United States Court of Appeals

For the Eighth Circuit

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No. 19-1945

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Slawson Exploration Company, Inc.

lllllllllllllllllllllPlaintiff - Appellant

v.

Nine Point Energy, LLC, formerly known as Triangle USA Petroleum Corporation

lllllllllllllllllllllDefendant - Appellee

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Appeal from United States District Court 

for the District of North Dakota - Bismarck

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 Submitted: May 14, 2020

Filed: July 20, 2020 

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Before SMITH, Chief Judge, MELLOY and SHEPHERD, Circuit Judges. 

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SHEPHERD, Circuit Judge.

Slawson Exploration Company, Inc. (Slawson) entered into an oil-and-gas

exploration and production agreement with Triangle Petroleum Corporation (TPC)

whereby TPC agreed, among other things, to pay an additional 10% of its share of the

drilling, completing, and equipping costs for each well in which TPC elects to

participate (Promote Obligation). TPC’s successor-in-interest filed for bankruptcy,
and Slawson filed a proof of claim seeking payment, pursuant to the Promote

Obligation, on all wells in which TPC’s successor-in-interest elects to participate. The

bankruptcy court confirmed the reorganization plan but, in light of Slawson’s proof

of claim, gave Slawson leave to commence litigation to determine whether the Promote

Obligation runs with the land and is therefore not dischargeable in bankruptcy. TPC’s

successor-in-interest emerged from bankruptcy as Nine Point Energy, LLC (Nine

Point). Thereafter, Slawson filed a declaratory action against Nine Point, alleging that

the Promote Obligation is a covenant running with the land, a real property interest,

or an equitable servitude under North Dakota law. The district court1 determined that

the Promote Obligation falls into none of these categories and granted summary

judgment in favor of Nine Point. Slawson now appeals. Having jurisdiction under 28

U.S.C. § 1291, we affirm.

I.

Slawson and Nine Point are oil-and-gas exploration and production companies. 

Slawson acquired certain leaseholds within an area known as Project X in North

Dakota. Slawson sought partners to acquire additional leases in undeveloped lands in

Project X and to evaluate, drill, and develop those lands. It executed an exploration

and development agreement (EDA) with Nine Point’s predecessor-in-interest, TPC. 

The EDA sets forth the terms under which Slawson and TPC agreed to develop leases

in Project X. Specifically, the EDA establishes an area of mutual interest (AMI) within

Project X, which requires that if either party acquires oil and gas leaseholds in the AMI

during the AMI term, it must offer the other party an undivided interest at cost in the

proportion specified in the EDA: 70% for Slawson and 30% for TPC. Accordingly,

the EDA requires Slawson to offer TPC 30% interest in leases that it holds in the AMI,

including those Slawson had already acquired, and TPC to offer Slawson 70% interest

in any leases in the AMI it subsequently acquires. This obligation was subject to a

1The Honorable Daniel L. Hovland, United States District Judge for the District

of North Dakota.

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two-year period; all other terms of the EDA were to remain in force until the

termination of the EDA. 

The EDA also dictates how the parties develop the leaseholds, including how

the parties share the costs for drilling and completing wells. Section 2(b) of the EDA

provides: “As to each well drilled on leasehold acquired under the terms of this

Agreement, in which [TPC] elects to participate, [TPC] shall pay its Participation

Interest share of all costs . . . for the well plus an amount equal to 10 percent of

[TPC’s] share of such costs.” Accordingly, under the EDA, if TPC elects to participate

in the drilling of a well on a Project X leasehold, it is responsible for 30% of the costs

of drilling, completing, and equipping as well as an additional 10% of its share of the

costs. The 10% payment is known as the Promote Obligation.

