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Deadwood Canyon Ranch, Llp v. Fidelity Exploration and Production Company

May 10, 2012

DEADWOOD CANYON RANCH, LLP, PLAINTIFF,
v.
FIDELITY EXPLORATION AND PRODUCTION COMPANY, DEFENDANT.



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

ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

Before the Court are cross-motions for partial summary judgment. See Docket Nos. 13 and 21. The Court denies the Plaintiff's motion for partial summary judgment, and grants the Defendant's motion for partial summary judgment on the breach of contract claim.

I. BACKGROUND

The plaintiff, Deadwood Canyon Ranch, LLP ("DCR"), has three principal partners which include Stuart Pratt, Charles Steele, and the David Richards Children Trust - 1977 (for which David Richards is the trustee). In 2006, DCR purchased property in Mountrail County, North Dakota. The defendant, Fidelity Exploration and Production Company ("Fidelity"), owns the mineral rights to the property.

In 2009, Fidelity contacted DCR regarding a plan to drill oil wells on the property. On September 2, 2009, Fidelity sent DCR a "Notice of Drilling Operations" which is a standard 20-day notice of its intention to drill three wells known as 44-32H, 11-33H, and 44-34H. See Docket Nos. 14-28, 14-29, and 14-30. The notices contained Fidelity's proposed agreements for damages associated with drilling and oil production. Fidelity offered a one-time payment ranging between $8,000.00 and $14,500.00 for surface damages associated with constructing access roads and the three wells sites. Fidelity also offered a one-time payment of $18,000 per well to be paid if the well became a commercial producer of oil. See Docket Nos. 14-28, p. 8; 14-29, p. 8; and 14-30, p. 8.

On September 15, 2009, David Richards, on behalf of DCR, signed the receipt of the "Notice of Drilling Operations." See Docket Nos. 14-31, p. 4; 14-32, pp. 4-5; and 14-33, p. 1. Richards also signed the proposed agreements concerning a one-time payment for surface damages. Each of the agreements also contained an offer of a payment of $18,000 per well. Richards signed one of the three offers and accepted the payment of $18,000 if well 44-32H became a commercial producer of oil. See Docket No. 14-31, p. 2. However, Richards modified several other documents contained within Fidelity's proposal.

Specifically, Richards modified Exhibit B which contained conditions concerning the impact of the oil activity for all of the proposed wells. See Docket Nos. 14-31, p. 3; 14-32, p. 2; 14-33, p. 4. Richards also modified "Exhibit A" for wells 11-33H and 44-34H, specifically changing the offered price of $18,000 per well to $1,500,000 per well if the wells became commercial producers of oil. See Docket Nos. 19-1 (original for well 11-33H); 19-2 (original for well 44-34H); 19-3 (modified for well 11-33H); 19-4 (modified for well 44-34H). Richards signed the modified documents and the unmodified documents, and returned all of the documents to Fidelity. Although Richards and other partners of DCR communicated with Fidelity after Richards returned the modified documents, it is undisputed that DCR did not explicitly notify Fidelity of the significant modifications to the compensation to be paid. See Docket No. 14-4, pp. 33-40. As noted, Richards changed the compensation to be paid from $18,000 per well to $1.5 million dollars per well.

On September 17, 2009, Dennis Zander, Fidelity's Regional Operations Manager, received the documents or agreements from Richards. See Docket No. 14-34. On the same day, Scott Kemmis, a Fidelity landman, also acknowledged receiving the signed documents from Richards. Kemmis sent an email to David Richards that stated as follow:

David,

I stopped by the Glendive Fidelity office this morning before leaving town for a few days (30th anniversary).

We received the signed documents for the 3 wells that are scheduled for construction and drilling, thank you.

I will get the payment requests processed for next week check run, where would you like the check sent? We show the Bozeman address but if elsewhere let me know. Sincerely, Scott A. Kemmis Contract Land Agent Fidelity E&P See Docket No. 14-35.

On September 29, 2009, Fidelity contacted David Richards for permission to survey the property. See Docket No. 14-38. On September 30, 2009, and in accordance with the signed agreements, Fidelity sent DCR checks for surface damage associated with the construction of access roads and the drilling sites for the three oil wells known as 44-32H, 11-33H, and 44-34H. See Docket No. 14-37. On October 1, 2009, Fidelity applied for drilling permits for the wells. See Docket Nos. 14-39; 14-40; and 14-41. Between October 9-12, 2009, Fidelity received the permits to drill the three wells from the North Dakota Industrial Commission. See Docket Nos. 14-39, pp. 3-4; 14-40, pp. 3-4; and 14-41, pp. 3-4.

On October 19, 2009, Scott Kemmis of Fidelity notified David Richards that Fidelity planned to begin "construction this week." See Docket No. 14-44, p. 4. Invoices from an excavating company, Excel Industries, Inc., show work occurred at each of the three wells from October 24, 2009, to November 11, 2009. See Docket No. 14-42. The work at the wells, as described in the invoice, included "[w]ell site excavation," "pit ...


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