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, 

-vFLORENTINE 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 

Filed: 

Decided: June 27, 1995 
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-ll101(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 LJSX Corp. 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. 

-r NCNB 631 So.2d at 222-23. 

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 Ute -I 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: 

(1) 'I Coal" 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. 

22 
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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