Fleck v. Missouri River Royalty Corp.
2015 ND 287
| N.D. | 2015Background
- Fleck (lessor) owns mineral rights and a 1972 oil and gas lease with a 10-year primary term and a habendum clause extending the lease "so long thereafter as oil or gas . . . is produced."
- The Fleck 1 well produced after the primary term; production later declined and Fleck served notice of forfeiture in 2012 and sued to quiet title, alleging the lease terminated for failure to produce in paying quantities.
- Defendants (lessees) counterclaimed, arguing the lease remained valid due to continued production and because operations to restore production were commenced within the lease’s 90-day savings clause period.
- District court granted summary judgment for defendants, finding the lease extended by continued (albeit small) production and any cessations were temporary with timely restoration efforts.
- The North Dakota Supreme Court held the district court misapplied the law: "production" in the habendum and savings clauses must mean "production in paying quantities," and whether paying-quantity production existed is a genuine issue of material fact requiring remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does "production" in the habendum clause require production in paying quantities to extend the lease after the primary term? | "Production" means production in paying quantities; lease terminated when Fleck 1 stopped producing profitably. | "Production" can be any production; the well produced some oil and thus extended the lease. | Held: "production" in the habendum clause means production in paying quantities. |
| Does the savings clause require commencement of operations within 90 days to restore paying-quantity production, or is any restoration effort enough even if not to paying quantities? | Lessee must commence operations within 90 days to restore production to paying quantities (must begin work aimed at restoring paying-quantity production). | Lessee’s commencement of operations and intermittent work sufficed even if paying-quantity production was not immediately restored. | Held: The savings clause requires commencement of operations to restore production in paying quantities within 90 days (i.e., must begin efforts toward restoring paying-quantity production); lessee not required to restore paying quantities within 90 days but must commence appropriate operations. |
| Was summary judgment appropriate? | The record (showing multi-year net losses) establishes no paying-quantity production after 2010, so summary judgment for Fleck is appropriate. | Profit/loss snapshots are insufficient; factual inquiry (prudent operator standard, market, costs) makes summary judgment improper for defendants. | Held: Summary judgment for defendants was improper; genuine issues of material fact exist about paying-quantity production and prudent-operator considerations; case remanded. |
Key Cases Cited
- Tank v. Citation Oil & Gas Corp., 848 N.W.2d 691 (N.D. 2014) (contracts and lease language construed to give effect to parties’ intent; discussed production/paying-quantity standard)
- Johnson v. Shield, 868 N.W.2d 368 (N.D. 2015) (summary judgment standard on appeal)
- Sorum v. Schwartz, 411 N.W.2d 652 (N.D. 1987) (production in paying quantities requires considering a reasonable time period and surrounding circumstances)
- Clifton v. Koontz, 325 S.W.2d 684 (Tex. 1959) (two-step test: profit over operating costs over reasonable period and whether a prudent operator would continue production)
- Olson v. Schwartz, 345 N.W.2d 33 (N.D. 1984) (lessee’s obligation to act as a reasonable and prudent operator in developing and protecting property)