Zavanna v. Gadeco

                                                                                   FILED
                                                                           IN THE OFFICE OF THE
                                                                        CLERK OF SUPREME COURT
                                                                               AUGUST 2, 2023
                                                                         STATE OF NORTH DAKOTA


                  IN THE SUPREME COURT
                  STATE OF NORTH DAKOTA

                                

Zavanna, LLC,                                           Plaintiff and Appellee
      v.
GADECO, LLC; Continental Resources, Inc.;          Defendants and Appellants
      and
all other persons unknown claiming any
estate or interest in, or line or encumbrance
upon, the property described in the Complaint;                     Defendants



                                No. 20220265

Appeal from the District Court of Williams County, Northwest Judicial
District, the Honorable Joshua B. Rustad, Judge.

AFFIRMED.

Opinion of the Court by Tufte, Justice.

Deva A. Solomon (argued), Amber M. Moore (on brief), and David R. Little (on
brief), Denver, Colorado, and Nicholas C. Grant (appeared), Dickinson, North
Dakota, for plaintiff and appellee.

Colleen E. McKnight (argued) and Charles M. Seely (on brief), Houston, Texas;
Robert T. Slovak (on brief) and Steven C. Lockhart (appeared), Dallas, Texas;
and Diane M. Wehrman (on brief), Bismarck, North Dakota, for defendant and
appellant GADECO, LLC.

James E. Dallner (argued), Parker, Colorado, and Phillip S. Lorenzo (on brief),
Denver, Colorado, for defendant and appellant Continental Resources, Inc.
                                  Zavanna v. GADECO
                                     No. 20220265

Tufte, Justice.

[¶1] GADECO, LLC, and Continental Resources, Inc. (together,
“Defendants”) appeal from a judgment quieting title in oil and gas leasehold
interests in Zavanna, LLC. We affirm, concluding the district court did not err
in concluding Defendants’ leases terminated under their terms when
production ceased and Defendants failed to timely commence reworking
operations, and in concluding Defendants failed to show a force majeure
condition saved the leases from termination.

                                                I

[¶2] Zavanna and the Defendants make competing claims to oil and gas
leasehold interests covering 1,280 gross acres in Williams County. These
interests are located in the Golden Unit. The Golden Well is the only well
producing oil and gas from the subject leasehold within the Golden Unit.
GADECO is the operator of the Golden Well. Zavanna is the lessee by
assignment of the “Top Leases”1 and GADECO and Continental are the lessees
of the “Bottom Leases.” The Top Leases and Bottom Leases cover the same
lands and leasehold interests. The Bottom Leases consist of five sets of leases
sharing common text: Grynberg Leases, GADECO Leases, Diamond Leases,
Parke Energy Leases, and Continental Leases. GADECO owns all of the
Bottom Leases with the exception of the Continental Leases, which are owned
by Continental. Each Bottom Lease establishes a primary term and specifies
that the lease will extend into a secondary term “as long thereafter as” oil or
gas is produced. All of the Bottom Leases extended into secondary terms.

[¶3] The Bottom Leases automatically terminate upon cessation of
production unless certain express conditions are met. The Bottom Leases state



1 A “top lease” is “a lease granted by a landowner during the existence of a recorded mineral lease

which is to become effective if and when the existing lease expires or is terminated.” Valentina
Williston, LLC v. Gadeco, LLC, 

, 

.


                                                1
that a cessation of production after the lease’s primary term shall not
terminate the lease if the lessee restores production or commences additional
drilling or reworking operations within 90 days (or 120 days in the case of the
Parke Energy Leases) from the date of cessation of production.

[¶4] After a bench trial, the district court quieted title in Zavanna, concluding
the Bottom Leases terminated by their own terms when production ceased and
GADECO failed to timely commence drilling or reworking operations. The
court found three periods of production cessation. The court concluded
Defendants bore the burden to prove that production did not cease or
reworking operations were timely commenced. Alternatively, the court
concluded that in the event the burden is on Zavanna, Zavanna satisfied its
burden of proof. Last, the court concluded the force majeure clauses in the
Bottom Leases did not apply to excuse the Defendants’ obligations under the
leases.

                                         II

[¶5] “In an appeal from a bench trial, the district court’s findings of fact are
reviewed under the clearly erroneous standard of review, and its conclusions
of law are fully reviewable.” Larson v. Tonneson, 

, 

. A finding of fact is clearly erroneous if it is induced by an erroneous
view of the law, if there is no evidence to support it, or if, after reviewing all of
the evidence, we are convinced a mistake has been made. 

