Fleck v. Missouri River Royalty Corp.

Summary

The North Dakota Supreme Court reversed summary judgment quieting title to an oil and gas lease in favor of the defendants. The court held that “production” in the lease’s habendum and savings clauses generally means production in paying quantities and concluded that genuine issues of material fact existed regarding whether the well produced in paying quantities and whether the lease terminated.

Holdings

1. Because the lease did not define production, the term "production" in the habendum clause means production in paying quantities for purposes of extending the lease beyond its primary term.
2. Determining whether a well is producing in paying quantities requires consideration of whether it yields a profit over operating costs over a reasonable period and whether a reasonably prudent operator would continue operating it under the relevant facts and circumstances.
3. The term "production" in the savings clause also means production in paying quantities. If production in paying quantities ceases after the primary term, the lease remains in force if the lessee begins operations within ninety days to drill a well or restore production to paying quantities; the lessee need not restore paying production within the ninety-day period.
4. Summary judgment was improper because whether the Fleck 1 well produced in paying quantities during the relevant period was a genuine issue of material fact.

Questions Presented

1. Whether the term "production" in the lease's habendum clause means production in paying quantities.
2. Whether the term "production" in the lease's savings clause likewise means production in paying quantities and what operations are required to preserve the lease after such production ceases.
3. Whether genuine issues of material fact concerning production in paying quantities precluded summary judgment.

Disposition

reversed_and_remanded