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Anderson v. Hess Corp.

August 25, 2010

JEROME C ANDERSON, PATRICIA M BARSTAD, JOAN M BARSTAD, JANE C CRAFT, PEGGY M COWAN, JEROME ANDERSON AS TRUSTEE OF THE ANDERSON FAMILY MINERAL TRUST, JOHN C ANDERSON, RAY ANDERSON, OSCAR R ANDERSON, BEATRICE ANDERSON, DONALD TARCZANIN, SUSAN TARCZANIN, AND CORA ANDERSON, PLAINTIFFS,
v.
HESS CORPORATION, DEFENDANT.
HESS CORPORATION, COUNTERCLAIMANT,
v.
JEROME C. ANDERSON, ET AL., COUNTERDEFENDANTS.



The opinion of the court was delivered by: Daniel L. Hovland, District Judge United States District Court

ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Before the Court are the Plaintiffs' and the Defendant's motions for summary judgment filed on June 30, 2010. See Docket Nos. 11 and 14. The parties filed responses on July 26, 2010. See Docket Nos. 21 and 22. The parties filed reply briefs on August 9, 2010. See Docket Nos. 24 and 25. For the reasons set forth below, the Plaintiffs' motion for summary judgment is denied and the Defendant's motion for summary judgment is granted.

I. BACKGROUND

The Plaintiffs are residents of North Dakota, Oregon, Connecticut, and Colorado and own real property in Mountrail County, North Dakota. Defendant Hess Corporation is a Delaware corporation with its principal place of business in the State of New York. The Plaintiffs own the real property described as:

Township 156 North, Range 94 West of the 5th P.M. Section 19: Lots 3, 4, E 1/2 SW 1/4, E 1/2 See Docket No. 1-1.

In May 2004, the Plaintiffs, or their predecessors in interest, leased their mineral rights in the real property to Diamond Resources, Inc. Axel Anderson, Arvid Anderson, Irene Anderson, Cora Anderson, Oscar Anderson, and Beatrice Anderson signed their leases ("the Anderson leases") on May 3, 2004. Upon Axel Anderson's death, his interest passed to Plaintiffs Jerome Anderson, Patricia Barstad, Joan Barstad, Jane Craft, and Peggy Cowan. Arvid Anderson and Irene Anderson conveyed their interest to Plaintiff Jerome Anderson as Trustee of the Anderson Family Mineral Trust. Plaintiff Cora Anderson conveyed her interest to Plaintiff John Anderson and retained a life interest. Plaintiffs Donald Tarczanin and Susan Tarczanin signed their lease ("the Tarczanin lease") on May 10, 2004. Diamond Resources, Inc., transferred the leases to R.T. Duncan, Inc., who then transferred the leases to Duncan Oil Partners. Duncan Oil Partners transferred the leases to Amerada Hess Corporation, now known as Hess Corporation, on December 30, 2004.

The leases are identical. Each includes the following Pugh clause:*fn1 Notwithstanding the provisions of this lease to the contrary, this lease shall terminate at the end of the primary term as to all of the leased lands except those within a producing or spacing unit prescribed by law or administrative authority on which is located a well producing or capable of producing oil and/or gas or on which lessee is engaged in drilling or reworking operations. However, this lease shall not terminate as to any of the leased lands so long as drilling or reworking operations are being continuously prosecuted, that is, if not more than one (1) year shall elapse between the completion or abandonment of one well and the beginning of operations for the drilling of another well.

