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Steven M. Jensen, Douglas R. Jensen, Earl v. the Rudman Partnership and Hess Corporation

May 10, 2011

STEVEN M. JENSEN, DOUGLAS R. JENSEN, EARL R. JENSEN, LUCILLE M. SOLBERG, DOREEN JENSEN, PERSONAL REPRESENTATIVE OF THE ESTATE OF LESLIE M. JENSEN, DECEASED, AND CHARLENE BANGEN,
PLAINTIFFS,
v.
THE RUDMAN PARTNERSHIP AND HESS CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Charles S. Miller, Jr. United States Magistrate Judge

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

Before the court is the defendants' Motion for Summary Judgment filed on January 31, 2011. (Docket No. 8). The Plaintiffs filed a response on February 23, 2011. (Docket No. 12). The Defendants filed a reply on March 8, 2011. (Docket No. 13). For the reasons set forth below, the court grants the motion.

I. BACKGROUND

Raymond and Marie Jensen executed an Oil and Gas Lease to M.B. Rudman, of Dallas, Texas, on August 5, 1949. The lease covered the following property, approximately 880 acres in Mountrail County, North Dakota:

Township 158 North, Range 94 West Section 8: W1/2 Section 20: NE1/4 , S1/2 NW 1/4 Section 21: S1/2 N1/2 Section 28: W1/2 NE1/4 , SE1/4 NE1/4 , SE1/4 NW1/4

The Rudman Partnership ("Rudman") owns the lease as to the W1/2 NE1/4 and SE1/4 NE1/4 of Section 28. Hess Corporation ("Hess") owns the lease as to the SE1/4 NW1/4 of Section 28. Hess reassigned the lease as to the E1/2 NE1/4 of Section 20, and the S1/2 N1/2 of Section 21 to St. Mary Land & Exploration Company, which is now known as SM Energy Company. Oil and/or gas has been produced from certain portions of the lease. The plaintiffs allege, however, that the following tracts of land have not been developed and are not producing any oil or gas:

Township 158 North, Range 94 West

Section 20: E1/2 NE1/4 Section 21: S1/2 N1/2 Section 28: W1/2 NE1/4 , SE1/4 NE1/4 , SE1/4 NW1/4 The habendum clause of the lease provides that the lease: shall remain in force for a period of ten (10) years from the date hereof, called 'primary' term, and thereafter so long as oil, gas or other mineral, or any one or more of them, is produced from said land hereunder, or Lessee is engaged in drilling, mining or reworking operations on said land hereunder. (Docket No. 10-1). Plaintiffs served a Notice and Demand for Further Development upon both Rudman and Hess on November 24, 2009. Defendants admit that there has not been actual production of oil and gas on all tracts of land covered by the lease. (Docket No. 9). As a consequence of the lack of actual production on these tracts, plaintiffs argue that defendants have breached the implied covenant to further develop, the implied covenant of reasonable exploration and the implied covenant not to hold leases for speculative purposes as they have failed to develop these tracts for over sixty-one (61) years. Based upon the alleged breaches of these covenants, plaintiffs request termination of the lease as to the undeveloped tracts of land listed above.

Rudman executed a Geophysical Permit granting Petro-Hunt, LLC permission to conduct a 3D seismic shoot on certain portions of the non-producing land, specifically, the W1/2 NE1/4 and the SE1/4 NE1/4 of Section 28 on January 13, 2009. The seismic shoot also covered the NE1/4 SW1/4 and the SW1/4 SW1/4 of Section 9, Township 158 North, Range 94 West and other lands in the immediate area of the leased premises. In addition, Rudman is receiving drilling reports from wells that are located within sections 3 and 4, Township 158 North, Range 94 West, approximately 21/2 to 31/2 miles from the leased tracts at issue in this case. (Docket No. 10-2). Hess states that it is "evaluating the activity" in the lands surrounding the leased premises, including wells in Sections 4, 10 and 15 in Township 158 North, Range 94 West, and that it has drilled a well within 11/2 miles of the leased property that is only marginally performing, producing 9,000 barrels over a span of four (4) years.

Based upon these facts, defendants argue that they have undertaken sufficient development activity, including seismic activity, study of geologic data and study of production data from nearby wells, to continue to hold the lease in full force and effect.

II. STANDARD OF REVIEW

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); see Fed. R. Civ. P. 56(c). Summary judgment is not appropriate if there are factual disputes that may affect the outcome of the case under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is genuine if the evidence would allow a reasonable jury to return a verdict for the non-moving party. The court must inquire whether the evidence presents a sufficient disagreement to require the submission of the case to the fact-finder or whether the evidence is so one-sided that one party must prevail as a matter of law. Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir. 2005). The moving party bears the burden of demonstrating an absence of a genuine issue of material fact. Simpson v. Des Moines Water Works, 425 F.3d 538, 541 (8th Cir. 2005). The nonmoving party "may not rely merely on allegations or denials in itsown pleading; rather, its response must . . . set out specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2).

This action is based on diversity jurisdiction. Therefore, the Court will apply the substantive law of North Dakota. See Paracelsus Healthcare Corp. v. Philips Med. Sys., ...


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