On June 29, 2016, TPC’s successor-in-interest, Triangle USA Petroleum

Corporation (TUSA), filed for relief under Chapter 11 of the United States Bankruptcy

Code. Slawson filed a proof of claim in TUSA’s bankruptcy proceeding regarding the

Promote Obligation payments for wells in which TUSA might elect to participate on

or after June 29, 2016. Slawson asserted that the Promote Obligation is not

dischargeable in bankruptcy because it is a covenant running with the land. The

bankruptcy court confirmed TUSA’s reorganization plan but expressly reserved

Slawson’s right to commence litigation to determine whether the Promote Obligation

runs with the land. Thereafter, TUSA emerged from bankruptcy as Nine Point. 

On May 24, 2017, Slawson filed a declaratory action against Nine Point, alleging

that the Promote Obligation falls into at least one of the following property interest

categories under North Dakota law: (1) a covenant running with the land; (2) an

equitable servitude; or (3) a real property interest. The district court granted Nine

Point’s motion for summary judgment, holding that the Promote Obligation does not

fall into any of these categories. This appeal follows.

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II.

Slawson argues the district court erred in granting Nine Point’s motion for

summary judgment. “Summary judgment is appropriate when, viewing the facts in the

light most favorable to the non-movant, there are no genuine issues of material fact

and the movant is entitled to judgment as a matter of law.” J.E. Jones Constr. Co. v.

Chubb & Sons, Inc., 486 F.3d 337, 340 (8th Cir. 2007). “We review a district court’s

grant of summary judgment de novo, including its interpretation of state law.” Raines

v. Safeco Ins. Co. of Am., 637 F.3d 872, 875 (8th Cir. 2011). The parties agree that

North Dakota law governs this diversity action.

A.

Slawson first argues the district court erroneously concluded that the Promote

Obligation is not a covenant running with the land. Under North Dakota law,

covenants running with the land are defined as those “contained in grants of estates in

real property [and] are appurtenant to such estates and pass with them so as to bind the

assigns of the covenantor and to vest in the assigns of the covenantee in the same

manner as if they personally had entered into them.” N.D. Cent. Code Ann.

§ 47-04-24. Further, “[a]ll covenants contained in a grant of an estate in real property,

which are made for the direct benefit of the property or some part of it then in

existence, run with the land.” N.D. Cent. Code Ann. § 47-04-26. “Thus, if a covenant

contained in a deed does not directly benefit the land as required by N.D.C.C. § 47-04-

26, it is personal and is enforceable only between the original parties to the deed.” 

Beeter v. Sawyer Disposal LLC, 771 N.W.2d 282, 286 (N.D. 2009). 

The North Dakota Supreme Court has not articulated a per se rule regarding

whether contractual obligations similar to the Promote Obligation are covenants

running with the land. While the Tenth Circuit in Spring Creek Exploration &

Production Co. v. Hess Bakken Investment, II, LLC, 887 F.3d 1003, 1028-29 (10th Cir.

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2018), held that AMI covenants do not run with the land under North Dakota law,2

 it

is unclear whether the Promote Obligation constitutes an AMI covenant since the

Promote Obligation applies to wells on leaseholds that extend beyond the two-year

AMI term. And while the parties agree that the Promote Obligation was part of the

consideration promised by TPC under the EDA, the North Dakota Supreme Court has

stated only that “[i]t is generally recognized that a covenant to pay for land in a

particular way is a personal covenant and does not run with the land.” Beeter, 771

N.W.2d at 286 (emphasis added) (holding that covenant “requiring payment of six

percent of gross revenues from waste disposal operations d[id] not in any manner

benefit the land” and “[wa]s a purely personal benefit to the [appellant] and appears,

in fact, to be part of the consideration and payment for the land”). 

Accordingly, we consider whether the Promote Obligation meets the statutory

requirements to constitute a covenant running with the land. Assuming without

deciding that the Promote Obligation meets all other statutory requirements, we focus

our analysis on whether it directly benefits the land. Slawson argues the Promote

Obligation necessarily benefits the land by encouraging its development. Specifically,

Slawson argues the Promote Obligation incentivizes development by defraying the

risk of drilling and tying payment directly to improvements to the land.

