Sundheim v. Reef Oil Corp.
Supreme Court of Montana
806 P.2d 503 (Mont. 1991)
Noel and Bertha Sundheim (plaintiffs) leased their mineral rights to Woods Petroleum (Woods) (defendant), which drilled a producing well but later closed it after concluding declining production stemmed from reservoir conditions; Reef Oil Corporation (Reef) (defendant) then bought the well and leased the minerals anew, later producing a report attributing the decline to mechanical problems rather than reservoir conditions. The Sundheims sued for damages, alleging 145,000 barrels of oil had drained from their land via nearby wells in breach of the implied covenant to protect against drainage, but they never gave the defendants formal notice or demanded an offset well before suing; the trial court granted the defendants summary judgment based on that lack of formal notice, and the Sundheims appealed.
Whether, before an oil and gas lessee's duty to drill an offset well is triggered by the implied covenant to protect against drainage, the lessee must have reasonable notice of the necessity to do so to protect the leasehold.