good morning your honor scuttle gray here representing continental and i'm going to refer to the parties as continental northwest and north and that's ok n w c f s just turns into way too many that i'm with you thank you that will help ok and i would like to raise or five minutes of my time for rebuttal so why more years and back than i care to think of when i was fresh out of law school i quit for a very experienced  very smart federal district court judge and what he told me has stuck with me through my career which is when you're in federal court on diversity most of the time erie will answer your question area doctor and this case is about every doctor and is a theory doctor in case that went south the answer in this case all goes to the question of does the temporary spacing unit that was created by the montana board in two thousand and three count for purposes of was production done on plans within the appropriate time period and eighty two eleven two thousand and one b two the montana code annotated temporary spacing unit remains in effect until and unless the board issues a contrary order which didn't happen here or a  established which did happen here but after the five year time period for the lease so the question is whether the temporary spacing unit constituted a pool correct under the contract under the language of contract for production of oil and gas on its property it gave that lease to an entity called diamond that's not involved here because diamond eventually assigned that lease to my client continental  that lease says in it that pulling under the band i'm cause will extend the lease of the contract as long as there's production on the lease premises or lands within the within the quadrant is that correct and as i understand your honest got to do with the curvature of the globe and so what the board the montana board of oil and gas conservation wants to do is to make sure there aren't areas that are captured incorrectly and  state they make it so you can only put one well on the temporary spacing unit now does so i'm trying to grasp exactly what you mean what that we have that we've well that you might be drawing from something else well for purposes of this case pooling is defined in the contract and the contract defines pooling as including the creation of a spacing unit so what does it mean outside of the contract world i think you're probably right but inside the contract itself the four corners of the contract it's a defined term outside in  just boil and gas law independent of this contract so does pooling mean that you might have two wells in different spacing units the might be drawn from a common source i think that's correct your honor that there's there's a pool of oil there is just aren't leases sitting over top of it and where the oil would come from so you could have a potential of that the oil itself pooled together what provision of the lease are you relying on for the notion that it's been defined so that your honor is contrary the portion of the land in the event during the primary term so that first five years a portion or portions of the land covered by this lease are pooled either in accordance with right right but for a temporary space in unit to effect a point i thought there needed to be a voluntary agreement between the parties no your honor that's not what the contract says it doesn't say anything about it that's what i thought you wanted to find turns out i miss that's exactly right it's it is ambiguous on that point and that's no i don't think it's ambiguous i think there are you all in the industry i think know what that means to interests and when you're dealing with temporary space and you know it's my understanding was again that you needed a voluntary agreement between the parties for that for that to happen that's that's one problem but the other problem is just simply that even under the plain language that two thousand and three tempers certainly was not created during the primary target agreed your honor and the question becomes does the contract require it to have been created during the five year period well so i guess i would just have to disagree it doesn't say when it has to be created it just says it has to have a bend in existence or be there during the five year period which it was it's been there for a long time it's been there in particular it's important that it was there  purpose of producing oil and gas which may be described by the following term spacing unit drilling unit production unit well there are two things going on here it's a bounded area form for the over arching problem with this contract is that it was put together by northwest given to another company and then that company assigned it to my client and if you read this standalone the contract it starts out by saying ok well the five years is expanded if you produce during the five years and then the question is where you have been in a pool area including in a pool area and the only way your clients ok is that if it's in the pool area because he was he right right so that's that's the question here and so the contract itself says that that in the event during the primary term a portion or portions of the land covered by creation of a unit as defined in paragraph three right and three d defines a unit to mean as your honor pointed out a bonded area form for the purpose of producing oil and gas right that may include a spacing  that spacing unit that preexists or it's that drilling unit or production unit the to say a spacing unit by itself is not without some agreement referring to it is not a bounded area within the meaning of three eventually i read three common wrong well i think you probably can read it that way but i think the other way you can read it is is the way my client read it when they came into the contract having had no  nothing to do with how the contract was laid out they looked at it and said well we're on a spacing unit where we are we are producing in this well that's within the spacing unit so we're fine and now this have been written clearer absolutely it could've been written clearer but that's where things went wrong under the area doctrine is because my client read the contract this way read it to mean if they went ahead with the the well that was everyone concedes it then for the production of gas it's put in place by the montana oil one gas conservation board it's there to predict people in their understanding of what and how things are being produced until that spacing unit either is withdrawn by the board which didn't happen here or is made permanent which did happen but outside the time period so that's how my client read this contract now the court below