Even assuming that drilling constitutes a benefit to the land and the Promote

Obligation incentivizes this activity by defraying the risk of drilling, this constitutes,

at best, an indirect benefit to the land. For instance, Slawson concedes the EDA

provides that Slawson would still be entitled to the Promote Obligation payment even

in a scenario in which only Nine Point, and not Slawson, elects to participate in the

2

In so holding, the Tenth Circuit relied on a North Dakota Supreme Court case

in which the parties had stipulated that the AMI covenant is not a covenant running

with the land. See Golden v. SM Energy Co., 826 N.W.2d 610, 615 (N.D. 2013). 

Because of the stipulation, the North Dakota Supreme Court did not in fact address

whether an AMI covenant can run with the land. 

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drilling of a well acquired under the terms of the EDA. In other words, under this

scenario, Nine Point would pay 10% of its share of the drilling costs to Slawson even

though Slawson had elected not to participate in the drilling project and, as such,

would not be required to pay for the drilling costs. Thus, the fact that Slawson’s

receipt of the Promote Obligation payment is not contingent on its participation in the

drilling project demonstrates that the Promote Obligation is a “purely personal benefit”

to Slawson and not a direct benefit to the land. Id.

Additionally, that the Promote Obligation becomes payable only after an

agreement to drill does not alone demonstrate that the Promote Obligation is directly

tied to improving the land. Slawson relies on only one North Dakota case, Wheeler

v. Southport Seven Planned Unit Development, 821 N.W.2d 746, 755 (N.D. 2012), in

which the North Dakota Supreme Court held that a covenant requiring a participant to

pay fees to provide for snow removal and lawn care as well as maintain common areas

runs with the land. However, unlike the covenant at issue in Wheeler, the Promote

Obligation is not a promise to pay for the development or maintenance of property; it

is a promise to pay Slawson an additional 10% of Nine Point’s share of the drilling

costs. Further, while in Wheeler the covenant expressly provided that the fees were

to be used exclusively for the benefit of the property and for improvement and

maintenance of the common areas, see id. at 754-55, the EDA does not restrict

Slawson’s use of the Promote Obligation payment in any way. Even though it is

possible, and even likely, that Slawson would use the proceeds from the Promote

Obligation payment to drill, in the absence of anything in the EDA specifying that the

proceeds must be used to drill wells, there is no direct relationship under the EDA

between the Promote Obligation and Slawson’s participation in drilling projects. 

Accordingly, the Promote Obligation does not directly benefit the land. Thus,

the district court did not err in concluding the Promote Obligation is not a covenant

running with the land.

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B.

Next, Slawson argues the district court erroneously declined to enforce the

Promote Obligation as an equitable servitude. Generally, an equitable servitude is “any

acceptable agreement affecting land against a purchaser with notice of the agreement,

whether or not the agreement runs with land, unless the agreement involved only

remotely and indirectly relates to use of the benefited land by the purchasers.” 20 Am.

Jur. 2d Covenants § 45; see also Restatement (Third) of Property (Servitudes) § 1.4

(2000) (discussing how the distinction between equitable servitudes and real covenants

is outdated). We have found no cases in which any North Dakota court has enforced

an equitable servitude in a similar context. Indeed, we have found only three North

Dakota cases involving equitable servitudes and those cases involve a statute

recognizing that condominium declarations of restrictions are enforceable as equitable

servitudes. See, e.g., First Int’l Bank & Trust v. Peterson, 797 N.W.2d 316, 322-23

(N.D. 2011) (relying on N.D. Cent. Code Ann. § 47-04.1-04 to state that declarations

of restrictions are enforceable as equitable servitudes). 