 The court’s
findings are presumptively correct. 

 “[T]he district court is the determiner
of credibility issues and we will not second-guess the district court on its
credibility determinations.” 

                                        III

[¶6] Defendants argue the district court erred in concluding they bore the
burden of proving production did not cease and reworking operations were
timely commenced. In concluding Defendants bore the burden, the district
court relied upon N.D.C.C. § 32-17-10, which provides, “A defendant
interposing a counterclaim for purposes of trial shall be deemed plaintiff, and
the plaintiff and codefendants against whom relief is sought shall be deemed


                                         2
defendants as to the counterclaiming defendant.” See also Tavis v. Higgins,

 (N.D. 1968) (“Where a defendant in an action to quiet title
claims to be the owner of the property and seeks to have title quieted in him,
he has the burden of proving the allegations of his claim and, in effect, becomes
a party plaintiff.”). The court’s reliance on this statute is misplaced. Section 32-
17-10, N.D.C.C., merely states that when a defendant brings a counterclaim,
the defendant is deemed a plaintiff with respect to its counterclaim. Of course,
the statute does not shift the burden of proof to the defendant with respect to
the plaintiff ’s claims. Rather, “[i]n an action to quiet title to real property the
plaintiff must rely on the strength of his own title.” Robertson v. Brown, 

 (N.D. 1947); see also Hebden v. Bina, 

, Syl. 1
(N.D. 1908) (“In an action to determine adverse claims to real property, it is
incumbent upon plaintiff to establish his title to the property as alleged by
him.”).

[¶7] Zavanna sued Defendants to quiet title under its Top Leases, and
Defendants counterclaimed to quiet title under their Bottom Leases. The
district court rejected Defendants’ quiet title counterclaims, and Defendants
do not appeal from that determination. Accordingly, the only remaining claims
at issue are Zavanna’s quiet title claims. In order for the court to quiet title in
Zavanna, the Bottom Leases must have terminated. Zavanna argues
Defendants must prove their leases remain in effect. Zavanna cites no statute
or case law stating a defendant-lessee must prove its leases remain in effect in
order to defeat a quiet title claim that depends on termination of the lease.

[¶8] Generally, it is the burden of the party requesting cancellation or
termination of a contract that must prove the contract is no longer valid or in
effect. Just as the court does not presume the terms of a contract have been
breached, WFND, LLC v. Fargo Marc, LLC, 

, 

,
the court also does not presume a contract has been terminated under its own
terms. The party claiming the contract terminated by its own terms is the party
that bears the burden to prove the facts necessary to support that claim. Sorum
v. Schwartz, 

 (N.D. 1987). As the plaintiff, Zavanna bears
the burden of proof on its quiet title claims, which in this case requires



                                         3
Zavanna to prove the Bottom Leases terminated. To prove the Bottom Leases
terminated, Zavanna must prove production in paying quantities ceased, and
we assume without deciding that Zavanna also has the burden to prove
Defendants failed to timely commence reworking operations. The burden is not
on the lessees, Defendants, to prove production did not cease in order to save
the lease from termination. See BP Am. Prod. Co. v. Laddex, Ltd., 

 (Tex. 2017) (stating the burden to prove a lack of production is on the
lessor).

[¶9] Zavanna cites Borth v. Gulf Oil Exploration & Production Co., 

 (N.D. 1981), for the proposition that “the burden of preventing
a lease with an ‘unless’ clause from terminating lies upon the lessee.” “An
‘unless’ clause does not obligate the lessee to do an act; however, the ‘unless’
clause provides that the lease shall terminate unless the lessee does some act.”

 Thus, the burden of preventing a lease from terminating referred to the
lessee’s action or inaction under the contract. The Court did not conclude the
defendant-lessee had the burden in court to prove termination. Accordingly, we
conclude Zavanna bore the burden of proof on its quiet title claims.

[¶10] While the district court concluded Defendants had the burden of proof,
the court concluded in the alternative that even if Zavanna has the burden of
proof, Zavanna satisfied its burden. Thus, we review the court’s findings and
conclusions to determine whether the court erred in concluding Zavanna
satisfied its burden to prove cessation of production and failure to timely
commence reworking operations.

