Moerman v. Prairie Rose Resources, Inc., 308 P.3d 75

Irene and John Moerman (lessors) executed six‑month oil & gas leases with Prairie Rose Resources (lessee) effective June 1–December 1, 2010, with a secondary term extending while production or continuous drilling/reworking continued (180‑day temporary cessation clause).
Prairie assigned the leases to PB Oil and contracted TOI/PB personnel (Carver) to rework and bring the Moerman 14‑30 well into production; work started November 29, 2010, but was interrupted by severe weather.
BOGC inspections on December 10 and 13, 2010, found the well producing and tanks containing oil; Prairie had not yet sold oil because it was awaiting a mineral title opinion.
The Moermans, unaware of production, sent a February 18, 2011 letter asking for release of the leases and subsequently re‑leased the north half of the section to another company; Prairie refused due to substantial expenditures (~$150,000) and continued operations.
The Moermans sued for declaratory judgment (July 27, 2011) claiming the leases had expired or been forfeited; the district court found the leases remained in effect and awarded Prairie attorney fees under § 82‑1‑202, MCA. The Moermans appealed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the lease remained in effect after Dec 1, 2010	Moermans: no production before Dec 1 so primary term ended; alternatively, 5‑month cessation (Dec 2010–May 2011) terminated lease	Prairie: evidence shows production/startup on or before Dec 1; alternatively lease permits reworking/temporary cessations under 180‑day clause and Prairie acted diligently	Court held lease remained in effect — production/reworking occurred by Dec 1 and 180‑day temporary cessation provision applied; Prairie acted with reasonable diligence
Whether Prairie is entitled to attorney fees	Moermans: not entitled because lease forfeited	Prairie: entitled under § 82‑1‑202 since plaintiffs failed to establish forfeiture	Court awarded attorney fees and remanded for appellate fee determination

Stanolind Oil & Gas Co. v. Guertzgen, 100 F.2d 299 (9th Cir. 1938) (lessor protection principle in oil & gas leases)
Clawson v. Berklund, 610 P.2d 1168 (Mont. 1980) (leases construed liberally for lessor and strictly against lessee)
Somont Oil Co., Inc. v. A. & G. Drilling, Inc., 49 P.3d 598 (Mont. 2002) (temporary cessation doctrine; diligent lessee standard)
Somont Oil Co., Inc. v. A. & G. Drilling, Inc., 137 P.3d 536 (Mont. 2006) (standard of review for fee awards cited)
Fey v. A. A. Oil Corp., 285 P.2d 578 (Mont. 1955) (forfeitures of oil and gas leases favored to prevent unworked burdens)
Christian v. A. A. Oil Corp., 506 P.2d 1369 (Mont. 1973) (diligence of lessee measured by prudent operator balancing interests)
Federal Land Bank v. Texaco, Inc., 820 P.2d 1269 (Mont. 1991) (contract interpretation principles; entire instrument approach)