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A.G. Golden; Paul E. Nordstog; Cooper B. Land; Solveig K. Land; Howard v. Sm Energy Company

February 1, 2013

A.G. GOLDEN; PAUL E. NORDSTOG; COOPER B. LAND; SOLVEIG K. LAND; HOWARD D. ARMENTROUT AND DELORES K. ARMENTROUT, AS CO-TRUSTEES OF THE ARMENTROUT FAMILY REVOCABLE LIVING TRUST DATED MAY 24, 2005; CRAIG L. BOLENBAUGH, AND JOSEPH MICHAEL BOLENBAUGH, PETER FRANCIS BOLENBAUGH, AND JAMES PATRICK BOLENBAUGH, AS JOINT TENANTS; AND ROYALTY INTEREST PARTNERSHIP, LP,
PLAINTIFFS AND APPELLEES
v.
SM ENERGY COMPANY, A DELAWARE CORPORATION,
DEFENDANT AND APPELLANT



Appeal from the District Court of McKenzie County, Northwest Judicial District, the Honorable David W. Nelson, Judge.

The opinion of the court was delivered by: VandeWalle, Chief Justice.

N.D. Supreme CourtA.G. Golden v. SM Energy Company,

2013 ND 17

This opinion is subject to petition for rehearing.

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AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Opinion of the Court by VandeWalle, Chief Justice.

[¶1] SM Energy Company appealed from a summary judgment declaring that A.G. Golden and other plaintiffs are entitled to a four percent overriding royalty interest in leases and lands covered by a 1970 letter agreement and ordering SM to pay amounts due to Golden and the other plaintiffs for these interests, and from an order denying SM's motion to amend or for relief from the judgment. We conclude the district court erred in ruling as a matter of law that SM, through its predecessors in interest, expressly assumed an "area of mutual interest" clause in the 1970 letter agreement and in expanding the judgment to include unpled and unlitigated properties within the area of mutual interest. We further conclude the court correctly ruled as a matter of law that SM owes Golden and the other plaintiffs retroactive royalty payments on production from a certain well located on the subject property. We affirm in part, reverse in part, and remand for further proceedings.

I

[¶2] Golden owned oil and gas leases covering property located in McKenzie County. On July 15, 1970, Golden entered into a letter agreement with Universal Resources Corporation in which he sold Universal his "entire interest in these lands" for $15,000 "subject to my retention of four percent (4%) overriding royalty." The letter agreement also created a "joint area of interest":

A joint area of interest is designated between the parties hereto and is described as All of Sections 19, 20, 29, 30, 31 and 32 in Township 153 North, Range 95 West and All of Section 2 in Township 152 North, Range 96 West. It is agreed that should A.G. Golden purchase any leasehold interest within the above descirbed [sic] area, he will offer it at cost to Universal Resources Corporation, subject to a reservation of four per cent (4%) overriding royalty. Should Universal Resources Corporation purchase any leasehold interest in the joint area of interest, they will assign a four percent (4%) overriding royalty to A.G. Golden without cost. Said joint area of interest is shown by Exhibit "B" (attached hereto and made a part hereof). . . . Should production be encountered on any acreage owned or controlled by Universal Resources Corporation in the joint area of interest, the obligations of the parties hereto shall continue to each other for so long as production continues. . . . The terms of this paragraph shall extend to all new lease purchases, lease renewals lease extensions of any nature whatsoever. The letter agreement further provided that "[a]ny assignment of this agreement made by you [Universal] shall recite that same is made pursuant and subject to the terms and conditions of this Agreement." During the early 1980s, Universal acquired several leases within the geographic area defined in the letter agreement, including what the parties refer to as the "Thompson lease," and assigned to Golden a four percent overriding royalty interest in that lease and other leases in the joint area of interest.

[¶3] On April 29, 1993, Universal sold and assigned to Tipperary Petroleum Company its interest in the leases and lands covered by the 1970 letter agreement. The assignment and bill of sale included a provision that Universal was assigning "all right, title and interest of Assignor in and to . . . all operating agreements, joint venture agreements, partnership agreements, and other contracts, to the extent that they relate to any of the Assets." A few months later, Tipperary acquired through an assignment from Texaco Exploration and Production, Inc., all of Texaco's interest in what the parties refer to as the "Federal lease." Effective March 1, 2000, Tipperary sold and assigned all of its interest in the leases and lands subject to the letter agreement, including the Thompson lease and the Federal lease, and its contract rights and obligations in the letter agreement, to Nance Petroleum Corporation. The assignment and bill of sale provided that Nance "assumes all of Assignor's duties, liabilities and obligations relating to the Assets to which Assignor was a party or by which it was bound on and after the date hereof." Nance was later merged into SM. All of the relevant documents in this case were duly recorded.

[¶4] SM is the current operator of the "Thompson-Federal" well and the "Wilson" well. The drill site spacing unit for the Thompson-Federal well includes the Thompson lease and the Federal lease. The Wilson well is located within the joint area of interest. SM has paid Golden and the other plaintiffs royalties on production from the Thompson-Federal well attributable to the Thompson lease, but has not paid royalties on production attributable to the Federal lease. SM has paid Golden and the other plaintiffs a four percent overriding royalty on production from the Wilson well since January 2009, but has refused to pay them the four percent royalty for earlier periods because SM's previous smaller payments were made under executed division orders. Golden and the other plaintiffs brought this declaratory judgment action to determine the parties' rights, to quiet title to interests in the land, and for an accounting.

[ΒΆ5] The district court granted summary judgment in favor of Golden and the other plaintiffs and denied SM's cross-motion for summary judgment in its favor. The court ruled as a matter of law that SM, through its predecessors in interest, expressly assumed Universal's rights and obligations under the 1970 letter agreement. The court's judgment also expanded the scope of the ruling beyond the pleadings to include all leases and wells in the joint area of interest described in the letter agreement. The court further ruled as a matter of law that SM owes Golden and the other plaintiffs ...


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