                                      IV

[¶11] Defendants argue the district court erred in concluding their Bottom
Leases terminated for lack of production and failure to timely commence
reworking operations. Each Bottom Lease states that after the lease’s primary
term, the lease terminates if there is a cessation of oil and gas production and
there are no drilling or reworking operations commenced within a specified
period of time—90 days under the Grynberg, GADECO, Diamond, and
Continental Leases and 120 days under the Parke Energy Leases. The court



                                       4
found three periods of production cessation where no reworking operations
were commenced within the specified period of time.

[¶12] Oil and gas leases are interpreted in the same manner as other contracts:

             Contracts, including oil and gas leases, are interpreted to
      give effect to the parties’ mutual intent at the time of contracting.
      N.D.C.C. § 9-07-03. The parties’ intent is ascertained from the
      writing alone if possible. N.D.C.C. § 9-07-04. “The language of a
      contract is to govern its interpretation if the language is clear and
      explicit and does not involve an absurdity.” N.D.C.C. § 9-07-02.
      Words in a contract are construed in the ordinary and popular
      sense, unless the parties use the words in a technical sense or give
      the words special meaning. N.D.C.C. § 9-07-09; Egeland [v. Cont’l
      Res., Inc.], 

, 

. Technical words
      are interpreted as usually understood by people in the profession
      or business to which they relate, unless they are clearly used in a
      different sense. N.D.C.C. § 9-07-10. “A contract must be read and
      considered in its entirety so that all of its provisions are taken into
      consideration to determine the true intent of the parties.” Egeland,
      at ¶ 10; see also N.D.C.C. § 9-07-06. We attempt to give effect to
      every clause, sentence, and provision in a contract. Rolla v. Tank,
      

, 

.

Fleck v. Missouri River Royalty Corp., 

, 

(quoting Tank v. Citation Oil & Gas Corp., 

, 

). “The construction of a written contract to determine its legal effect is a
question of law for the court to decide, and on appeal, this Court will
independently examine and construe the contract to determine if the [district]
court erred in its interpretation of it.” Fleck, at ¶ 7.

[¶13] The Continental Leases define production as “paying production under
which the income from production exceeds expenses allocated to such
production by the operator.” Neither the parties nor the district court identified
any other provision in the Bottom Leases defining production. In Fleck, we




                                        5
interpreted “production” in the habendum clause2 and savings clause3 to mean
“production in paying quantities.” 

. Generally, to
determine whether a well is producing in paying quantities, “[a] court must
consider whether the well yielded a profit over operating costs over a
reasonable period of time and whether a reasonable and prudent operator
would continue to operate a well in the manner in which the well was operated
under the relevant facts and circumstances.” Id. at ¶ 18. “A reasonable time
must be allowed for production in paying quantities in order to determine the
average production of oil and gas, the cost of production, and the availability
of markets.” Id. at ¶ 14.

[¶14] Similarly, “reworking operations” is not expressly defined in the Bottom
Leases.4 In Serhienko v. Kiker, this Court interpreted “reworking operations”
by applying definitions and standards used in other jurisdictions. 

 (N.D. 1986). One “often-cited, rather broad, definition” is derived
from a Texas jury instruction, which defined reworking operations as “actual
work or operations which have theretofore been done, being done over, and
being done in good faith endeavor to cause a well to produce oil and gas or oil
or gas in paying quantities as an ordinarily competent operator would do in
the same or similar circumstances.” 

 at 812 (quoting Rogers v. Osborn, 

 (Tex. 1953)). In Alabama, “[t]he crucial test which must be
met for an activity to constitute reworking is whether the operation is
associated or connected with the physical site of the well or unit. Additionally,
the operation must be intimately connected with the resolution of whatever
physical difficulty caused the well to cease production.” 

 at 812-13 (quoting
Sheffield v. Exxon Corp., 

 (Ala. 1982)). “[O]perations or
activities which are not designed to revitalize a well, or to restore lost




2 A habendum clause sets forth the duration of the lessee’s interest in the premises. Egeland, 

, ¶ 3 n.1.
3 A savings clause in an oil and gas lease prevents the lease from terminating if a certain condition is

met. See Fleck, 

.
4 As the district court notes, “operations” and “drilling operations” are defined in several of the Bottom

Leases. “Reworking” or “reworking operations,” on the other hand, are not defined in the leases.


                                                    6
production, do not constitute reworking.” Serhienko, at 813 (quoting Sheffield,
at 1303).

