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Pennington v. Cont'l Res., Inc.

Supreme Court of North Dakota

August 27, 2019, Filed

No. 20190063

Opinion

 [**899]  Crothers, Justice.

 [*P1]  Rhonda Pennington, Steven Nelson, Donald Nelson, and Charlene Bjornson ("Plaintiffs") appeal a district court judgment ruling a "regulation and delay" provision in their oil and gas leases with Continental Resources extended the term of the leases. We affirm in part, reverse in part, and remand for further proceedings.

 [*P2]  On October 25, 2011, the Plaintiffs executed oil and gas leases for property in McKenzie County. Each lease term was three years with a lessee option to extend for an additional year. The leases were assigned to Continental in September [***2]  2014, and it exercised the extension option. The leases included a provision that the leases would not terminate if drilling operations were delayed by an inability to obtain permits.

 [*P3]  In May 2012, Continental applied for a drilling permit on a 2,560-acre spacing unit that included the lands covered by the leases. The 2,560 acres included lands inhabited by the Dakota Skipper butterfly, which is listed as threatened under the Endangered Species Act. Continental could not begin drilling operations until receiving federal approval. In August 2015, the U.S. Fish and Wildlife Service issued a biological opinion relating to the impact of Continental's proposed drilling on the Dakota Skipper. On October 1, 2015, Continental proposed measures to minimize the impact of its operations on the Dakota Skipper.

 [*P4]  On October 21, 2015, Continental recorded an affidavit of regulation and delay, stating it had not yet obtained federal regulatory approval to drill, and the primary term of the leases was extended under the "regulation and delay" paragraph of the leases. The following day, Continental applied to terminate the 2,560-acre spacing unit and create a 1,920-acre spacing unit to remove the Dakota [***3]  Skipper habitat. In November 2015, the Industrial Commission approved the 1,920-acre spacing unit. In January 2016, the commission pooled all of the oil and gas interests in the 1,920-acre spacing unit for the development and operation of the spacing unit. Following the January 2016 order, Continental began drilling operations.

 [*P5]  [**900]   In August 2017, the Plaintiffs sued Continental, alleging the leases expired on October 25, 2015, and Continental's delay in obtaining regulatory approval to drill did not extend the leases. Both parties moved for summary judgment. The district court granted Continental's motion, concluding the "regulation and delay" provision extended the leases until regulatory approval could be obtained to begin drilling operations.

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2019 ND 228 *; 932 N.W.2d 897 **; 2019 N.D. LEXIS 232 ***; 2019 WL 4021800

Rhonda Pennington, Steven Nelson, Donald Nelson, and Charlene Bjornson, Plaintiffs and Appellants v. Continental Resources, Inc., Defendant and Appellee

Prior History:  [***1] Appeal from the District Court of McKenzie County, Northwest Judicial District, the Honorable Daniel S. El-Dweek, Judge.

Disposition: AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

CORE TERMS

leases, drilling, primary term, spacing, permits, regulation, district court, force majeure, oil, summary judgment, good faith, provisions, terminate, Lessee, drilling operations, material fact, drillsite, diligence, Skipper

Civil Procedure, Appeals, Standards of Review, De Novo Review, Judgments, Summary Judgment, Entitlement as Matter of Law, Burdens of Proof, Movant Persuasion & Proof, Evidentiary Considerations, Summary Judgment Review, Standards of Review, Contracts Law, Contract Interpretation, Energy & Utilities Law, Leases & Licenses, Contract Interpretation, Intent, Leases & Licenses, Force Majeure Clauses, Good Faith & Fair Dealing