land, and are apart of it as long as they are onit or in it, or subject to his control. Stokes v. Tutvet (1958), 134Mont. 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, 328P.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 seammethane gas. Union Reserve argues that the owner of the coal estate needs to protect its miners andto doso, it must control the gas estate. Union Reserve's executives testified that they feared that extraction of coal seammethane gas enhanced bystimulation, 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, anexpert in coal seam methane gas recovery projects, testified that it is beneficial to the coal estate to rid the mine of dangerous coal

seammethane gas prior to mining the coal. Additionally, Philip Malone, president of GeoMet, ageologic consulting firm, testified that hydrofracturing does not affect the safety of the mine and 20that, 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 beof noavail. See § 70-l-520, MCA; Yellowstone Valley Co. v. Associated Mortg. Investors (1930), 88Mont. 73, 80-81, 290 P. 255, 257. Similarly, the transfer of amineral interest includes, by implication, the incidental rights reasonably necessary to extract the mineral. See Hurley v. Northern Pacific Railway Company (1969), 153Mont. 199, 202, 455 P.2d 321, 323. While werecognize 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, wehold that asthe lessee of Carbon County, the

owner of the gas estate, Florentine has the right to drill for and to produce the coal seammethane gas at issue here. Wealso hold that Union Reserve has amutual, simultaneous right to extract and to capture such gas for safety purposes, incident to its actual coal mining operations.

21Weleave 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 Dothe 1993 legislative amendments to §15-l-101, MCA, and §82-11-101, MCA, andthe enactment of §82-l-111, MCA, constitute

anunlawful taking of coal seammethane gas from the owners of coal

or coal lands? Prior to 1993, there wasnospecific reference in the Montana statutes to coal seammethane gas, however, "gas" was defined at §82-ll-101(9), MCA (19911, as "all natural gases and all other fluid hydrocarbons asproduced at the wellhead and not defined as oil.

. .'I In 1993, the Montana Legislature deleted the definition of gas from 582-11-101, MCA, and added anewsection that defines coal, gas and oil. Section 82-l-111, MCA, provides:

(1) 'ICoal" means acombustible carbonaceaous rock formed from the compaction and induration of variously altered plant remains. Coal does not include: (a) methane gasor anyother natural gas that maybe 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, asproduced at the wellhead and not defined asoil in subsection (3). (3) "oil" means crude petroleum oil and other hydrocarbons, regardless ofgravity, 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. 22In addition, the legislature inserted anewsection into the

Montana Codeto insure that all instruments regarding coal, oil and gas are interpreted according to 582-l-111, MCA. Section l-4-110, MCA, provides:

Whenused 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 f315-l-101, MCA. Section 15-1-101(g), MCA,nowprovides: [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 anunconstitutional 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 seammethane 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 asafety hazard. These amendments to Title 82of the Montana Code donot take away any rights acoal owner may have to coal seam methane gas. Senate Bill 294 was prospective in nature. It provided that the

23"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 onappeal, wehave held that there was aseverance of the gas estate from the coal estate, hence, the owner of the coal estate did not have aright to the coal seammethane 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 wereverse and remand this case on the central issue of ownership of the coal seammethane gas, the issue of punitive damages is necessarily moot. Reversed andremanded for further proceedings consistent with this opinion.

WeConcur:

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