While Slawson points to Hager v. City of Devils Lake, 773 N.W.2d 420, 435

(N.D. 2009), Hager involved an easement by estoppel, which has long been recognized

by the North Dakota Supreme Court. While there may be similarities between

easements by estoppel and equitable servitudes, they are distinct legal rights with

different elements, and the Promote Obligation clearly does not satisfy the elements for

an easement by estoppel. Id. at 435 (“A court can imply an easement created by

estoppel when 1) the owner of the servient estate permitted another to use that land

under circumstances in which it was reasonable to foresee that the user would

substantially change position believing that the permission would not be revoked, 2)

the user substantially changed position in reasonable reliance on that belief, and 3)

injustice can be avoided only by establishment of a servitude.” (internal quotation

marks omitted)). That the North Dakota Supreme Court has enforced another type of

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land use restriction in equity does not mean it would enforce an equitable servitude in

this context. 

Accordingly, we conclude the North Dakota courts have not recognized

equitable servitudes outside of the limited context discussed above. Thus, the district

court did not err in declining Slawson’s invitation to enforce the Promote Obligation

as an equitable servitude.

C.

Finally, Slawson argues the district court erroneously concluded that the

Promote Obligation is not a real property interest. Under North Dakota law, “[o]il and

gas leases are interests in real property.” Nantt v. Puckett Energy Co., 382 N.W.2d 655,

659 (N.D. 1986). As such, the working interest—the interest conveyed to the lessee

under an oil and gas lease—and the royalty interest—the interest retained by the

lessor—are both interests in real property. Kittleson v. Grynberg Petroleum Co., 876

N.W.2d 443, 450 (N.D. 2016). Overriding royalty interests are also interests in real

property. ANR W. Coal Dev. Co. v. Basin Electric Power Coop., 276 F.3d 957, 965

(8th Cir. 2002) (citing GeoStar Corp. v. Parkway Petroleum, Inc., 495 N.W.2d 61, 67

(N.D. 1993)) (“Overriding-royalty holders have an interest that is a form of real

property under North Dakota law.”). Like other royalty interests, overriding royalty

interests give the owner the right to a share of the oil and gas production. However,

they are carved out of the working interest created by an oil and gas lease and thus the

ownership interest arises from the lease, not from ownership of the subsurface

minerals. SunBehm Gas, Inc. v. Equinor Energy, LP, No. 1:19-CV-94, 2020 WL

2025355, at *3 (D.N.D. Apr. 27, 2020) (citing Slawson v. N.D. Indus. Comm’n, 339

N.W.2d 772, 776 (N.D. 1983)). Slawson argues the Promote Obligation is akin to an

overriding royalty interest in that it is carved out of the working interest but, instead

of being paid when the oil and gas is produced, it is paid when the oil and gas well is

drilled. 

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While Slawson asserts these are two sides of the same coin, we disagree. An

“unaccured royalty . . . is an interest in real estate entitling the royalty owner to share

in the production of the minerals.” Corbett v. La Bere, 68 N.W.2d 211, 214 (N.D.

1955). And “it has usually been held that oil and gas rents and royalties are profits

issuing out of the land.” Finstrom v. First State Bank of Buxton, 525 N.W.2d 675, 677

(N.D. 1994) (quoting 58 C.J.S. Mines and Minerals § 213 (1948)). The Promote

Obligation is an allocation of drilling costs. While drilling is a necessary step to

profiting from the minerals, drilling costs are not themselves profits issuing out of the

land. Further, Slawson has presented no evidence that the North Dakota Supreme

Court would consider the Promote Obligation as akin to a royalty interest or any other

real property interest. Thus, we conclude that Slawson is “simply trying to force this

‘square peg’ . . . covenant into ‘round hole’ theories . . . when the dispositive issue is

whether it is a covenant which runs with the land.” Beeter, 771 N.W.2d at 287 (finding

covenant for perpetual payment of 6% of gross revenues generated by waste disposal

is not an interest in real property).

Accordingly, the district court did not err in concluding the Promote Obligation

is not an interest in real property. 

III.

For the foregoing reasons, we affirm the judgment of the district court.

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