[¶15] In construing “reworking operations,”           certain    well-established
guidelines have emerged from the case law:

      While it is clear that routine maintenance procedures, such as the
      periodic starting of the pump on the lease to keep it in running
      operation, do not constitute reworking operations, testing and
      other essential preparatory steps conducted on the well site and
      directly related to resolving the difficulty can constitute under
      certain circumstances the commencement of reworking operations.
      However, inherent within the concept of “reworking operations” is
      a duty to continue operations with due diligence after
      “commencement;” the activities must be conducted in a bona fide
      effort to restore the well to production as soon as possible. In other
      words, minimal preparatory steps taken within the [reworking]
      period followed by a lengthy period of inaction would not constitute
      the “commencement” of reworking operations.

            Furthermore, a lessee’s intent to continue reworking
      operations after commencement must be unqualified, and not
      dependent upon the happening of certain contingencies. Thus, an
      intent to continue operations if favorable information is gained
      from operations conducted on another well, or if favorable financial
      arrangements can be made, is not sufficient.

Serhienko, 

 (citations omitted).

                                        A

[¶16] The district court found the Golden Well ceased production by July 14,
2014, and GADECO did not commence reworking operations until December
4, 2014, when a workover rig arrived at the Golden Well (143 days later). The
court found that the electric submersible pump (ESP) in the Golden Well failed
and “the only way to restore production to the Golden Well required GADECO,
as operator, to arrange for a workover or similar rig to pull the failed ESP
out of the Golden Well and replace the failed ESP with a new mechanism of
artificial lift.” The court found the Grynberg, GADECO, Diamond, and Parke


                                        7
Energy Leases terminated in this first cessation period. The Continental
Leases were still in their primary term and thus did not terminate in gap
period 1. GADECO concedes that production ceased for over 120 days during
this period, but it argues the leases did not terminate because it commenced
reworking operations within 90 days of production cessation. Specifically,
GADECO contends that it commenced reworking operations by diagnosing the
failure, assisting the service provider Baker Hughes in designing the
replacement ESP, and ordering the replacement ESP from Baker Hughes.

[¶17] The district court found that prior to the workover rig being on site,
GADECO had no activities connected with the physical site of the Golden Well
or with resolving the physical difficulty that caused the well to cease
production (i.e., removing and replacing the ESP). The court also found that
GADECO did not continue its activities with due diligence after
commencement. The court found GADECO’s own records indicate it was aware
of the ESP failure by at least August 1, 2014, but GADECO did not order the
ESP until, at earliest, the end of October 2014 (three and one-half months after
production ceased). The court found the average workover of a Bakken well
should take only four or five days. The court further found that GADECO was
not making a bona fide effort to begin reworking operations or restore
production. The court found the Golden Well did not return to regular
production until the end of February 2015 (over seven months after cessation).
The court found GADECO was waiting on favorable financial arrangements to
rework the Golden Well, noting that February 2015 is when the Golden Well
was connected to a gas pipeline, allowing GADECO to avoid paying taxes and
royalties on gas that would have been flared had production been restored prior
to installation of the pipeline.

[¶18] We conclude the district court’s findings are not clearly erroneous.
GADECO fails to show that these findings are induced by an erroneous view
of the law or that there is no evidence to support them. Nor are we convinced
a mistake has been made after reviewing all of the evidence. Zavanna’s expert,
Monte Besler, testified that if an ESP fails due to the loss of an electrical leg,
the ESP must be pulled and replaced to restore production, which requires a



                                        8
workover rig. The court found that despite GADECO’s being aware of the
electrical leg loss by at least August 1, 2014, GADECO did not order the new
ESP until, at earliest, the end of October 2014. The workover rig, which
according to Besler’s testimony is a necessary component of removing the failed
ESP, did not arrive until December 4, 2014. The district court found GADECO’s
diagnosing the ESP failure, assisting Baker Hughes in designing the new ESP,
and ordering the ESP from Baker Hughes were “minimal preparatory steps”
and were not continued with the required diligent efforts to constitute
commencement of reworking operations. Serhienko, 

. On
this record, the court did not clearly err in finding GADECO did not commence
reworking operations until the workover rig arrived at the well site on
December 4, 2014.

