Natural Gas Pipeline Co. v. Pool

1 Analyses of this case by attorneys

  1. North Dakota Supreme Rules That Driller Did Not Commence Reworking Operations In Timely Manner

    Houston Harbaugh, P.C.Robert BurnettOctober 12, 2023

    tities, the grantee’s fee interest terminated automatically . . .”); White v. Young, 156 A.2d 919 (Pa. 1963) (failure to produce gas in paying quantities results in termination of lease after primary term expired); See also, Non-Production During Secondary Term Results in Termination of Lease (November 2011).As such, any cessation of production during the secondary term, even one for routine maintenance or repair, will theoretically trigger the “automatic termination rule” and terminate the lease. In order to mitigate application of this rule, many oil and gas leases contain what is known as a “temporary cessation of production” clause (“TCOP”). Such clauses recognize that it is nearly impossible for a driller to operate a lease continuously without any interruptions. A TCOP clause “presumes that the parties understand that mechanical problems, re-working operations or other similar events would inevitably interrupt production from time to time”. See, Natural Gas Pipeline Co. v. Pool, 124 S.W. 3d. 188, 204 (Texas 2003). Most TCOP clauses give the driller a fixed time period to remedy the mechanical breakdown and restore production. But what happens if the driller does not commence the re-working operations within the designated time period? The North Dakota Supreme Court recently addressed this issue and ruled that the underlying leases expired because the driller did not engage in timely reworking operations. This is potentially good news for landowners with a dilatory and lethargic driller.At issue in Zavanna LLC v. Gadeco LLC, et al. (North Dakota Supreme Court, No. 2022-0265, August 2, 2023) were several competing oil and gas leases encumbering 1,280 acres in McKenzie County, North Dakota (the “Subject Property”). Gadeco LLC (“Gadeco”) and Continental Resources each held leases on the Subject Property (the “Bottom Leases”). The Bottom Leases were subsequently pooled into the Golden Unit. In May 2012, Gadeco drilled and completed the Golden 25-36H well (the “Golden Well”). The Golden Well was the