Tank v. Citation Oil & Gas Corp.
848 N.W.2d 691
| N.D. | 2014Background
- 1982 oil and gas lease from George and Phyllis Tank to Petro-Lewis Funds, covering NW 1/4 and S 1/2 of Section 10, T151N R96W; primary term expired Sept 1986; ratification extended primary term to July 15, 1989.
- Tank 3-10 well spudded May 1983, produced until Oct 1996; Tank 3-10R spudded June 1998, current production.
- Tank 13-10 spudded June 1988, produced through Oct 2008 in paying quantities and intermittently thereafter.
- ND IC granted spacing unit of 1280 acres including Sections 3 and 10 in Nov 2008; Jonsrud 151-96-3B-10-2H and George Tank 151-96-10C-3-3H wells spudded 2010, currently producing.
- Tank, as successor to George and Phyllis Tank, sued Sept 2011 to cancel lease as to SW quarter; district court granted summary judgment for Tank, finding lease expired on SW quarter under Pugh clause.
- Appeal by Citation defendants affirmed; majority held Pugh clause valid to terminate SW quarter, while dissent argued lease could continue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Pugh clause terminates lease on nonproducing lands while drilling ops continue | Tank contends Pugh clause expired SW quarter | Defendants contend drilling ops sustain lease and Pugh inapplicable | Pugh clause terminates land not in producing unit when no drilling occurs within year |
| Effect of drilling operations clause versus Pugh clause on lease-wide status | lease remains by continuous drilling/production | Pugh clause overrides to sever nonproducing lands | Pugh clause modifies drilling clause; lease maintained only where undeveloped land drilled; otherwise expires on nonproducing lands |
| Whether land undeveloped term means after primary term or after each yearly period | undeveloped means capable of development but not necessarily producing | undeveloped means not in producing unit; must be drilled | Undeveloped land arises after production ceases; drilling during yearly periods required to preserve lease |
Key Cases Cited
- Egeland v. Continental Res., Inc., 616 N.W.2d 861 (2000 ND 169) (construes continuous drilling and Pugh clauses; Pugh may limit but not override continuous drilling)
- Estate of Christeson v. Gilstad, 829 N.W.2d 453 (2013 ND 50) (summary judgment standard; contract interpretation under ND law)
- Kortum v. Johnson, 755 N.W.2d 432 (2008 ND 154) (contract interpretation guidance; give effect to every provision)
- Rolla v. Tank, 837 N.W.2d 907 (2013 ND 175) (interpretation of lease provisions to determine intent)
- West v. Alpar Res., Inc., 298 N.W.2d 484 (1980 ND) (lease interpretation favoring lessor; Pugh clauses purpose to foster development)