When an active well doesn’t hold a lease: MBI Oil & Gas, LLC v. Royalty Interests Partnership, LP, No. 24-2031 (8^th Cir. July 25, 2025)

I. Overview

In MBI Oil & Gas, LLC v. Royalty Interests Partnership, LP, the 8^th Circuit Court of Appeals, applying North Dakota law, affirmed summary judgement that an oil and gas lease expired at the end of its primary term where the lessee never drilled a well or contributed to production on the subject lands, or land pooled therewith, and where production from a pre-existing well on the same subject lands was expressly reserved to the lessor in the subject oil and gas lease.

II. Factual background and procedural posture

Factual background

Royalty Interests Partnership, LP (“Royalty”) owned a mineral interest in Sections 3 and 10, Township 149 North, Range 98 West (“Subject Lands”), in McKenzie County, North Dakota. In 2013 Royalty executed an oil and gas lease, as lessor, to MBI Oil & Gas, LCC (“MBI”), as lessee (the “MBI Lease”), covering the Subject Lands. The MBI Lease was a paid-up lease with a three-year primary term, and extendable “as long thereafter as oil or gas of whatsoever nature or kind is produced in commercial quantities from said leased premises or on acreage pooled therewith, or drilling operations are continued.”

The MBI Lease also contained an express clause, by which Royalty reserved

“ALL OF [ROYALTY’S] RIGHT, TITLE AND INTEREST IN AND TO THE WELLBORE FOR THE…CALHOUN #1-3H WELL…TOGETHER WITH SUCH INTEREST…AS ARE NECESSARY TO VEST IN [ROYALTY] OWNERSHIP OF ALL OF [ROYALTY’S] RIGHT, TITLE AND INTEREST IN THE WELLBORE AND PRODUCTION THEREFROM.”

The Calhoun #1-3H well was drilled in 2011, prior to the primary term of the MBI Lease. Royalty’s predecessor had participated as an unleased mineral owner, paying its share of drilling and completion costs. The Calhoun Well produced throughout the relevant time periods herein and Royalty received revenue from the Calhoun Well as an unleased working interest owner.

Curing the primary term of the MBI Lease, MBI never drilled a well and never participated in the Calhoun Well in any capacity. They never contributed to any pooled operations and never paid royalties to Royalty. When the primary term of the MBI Lease expired in June of 2016, the Calhoun Well was the only producing well on the Subject Lands. MBI never released the MBI Lease.

Subsequent to the expiration of the MBI Lease, Royalty entered into a new lease in 2020, covering the Subject Lands, with Ovintiv USA, Inc. as lessor (later succeeded by Grayson Mill Bakken, LLC) (the “Ovintiv Lease”). Under the Ovintiv Lease, multiple wells were drilled on the Subject Lands and began producing.

In 2022, Royalty asked MBI to release the MBI Lease. Refusing, MBI sued Royalty and Ovintiv in federal court seeking a declaration that the MBI Lease remained in force and was superior to the Ovintiv Lease.

Procedural posture

In United States District Court for the District of North Dakota, all parties moved for summary judgement. The Court held that the reservation clause in the MBI Lease removed the Calhoun Well and its production from the granting language, concluding that production from the Calhoun Well could not satisfy the habendum lease, rendering the MBI Lease inactive at the expiration of its primary term.

Further, the Court also stated that North Dakota’s forced pooling statue did not apply because the dispute involved separate interests in the same tract of land, not separate interests in separate tracts.

On appeal, the 8^th Circuit Court of Appeals affirmed the lower court’s ruling.

III. Issues on appeal

MBI’s arguments

On appeal, MBI made two principal arguments: (1) that under the plain language of the habendum clause, any production “on the leased premises or on acreage pooled therewith” — including from the Calhoun Well — was sufficient to extend the MBI Lease, regardless of who owned the well; and (2) even if the reservation clause limited its rights, the Calhoun Well was part of a spacing unit pooled with the leased premises, so under N.D.C.C. § 38-08-08 (1), production anywhere in the pooled unit should be treated as production from each tract for habendum purposes.

Royalty and Ovintiv/Grayson Mill’s response

Royalty and Ovintiv/Grayson Mill responded that the reservation clause unambiguously carved out the Calhoun Well and all interests associated with it, including the ability to rely on its production to hold the MBI Lease, and that the pooling statute by its terms only applies to “separately owned tracts,” not to different interests in the same parcel or tract.

The Court’s ruling

The 8^th Circuit began its ruling by applying traditional North Dakota contract principles: the lease must be read as a whole, giving effect to each clause if possible. Under ordinary circumstances, the Court stated, a habendum clause like the one in the MBI Lease, would allow a lessee to rely on production anywhere in the Subject Lands or pooled unit to hold the lease after its primary term. However, the Court stated that default rules yield to express contract language to the contrary, and the reservation language in the MBI Lease was explicit enough to reserve “all” of Royalty’s “right, title and interest” in the wellbore and “the production therefrom.”

MBI countered that even if Royalty was entitled to ownership in the production from the Calhoun Well, it did not negate the production from that well from holding the MBI Lease past its primary term. The Court rejected this argument, calling it illusory and stating to treat production from the Calhoun Well as satisfying the habendum clause would be as assertion of a legal interest in the wellbore — something the MBI Lease explicitly reserved to Royalty. Since MBI had no legal interest in the only producing well on the Subject Lands, the Court stated that production alone could not hold the lease, and thus the lease was found to have expired at the end of its primary term.

IV. Practical implications and conclusion

While it seems somewhat obvious on its face, MBI Oil v. Royalty makes it clear that if an oil and gas lease in North Dakota contains an express reservation of all interests in a specific well on the covered land, that exclusions language will extend to the habendum clause, rendering the lease inactive upon the expiration of its primary term absent any other production or activity that would otherwise extend the lease.

For lessees, MBI v. Royalty demonstrates that inactivity is risky. In this instance, MBI never drilled a well on the Subject Lands, or lands pooled therewith, and never conducted any other activity upon the Subject Lands. They were not involved in any way in the Calhoun Well. The subsequent lessees came in and drilled producing wells on the Subject Lands.

But one must also wonder how the Court viewed the prospect of rewarding an inactive lessee, especially at a point in time when subsequent wells by other lessees had been drilled and were producing. The Court certainly sidestepped what would have been a much more complex set of questions and claims had they ruled in MBI’s favor.

Lastly, for the title attorney, it’s not guaranteed that an active well on your subject lands will hold an oil and gas lease. While MBI v. Royalty presents a unique set of facts, it offers insight as to how to interpret conflicting terms in a lease or other instrument.