United States District Court, D. North Dakota
ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL
SUMMARY JUDGMENT AND GRANTING DEFENDANT'S CROSS-MOTION
FOR PARTIAL SUMMARY JUDGMENT
L. Hovland, Chief Judge.
the Court are the parties' cross-motions for partial
summary judgment. Plaintiff El Petron Enterprises, LLC
(“El Petron”) filed a complaint against Defendant
Whiting Resources Corporation (“Whiting”) on
April 25, 2016. See Docket No. 1. Whiting filed an
answer on June 1, 2016. See Docket No. 14. El Petron
moved for partial summary judgment on May 3, 2017.
See Docket No. 36. Whiting filed a response and
cross-motion for partial summary judgment on June 6, 2017.
See Docket Nos. 45 and 49. El Petron filed a
combined response and reply brief on July 7, 2017.
See Docket Nos. 52 and 53. Whiting filed a reply to
El Petron's response on July 28, 2017. See
Docket No. 56. For the reasons set forth below, the Court
denies El Petron's motion for partial summary judgment
and grants Whiting's cross-motion for partial summary
Petron is a Texas Limited Liability Company; George Wallace
Tilley, Jr. is El Petron's sole member. See
Docket No. 41, pg. 1. Whiting is a Colorado corporation with
its principal office in Denver, Colorado. See Docket
No. 1. El Petron brought this diversity suit against Whiting
on April 25, 2016, asserting Whiting has improperly deducted
costs and fees from El Petron's overriding royalty
interests. The parties' disagreement focuses on language
in an overriding royalty reservation. The parties dispute
whether Whiting may deduct post-production costs from
overriding royalty payments Whiting makes to El Petron, and
if so, whether the deductions Whiting has made have been
and 2006, El Petron entered into a number of oil and gas
leases (“the Leases”) with various mineral owners
in McKenzie County, North Dakota. Both parties agree the
terms of each of the Leases are substantially similar.
See Docket Nos. 41, p. 1 and 46, pgs. 3-4. El Petron
has filed one of the Leases as an Exhibit. It reads:
consideration of the premises the said Lessee covenants and
1st. To deliver to the credit of Lessor, free of cost, in the
pipeline to which Lessee may connect wells on said land, the
equal 1/6th part of all oil produced and saved from the
2nd. To pay Lessor 1/6th of the gross proceeds each year,
payable quarterly, for the gas from each well where gas only
is found, while the same is being off the premises, and if
used in the manufacture of gasoline a royalty of 1/6th,
payable monthly at the prevailing market rate for gas.
3rd. To pay Lessor for gas produced from any oil well and
used off the premises or in the manufacture of gasoline or
any other product a royalty of 1/6th of the proceeds, at the
mouth of the well, payable monthly at the prevailing market
See Docket No. 41-1. On October 27, 2006, El Petron
assigned its interests in the Leases (“the
Assignment”) to Sonic Oil & Gas, L.P.
(“Sonic”). See Docket No. 41. The
Assignment contains an overriding royalty reservation
(“the Reservation”) that states:
Assignor RESERVES AND EXCEPTS from this Assignment of Oil and
Gas leases an overriding royalty interest equal to the
difference between existing landowner royalty and overriding
royalty burdens as of October 27, 2006 and a total burden of
20% on all oil, gas and casinghead gas, condensate, natural
gas liquids, and all other minerals and substances produced
from the lands covered by Said Leases. The overriding royalty
reserved herein shall be paid or delivered to Assignor free
and clear of all costs, except taxes, and shall be calculated
in the same manner as is the royalty reserved under the terms
of Said Leases.
See Docket No. 41-2, p. 1. The Assignment was later
revised to correct certain legal descriptions and fix other
errors, but the reservation language remained unchanged.
See Docket No. 1, pgs. 2 and 3. Oil and casinghead
was, and continues to be, produced under the leases.
See Docket No. 46-1, p. 1. In 2010, Kodiak Oil &
Gas (USA) Inc. (“Kodiak”) obtained Sonic's
interests in the Leases. See Docket No. 42, p. 3. In
2014, Whiting purchased Kodiak and acquired Kodiak's
interests in the Leases. See Docket No. 40, p. 3.
Whiting currently operates a number of oil and gas wells that
produce from minerals included in the Leases. See
Docket No. 46-1, p. 1.
sells oil and gas produced from the wells to third-party
companies. These companies charge fees and allocate costs for
processing, transportation, and marketing activities.
See Docket No. 46-1, p. 1. Whiting pays royalties to
El Petron based on the proceeds it receives from the
third-party purchasers. See Docket No. 46-1, p. 2.
In other words, Whiting's overriding royalty calculation
includes deductions for third-party post-production fees and
costs associated with processing and marketing. Whiting does
not pay El Petron a royalty based on the full market value of
the processed oil and gas. Nor does Whiting include any fees
or costs associated with production expenses. See
Docket No. 46-1, p. 2.
Petron's complaint contains claims for: (1) declaratory
judgment; (2) breach of covenants; (3) accounting; (4)
nonpayment of royalties; and (5) unjust enrichment.
See Docket No. 1. El Petron filed a motion for
partial summary judgment on May 3, 2017. See Docket
No. 36. Whiting ...