IRENE M. MOERMAN and JOHN H. MOERMAN, Plaintiffs and Appellants,
PRAIRIE ROSE RESOURCES, INC., a North Dakota Corporation, Defendant and Appellee.
Submitted on Briefs: May 28, 2013
APPEAL FROM: District Court of the Seventh Judicial District, In and For the County of Wibaux, Cause No. DV 11-11 Honorable Richard A. Simonton, Presiding Judge.
For Appellant: Brian D. Lee; Lee Law Office, P.C.; Shelby, Montana.
For Appellee: Albert R. Batterman; Batterman Law Offices, P.C.; Baker, Montana.
LAURIE McKINNON, Justice.
¶1 Irene and John Moerman appeal the judgment and order of the District Court for the Seventh Judicial District, Wibaux County, denying their claim that the oil and gas lease at issue in this case has expired or has been forfeited. We affirm.
¶2 We address the following issues on appeal:
¶3 1. Whether the District Court correctly concluded that the parties' oil and gas lease remained in effect.
¶4 2. Whether the District Court was correct in awarding Prairie Rose Resources, Inc. (Prairie), its attorney fees.
Factual and Procedural Background
¶5 Irene and John Moerman (the Moermans) lived on a ranch in Wibaux County, Montana, until 1995, when they sold the ranch to Jim Kane. John's father, Anton Moerman, had acquired the ranch (which included both the surface and mineral estates with the exception of coal) via a land patent. The Moermans, who are now divorced, reserved for themselves life estates to the mineral rights on the ranch with the remainder to vest in their three children. The well in question was originally drilled almost thirty years ago, but was subsequently shut in and abandoned.
¶6 In 2006, Prairie, an oil and gas development company incorporated in North Dakota, leased the well from the Moermans, but failed to bring the well into production during the lease period. Consequently, the 2006 lease terminated. In June 2010, the Moermans each signed a new Oil and Gas Lease with Prairie. These leases were for six months with the primary term of each lease from June 1, 2010, to December 1, 2010. Michael Gleason, Prairie's president, paid the Moermans $32, 000 for the leases.
¶7 The leases granted to Prairie the exclusive right to the oil and gas in the south half of Section 30, Township 18 North, Range 59 East, M.P.M., for exploration and development purposes. The leases required that Prairie pay the Moermans a royalty of one-eighth of all oil produced and saved from the leasehold premises. As to the term, the leases provided:
It is agreed that this lease shall remain in force for a term ending December 1, 2010 and as long thereafter as oil or gas of whatsoever nature or kind is produced from said leased premises or on acreage pooled therewith, or drilling operations are continued as hereinafter provided. If, at the expiration of the primary term of this lease, oil or gas is not being produced on the leased premises or on acreage pooled therewith but Lessee is then engaged in drilling or re-working operations thereon, then this lease shall continue in force so long as operations are being continuously prosecuted on the leased premises or on acreage pooled therewith; and operations shall be considered to be continuously prosecuted if not more than one hundred eighty (180) days shall lapse between the completion or abandonment of one well and the beginning of operations for the drilling of a subsequent well. If after the discovery of oil or gas on said land or on acreage pooled therewith, the production thereof should cease from any cause after the primary term, this lease shall not terminate if Lessee commences additional drilling or re-working operations within one hundred eighty (180) days from the date of cessation of production or from date of completion of dry hole. If oil or gas shall be discovered and produced as a result of such operations at or after the expiration of the primary term of this lease, this lease shall continue in force so long as oil or gas is produced from the leased premises or on acreage pooled therewith.
¶8 Prairie assigned the leases to PB Oil Company, LLP (PB Oil),  an oilfield service company operating in the Sidney, Montana, area, subject to the reservation of a small overriding royalty interest. PB Oil then contracted with TOI Operating, Inc. (TOI) as the bonded contractor to bring the well into production.
¶9 Keith Carver, a petroleum engineer working for both PB Oil and TOI, worked to get the well into production. Carver testified that because of the high demand for drilling rigs, he was unable to get a "work-over rig" to the well site until November 2010. Carver further testified that he constructed a pad for the pump, installed the hardware and equipment necessary to produce oil at the site, and replaced the pumping unit. Carver testified that he started the well up on November 29, 2010, to make sure it would produce, but he had to leave the site early due to a blizzard. Carver returned to the site on December 1, 2010, but he was prevented from returning the following day due to the severe weather conditions.
¶10 On December 9, 2010, Carver again managed to get to the well to prepare the site for inspection by the Montana Board of Oil and Gas Conservation (BOGC). An inspector from BOGC visited the site on December 10 and 13, 2010. The inspector reported that the well was producing and that there was over seven feet of oil ...