read it to require certain other things but i think everyone can agree that had had northwest said in there a permanent spacing unit or had put some other language in there that made it clear that the two thousand and three spacing unit wouldn't count for purposes of the husband and clause we wouldn't be having this conversation but that's how it wrote the contract and the problem in the court below is that the  district court decided to construe the contract in favor of the less or because there is language to that effect in montana law no question about that that is the law except and this is where things went wrong except that there is also a longstanding law under montana it goes back to the first eight hundred ninety five code that montana legislature adopted after statehood which says that when you have a contract if the party that created the problem is the one you construe against if it's an ambiguity and that's what we have here instead of considering the language that your honour's have just pointed out and read through construction actually you construed the document against the drafter like that but the sad nor the well that's not only normal it's required under montana law under the suburbs montana has a weird exception to the doctrine for less orders of oil gasoline yes but we do not have an exception to that rule when it's the left see that or the less or that has drafted the contract and that's the solberg case ok and ok and that's the case i'd like to construed most strongly against the lessee and in favor of the less or and then they go cite their couple cases and in cases of uncertainty the language of the contract should be interpreted most strongly against the party who cause the uncertainty to exist say to another section of the code and then they say these rules are more specially political to oil and gas leases as quite generally the contract is in form prepared by the lessee and this is the case that's not the quite generally case this is  case where the other side created the lease and easily could have made it clear that the two thousand and three spacing unit wouldn't count but didn't do so ok but down to thirty six seconds let's hear from the other side but we'll make sure to give you no chance to respond to your hon morning your honour's my name's brandon hoskins and i'm here on behalf of north us farm credit services i'll be trying to use about six seven minutes because northwest is only involved on the second or the first issue and i see the rest of the time to northern so they can discuss issue number two  now which ones to one two i know i know which they are but which ones from your mind which ones one of which ones to bear so the only issue that affects northwest in this case is whether or not the lease is held by production what is what has been discussed for you know essentially everything  so that's where you're going to correct your so one thing i want to address first is the idea of pooling versus the unit and i think you guys of spoke about that quite a bit amongst counsel in the court  it's important that sixteen be and three erode together and we're not just trying to define what a unit is we're trying to define what a unit that we create a pooling is and has already been touched on that without a permanent spacing unit you cannot have a forcible a compulsory pool which is what was an adventure we obtained in this case so just sort of back up or give me some context if you have a permanent spacing unit is that by itself create a pooling unit it is not but that is generally the process before the commission is that you require well in all cases you require a permanent spacing unit as a prerequisite to obtaining a puling or if you have a permit spacing unit by itself is that pulling unit or something more required that is an additional determination by the court that you require a pooling order but in every circumstance that i've seen in my experience they come together a permanent spacing unit and a point over an eighty two eleven to zero two and who puts together the idea who put together the pooling unit is that done by the state is that done by parties who wish to drill i mean who house what kind of agreement and by whom so in this case where you're forced pulling the application is put together by an interested party which is generally the operator as in this case is that it's caught now and so that enters interested party has to give to the commission a breakdown of what the interests are what the proposed spacing unit is and has to meet certain prerequisites under the statutory and regulatory scheme that say that the resources will be used in an efficient manner that will benefit those resources you know the owners of the resources and and will do so so that it does not waste but that none of the at the at the instance of an interested party they'll come in front of the board we want this permanent spacing you know and that's exactly what happened in the spring of two thousand and fourteen when continental filed its application for a permanent spacing unit and a point which is of course about six months late after the continental he said expired by his terms tell me help me understand this area of the law because i understand your position to be that the mere creation of a temporary space unit does not affect a point  that you need something else besides in addition to that and i gather it's some kind of voluntary agreement between the parties or help me with that is a potential circumstance so the process we're talking about earlier with the commission and an application is soley for compulsory pool at any time all the interest holders under a spacing unit could volunteer that they will split the proceeds of production amongst themselves in whatever manner that they see fit and that would be a voluntary pooling you know but that's not what we're dealing with here what was required was a compulsory cooling unit which requires a hearing before the commission and requires under eighty two eleven to go to a permanent spacing you know ok and you heard your opponent say that you know they read this as  suggesting that the creation of the pooling of interest does not need to occur during the primary term of the lease and white so why do you think that that's not the correct reading because i don't think it matches with montana law we were having to just oppose both montana law and this lease in it's correct that this is essentially a form lease and it's used across several different states and that's why broad definitions are included in here but as the court has already recognized when it describes sentence which which is also arguably permissive it describes a pooling