See Docket No. 1-1. The leases' habendum clause*fn2 states:

1. It is agreed that this lease shall remain in force for a term of Five (5) years from this date and as long thereafter as oil or gas of whatsoever nature or kind is produced from said leased premises or on acreage pooled therewith, or drilling operations are continued as hereinafter provided. If, at the expiration of the primary term of this lease, oil or gas is not being produced on the leased premises or on acreage pooled therewith but Lessee is then engaged in drilling or re-working operations thereon, then this lease shall continue in force so long as operations are being continuously prosecuted on the leased premises or on acreage pooled therewith; and operations shall be considered to be continuously prosecuted if not more than ninety (90) days shall elapse between the completion or abandonment of one well and the beginning of operations for the drilling of a subsequent well. If after discovery of oil or gas on said land or on acreage pooled therewith, the production thereof shall cease from any cause after the primary term, this lease shall not terminate if Lessee commences additional drilling or re-working operations within ninety (90) days from date of cessation of production or from date of completion of dry hole. If oil or gas shall be discovered and produced as a result of such operations at or after the expiration of the primary term of this lease, this lease shall continue in force so long as oil or gas is produced from the leased premises or on acreage pooled therewith.

See Docket No. 1-1.

In 2008 and 2009, Hess Corporation engaged in activities in preparation of drilling a well on a spacing unit that includes the real property in question. On October 27, 2008, Hess Corporation surveyed and staked a well. On December 28, 2008, it submitted an application for a permit to drill to the Oil and Gas Division of the North Dakota Industrial Commission. The application was approved on January 2, 2009. On January 23, 2009, Hess Corporation moved equipment to the well location and began to prepare the surface. On February 6, 2009, the pad was leveled and lazered. Hess Corporation finished digging the drilling pit on February 13, 2009. The pit was lined with gravel and clay on March 3, 2009. Hess Corporation widened the access road to the well and drilled the rat hole*fn3 for the main conductor pipe on April 27, 2009. Tanks used to store drilling fluid were moved to the location on April 30, 2009. Hess Corporation drilled the mouse hole on May 1, 2009. The company planned to move Nabors Rig 460 to the well prior to May 3, 2009, but problems at another well prevented that arrival date. The well was spud*fn4 on May 11, 2009. The well was continuously drilled until total depth was reached on June 26, 2009. The well was completed on June 30, 2009, and has produced continuously.

On May 7, 2009, Hess Corporation's landman, Michael Allen, contacted Jerome Anderson to negotiate an extension or renewal of the leases. Allen offered to increase the royalty in exchange for an extension of the leases. On May 8, 2009, Jerome Anderson rejected Allen's offer.

The Plaintiffs filed a complaint in state court in Mountrail County, North Dakota on September 22, 2009. See Docket No. 1-1. On October 9, 2009, Hess Corporation removed the action to federal district court and answered and counterclaimed. See Docket Nos. 1 and 2. The Plaintiffs contend the leases expired prior to the date the well was spud. Hess Corporation contends the leases did not expire because it was engaged in drilling operations on the real property prior to the expiration of the leases' primary term. Both parties have submitted excellent briefs which are thorough and well-researched.

II. STANDARD OF REVIEW

Rule 56 of the Federal Rules of Civil Procedure permits parties to file for summary judgment. "Summary judgment is appropriate when the evidence, viewed in a light most favorable to the non-moving party, indicates that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law." Davison v. City of Minneapolis, Minn., 490 F.3d 648, 654 (8th Cir. 2007) (quoting Hughes v. Stottlemyre, 454 F.3d 791, 796 (8th Cir. 2006)). An issue of material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Neither the Plaintiffs nor the Defendant contend there is a genuine issue of material fact.

This action is based on diversity jurisdiction. Therefore, the Court will apply the substantive law of North Dakota. Paracelsus Healthcare Corp. v. Philips Med. Sys., 384 F.3d 492, 495 (8th Cir. 2004) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)).

III. LEGAL DISCUSSION

The parties filed cross-motions for summary judgment. The Plaintiffs and Hess Corporation each seek quiet title as to the interest in the leases. The Plaintiffs also seek damages and attorney's fees for Hess Corporation's failure to release the leases, willful trespass, wrongful extraction of minerals, and under N.D.C.C. ยง 38-08-08. In addition, ...


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