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Johnson v. Statoil Oil & Gas LP

Supreme Court of North Dakota

October 3, 2018

Robert Post Johnson and A. V. M., Inc., Plaintiffs and Appellants
v.
Statoil Oil & Gas LP, formerly known as Brigham Oil & Gas LP, MBI Oil and Gas, LLC, Northern Energy Corporation, Stewart Geological, Inc., Brent Clum, Earthstone Energy, Inc., Vincent Melashenko, Hill L.P., LGFE-J L.P., Reef 2011 Private Drilling Fund, L.P., Missouri River Royalty Corporation, Rainbow Energy Marketing Corporation, United Energy Trading, LLC, Abaco Energy, L.L.C., Wolfe Exploration LLC, Joe Wolfe, Global Gas & Oil, L.L.C., Source Rock Exploration, LLC, Cody Oil & Gas Corporation, David Peterson, Hess Bakken Investments II, LLC, and LGFE-M L.P., Defendants and Appellees and Missouri Basin Well Service, Inc., Sunshine Pacific Corp., and Slawson Exploration Company, Inc., Defendants

          Appeal from the District Court of McKenzie County, Northwest Judicial District, the Honorable Robin Ann Schmidt, Judge, Reversed.

          Derrick L. Braaten (argued), Kyra A. Hill (appeared), and JJ W. England (on brief), Bismarck, ND, for plaintiffs and appellants.

          Lawrence Bender (appeared), Bismarck, ND, for defendants and appellees Statoil Oil & Gas LP, MBI Oil and Gas, LLC, Northern Energy Corporation, Brent Clum, Earthstone Energy, Inc., Vincent Melashenko, Hill L.P., LGFE-J L.P., Reef 2011 Private Drilling Fund, L.P., Missouri River Royalty Corporation, Rainbow Energy Marketing Corporation, United Energy Trading, LLC, Abaco Energy, L.L.C., Wolfe Exploration LLC, Joe Wolfe, Global Gas & Oil, L.L.C., SourceRock Exploration, LLC, Cody Oil & Gas Corporation, David Peterson, and LGFE-M L.P. David M. Gunn (argued) and Fields Alexander (on brief), Houston, TX, for defendant and appellee Statoil Oil & Gas LP. Paul J. Forster (on brief) and Anthony J. Ford (on brief), Bismarck, ND, for Hess Bakken Investments II, LLC. Charles M. Carvell (on brief), Bismarck, ND, for defendant and appellee Stewart Geological, Inc.

          OPINION

          JENSEN, JUSTICE

         [¶ 1] Robert Post Johnson and A.V.M., Inc. ("Johnson and A.V.M.") appeal from a judgment entered after the district court granted summary judgment in favor of Statoil Oil & Gas LP and others ("Statoil"). Johnson and A.V.M. assert the district court incorrectly determined the primary three-year terms of two oil and gas leases were extended by continuous drilling operations clauses within the lease agreements. We reverse.

         I

         [¶ 2] In April 2008, Johnson and A.V.M. entered into separate oil and gas leases with Missouri Basin Well Service. The leases collectively apply to mineral interests in and under land comprised of eight units. Unless otherwise extended, the primary three-year term of each lease expired in April 2011.

         [¶ 3] The two leases contain identical habendum, continuous drilling operations, and Pugh clauses. The habendum and continuous drilling operations clauses are part of a form oil and gas lease. The Pugh clauses were added by the parties to the form leases.

         [¶ 4] The habendum clauses read as follows:

It is agreed that this lease shall remain in force for a term of three (3) 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.

         The continuous drilling operations clauses read as follows:

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 reworking 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 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.

         The Pugh clauses read as follows:

Notwithstanding anything to the contrary, on expiration of the primary term of the lease, the lease shall terminate as to any part of the property not included within a well unit or units, as established by appropriate regulating authority, from which oil or gas is being produced in paying quantities and shall also terminate as to 100' below geologic ...

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