or a unit that would treat pooling as merging one or more leases for the purpose of acting as a single entity and really that's the that's kind of the basic definition of a pool is merging multiple interests that they can share in the production of the oil and gas that's produced from those lands so i think i think that that definition matches with what montana requires for a compulsory boeing order and that would have to be done during the term of the lease because otherwise the lease expires in there was never production if that makes sense in fact even in this case i that there is no production of oil until january of two thousand and fourteen not now there are provisions in there that say that if you begin drilling operations before that applies but the drilling operations were only completed on section three which is not the least smaller we have what is normally excuse me there's a there's a twelve eighty spacing it normally two sections of six forty in this case it combined all of section ten and all of section three which only amounted to eight hundred seventy eight acres i believe so we also believe that that would not be a pleasurable under that that clause if the court would have no more questions the northwest side i'd see my time to northern thank you juror on behalf of northern oil and gas and to be quite frank with you i thought i'd be arguing about the second issue richer relates to the wall proposal and i just wanted to make a few additional comments on this pooling issue the distinctions that need to be drawn here i think relate to well location rules which are sort of the default rules before there's any permanent spacing or pulling forward by permanent spacing when a well actually gets drilled followed by compulsory pooling and you're absolutely correct that you can voluntarily or contractually poor without a permanent spacing unit but that's not what happened here  continentals right to voluntarily pool our pool by declaration is what we call it under sixteen a expired thirty days prior to the end of the primary term and so they had to take the second approach which is to compulsory pool and that had to by the plain language of the lease occur during the primary term and so when we say the primary term hadn't you know happened before september twenty eighth or whatever it was two thousand and by the terms of release had to happen during the lease term wh about leases being merged together for purposes of operating as a single entity and in the conventional oil and gas context you have to if you want to to compulsory pool you have to create a permanent spacing unit  because that's the only way that operations on one track within the unit can be imputed to the other tracks within the same unit so this this is a kind of a almost a grammatical or syntactical point you're reading this in the event lease was that not the not a proper reading i want to make sure i understand your question our position is that the pooling has to occur during the primary down or down on the nih and i can see where that linguistically can come out of that phrase but i'm not sure it has to come out of that a well location rules essentially that the board had to come in and create the temporary space in the units because of the unique this of this area you had two hundred thirty eight acre sections on the northern end of the township and so the default rules that are normally applied by rule couldn't apply here and so two thousand and three for what we call bokken three forks development those are the target formations the board had to come in and establish these temporary spacing unit so as to not strand these the smaller sections on the very north end of the township but that's simply a well location role just as where you can drill the permit spacing unit is more of an engineering concept once you drill you kind of look at the area that's deemed to be drained by the well and you mat spacing unit to that and then pulling is a matter of what we call protecting the corella to rights of the owners within the spacing unit so that each owner within the unit is entitled to his just an equitable share just for this very instance if the well is not drilled on my land but i'm in the unit i can't go and do likewise because there's already you know an operator drilling wells in the unit so i get to share in that production and the pooling is the statutory mechanism to do that without pooling there's no basis to impute production to i operations so with that said i don't think i have any further comments unless the court has any questions on the second issue relating to the wall proposals that hasn't been discussed yet so i don't really necessarily an open the  ok thank you ok thank you when we put two minutes on the clock please mr morris your honor you had precisely the issue i was trying to raise which is you don't you can read that contract language the nama standing two ways you can read it to require as the district court did this is this is sixteen b that the spacing unit had to be created during the primary term or you can just just read or that had to be pooling within the primary term or you can read the other way that there has contract clearly says pooling is accomplished by the creation of a spacing unit and there's no question the most well i mean i did i read it a couple of times you can read it to me again  ok in the event during the primary term a portion or portions of the land covered by this least are pooled either in accordance with sixteen a which everyone agrees doesn't apply or by creation of a unit as defined in paragraph right right and so if you read this contract to mean that happened the creation of the spacing unit has happened and three he says nothing about it being temporary or permanent and  misquoting because there's three says the unit shell meaning bounded area former the purpose of producing oil and gas craft that's what the unit is right and it may be described by reference to is the creation of the bounded area that's not what the case is yes ok and again i guess i just would come back to saying this contract is very confusing lee written on that point and we just heard counsel say it was a form alise used across three states and so that being the case i think my client's reading of the contract is reasonable also montana law requires for there to be an ambiguity is is that you've made a reasonable reading of the contract then the question becomes for the court what who is it construed for against and in this case it should have been construed against the drafter thank you very much think we have i think we learned something about oil and gas law whether we learned enough or learned to write w