In 2013, Royalty Interests Partnership, LP (Royalty) leased oil and gas drilling rights to MBI Oil & Gas, LLC (MBI) for a primary term of three years, with the lease continuing as long as oil and gas production occurred on the leased premises or pooled acreage. By 2016, MBI had not drilled any wells or paid royalties, although one pre-existing well was producing oil and gas. In 2020, Royalty leased the same premises to Ovintiv USA Inc. (Ovintiv), which drilled several wells. In 2022, Royalty requested MBI to release its lease, but MBI refused and initiated litigation, claiming its lease was still valid.
The United States District Court for the District of North Dakota granted summary judgment in favor of Royalty and Grayson Mill Bakken, LLC (Grayson Mill), Ovintiv’s successor. The court found that MBI had failed to extend the lease term by not producing oil and gas on the leased premises. MBI appealed this decision.
The United States Court of Appeals for the Eighth Circuit reviewed the case. The court held that the reservation clause in the lease unambiguously reserved all rights to the production from the pre-existing well to Royalty, excluding it from perpetuating the lease. The court also found that North Dakota’s pooling statute was inapplicable because it applies to separately owned tracts, not separately owned interests in the same tract. Consequently, the court affirmed the district court’s decision, concluding that MBI’s lease had expired due to its failure to produce oil and gas or contribute to drilling on the leased premises or pooled acreage.
