Court Opinion

ID: 9717131
Source: CourtListenerOpinion
Date Created: 2023-08-26 06:58:53.930958+00
Date Added: 2024-06-11T18:23:51.484720
License: Public Domain

DENNIS A. SCHNEIDER, District Judge,
specially concurring.
The opinion accurately sets out the facts and correctly states the law, particularly as to the implied covenant of reasonable development. Such a covenant has existed in North Dakota since Feland v. Placid Oil Co., 171 N.W.2d 829, 835 (N.D.1969).
Although I have a problem with the implied covenant, “the river has flowed too long1 and is too deep2” for me to believe it can be changed now.
In 1969 in Placid Oil, supra, this Court said, in effect, that if the lease is silent on the subject, as a matter of law the lease (including one executed prior to Placid Oil, as are the instant cases) is subject to an implied covenant of further development.3
A covenant is simply a promise. The promise here can only be implied since it certainly wasn’t a promise between the parties that was expressly set out in the lease. It therefore cannot be said with clear conviction that the promise was a consideration or part of the bargain struck between the parties.4
A lease is nothing more than a contract between the parties which contract contains certain bargained-for promises.
The implied covenant of reasonable development 5 is nothing more than a judge-*42made decision' in equity which the judges then call a rule of law. This “fair sounding” rule has, over the years, spawned its own share of litigation until, it appears to me, this implied covenant is viewed as having its own separate existence in oil and gas law rather than contract law.
Would the legislature run afoul of the Impairment of Contracts provision of the Constitution6 if it enacted a statute which said: there shall be, because of this enactment, in all oil and gas leases executed prior to this statute, an obligation on the part of the lessee to do everything that a reasonably prudent operator would do in operating, developing, and protecting the property, with due consideration being given to the interests of both the lessor and the lessee.
Probably, because the law may well change the contract between the parties, i.e., the bargained-for promises.
If such a statute would be. constitutionally infirm, can it not be said that an identical judge-made rule of law is equally infirm?
Again, another example may illustrate my lingering doubts.
Assume the lessors in these cases were to bring an action in the district court to reform the lease to have the implied covenant actually written into the lease (Sections 9-03-13 or 9-03-14, NDCC) or an action to rescind the lease because the covenant was not expressly set out in the lease (Section 9-09-02, NDCC).
In such a case, the trial court would of necessity, among other aspects, look at the consideration of the original contract and the mutual promises made between the parties at the time of the contract. It is reasonably safe to conclude that a promise of reasonable development or to further explore was not part of the original contract or consideration. The only promise that we can be sure of is that promise found in the habendum clause which states that if oil is produced on any part of the leased acreage, the lease would continue as to all of the acreage even past the primary term of the lease.
Such is the promise here between the parties and is what the parties bargained for in 1949, two years before oil was discovered in North Dakota in paying quantities.
The judge-made rule of equity called the implied covenant of reasonable development changes that bargain.
And that rule is too ingrained to judicially change now.
SAND, J., concurs.

. Brewster v. Lanyon Zinc Co., 140 F. 801 (8th Cir.1905).

. "The law dealing with the implied covenant to drill additional wells is monumental in volume, and the Federal and State Reports from all oil and gas producing jurisdictions are replete with cases on the question.” Clayton v. Atlantic Refining Co., 150 F.Supp. 9, 13 (D.N.M.1957). See also Merrill, Covenants Implied in Oil and Gas Leases (2d Ed.1940 and 1964 Supp.); Williams and Meyers, Oil and Gas Law, Sections 801-878; Summers, Oil and Gas, Sections 395-416; Brown, The Law of Oil and Gas Leases, (2d Ed.Rev.1973).

. Leases executed in later years in this state and now almost exclusively avoid this problem by use of the Pugh clause:
Notwithstanding the provisions of this lease to the contrary, this lease shall terminate at the end of the primary term as to all of the leased land except those within a production or spacing unit prescribed by law or administrative authority on which is located a well producing or capable of producing oil and gas or on which lessee is engaged in drilling or reworking operations.
This clause is basically designed to benefit a lessor who is executing a single oil and gas lease encompassing large acreage. It gives the lessor the assurance that development and production will occur or the unexplored acreage will be released, the precise problem in the instant cases. Another alternative is to execute several oil and gas leases so that each lease is viewed independently and production will only hold the producing lease.

. The only recitation in the leases dealing with production is found in the habendum clause:
It is agreed that this lease shall remain in force for a term of ten years from this date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee.

. While there are many implied covenants in mineral leases, there are generally six categories:
1. The implied covenant to drill an initial exploratory well;
2. The implied covenant to protect against drainage;
3. The implied covenant to use reasonable care in producing the minerals;
4. The implied covenant of reasonable development;
5. The implied covenant of further exploration;
*426. The implied covenant to market the product.
Martin, A Modern Look at Implied Covenants to Explore, Develop, and Market under Mineral Leases, 27 Institute on Oil and Gas Tax Law and Taxation, 177, 179 (1976).

. No bill of attainder, ex post facto law, or law impairing the obligations of contracts shall ever be passed. N.D. Constitution, Article 1, Section 18.