Supreme Court of Montana
806 P.2d 503 (Mont. 1991)
Noel and Bertha Sundheim (plaintiffs) owned mineral interests in a tract of land. The Sundheims leased the minerals to Woods Petroleum Corporation (Woods) (defendant). Woods entered into an agreement with a production company that had a lease on the land next to the Sundheim land. Under the agreement, Woods would receive all well data and structural information from the adjacent land. Subsequently, Woods drilled a producing well on the Sundheim leasehold. When the well’s production began to decrease, Woods determined that the decrease was due to reservoir conditions, and closed the well. Reef Oil Corporation (Reef) (defendant) bought the well and entered into a new oil and gas lease with the Sundheims. Reef produced a report that the decreased production in the well was due to mechanical problems, as opposed to reservoir conditions. The Sundheims brought suit for damages, claiming that 145,000 barrels of oil were drained from their land by nearby wells. The Sundheims claimed that the defendants had breached their implied covenant to protect the land against drainage. The Sundheims did not give notice or a demand to drill an offset well to the defendants before bringing suit. Given this lack of formal notice, the trial court granted summary judgment to the defendants. The Sundheims appealed.
Rule of Law
Holding and Reasoning (McDonough, J.)
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