[¶19] GADECO argues it commenced drilling operations within 120 days of
production cessation when it connected the Golden Well to the gas pipeline,
saving the Parke Energy Leases from termination. The Parke Energy Leases
state that they will not terminate if drilling operations are commenced within
120 days after cessation of production. They further provide:

      For purposes of this lease, “drilling operations” shall include
      operations for the drilling of a new well and operations for the
      reworking, deepening or plugging back of a well or hole or other
      operations conducted in an effort to establish, resume or re-
      establish production of oil and gas; . . . drilling operations shall be
      deemed to be commenced for a new well at such time as lessee has
      begun the construction of the wellsite location or the road which
      provides access to the wellsite location; and drilling operations
      shall be deemed to be commenced with respect to reworking,
      deepening, plugging back or other operations conducted in an effort
      to resume or re-establish production of oil and gas at such time as
      lessee has the requisite equipment for such operations at the
      wellsite.

(Emphasis added.)

[¶20] GADECO cites case law from other jurisdictions defining “drilling” so as
to include connecting to pipelines. However, because the Parke Energy Leases



                                        9
expressly provide what drilling operations consist of and when drilling
operations commence, we apply the plain language of the leases. The Parke
Energy Leases define “drilling operations” in relevant part to mean reworking
and “operations conducted in an effort to establish, resume or re-establish
production.” This provision speaks in terms of reworking or resuming or re-
establishing production. By its plain language, “drilling operations” does not
include connecting a well to a pipeline for the ease of transporting gas to
market. Further, the provision states drilling operations commence when the
lessee has the requisite equipment for such reworking operations at the well
site. Thus, GADECO’s argument that it “had equipment on the well site,
physically impacting the well site to connect to the pipeline and get the gas to
market” fails. The district court did not clearly err in finding “drilling
operations” as provided in the Parke Energy Leases did not commence with
respect to reworking or “operations conducted in an effort to resume or re-
establish production” before the workover rig arrived at the site to pull the
ESP.

[¶21] As a result of the finding that reworking or drilling operations did not
commence within 120 days of production cessation, the district court did not
err in concluding Grynberg, GADECO, Diamond, and Parke Energy Leases
terminated in gap period 1.

                                       B

[¶22] The district court found that all of the Bottom Leases terminated in gap
period 2. The court found the Golden Well ceased production from November
5, 2015 to March 31, 2016 (147 days) due to another ESP failure, and no
reworking operations commenced during this period. Because we conclude the
Grynberg, GADECO, Diamond, and Parke Energy Leases terminated in gap
period 1, we review only whether the Continental Leases terminated in gap
period 2.

                                       1

[¶23] Continental argues Zavanna failed to prove production ceased for longer
than 90 days, proving at most a 59-day period of production cessation from


                                      10
January 1, 2016 to February 29, 2016. Continental asserts the Golden Well
produced 3.33 barrels of oil on November 19, 2015; 11 Mcf of gas in December
2015; and 839 barrels of oil and 522 Mcf of gas in March 2016.

[¶24] The district court, relying on the testimony from Continental’s expert,
found the North Dakota Industrial Commission (NDIC) records the most
reliable source concerning the Golden Well production. NDIC records show the
Golden Well produced 285 barrels of oil in November 2015 and 11 Mcf of gas in
December 2015. In contrast, the court found the records prepared by the
pumpers and others “not as reliable” because of the lack of testimony to their
accuracy. The pumper reports show 287.07 barrels of oil were produced
between November 1 and 5 and 3.33 barrels were produced on November 19.
The court found that even if the Golden Well produced 3.33 barrels of oil on
November 19 and 11 Mcf of gas in December, such production was not in paying
quantities. Three barrels of oil and 11 Mcf of gas represent de minimis amounts
of production over this time period, which as a matter of law does not equate
to production in paying quantities or “paying production under which the
income from production exceeds expenses allocated to such production by the
operator,” as the Continental Leases define production.

[¶25] Continental argues Zavanna failed to show production was not in paying
quantities and the district court erred by not assessing production in paying
quantities over a “reasonable period,” citing Tres C, LLC v. Raker Resources,
LLC, 

. In Tres C, the Oklahoma Supreme Court analyzed what time
period was pertinent in determining whether a well was unprofitable so as to
qualify as a cessation in production. Id. at ¶ 23. The trial court in Tres C found
the oil and gas lease expired by its own terms after the well failed to produce
in paying quantities in September, October, and November of 2016. Id. at ¶ 18.
In September, the well “experienced another month of low production and
unprofitability,” producing “only 286 Mcf” of gas. Id. at ¶ 6 & n.29. October also
proved to be unprofitable, which included the well “fail[ing] to produce
anything on October 14th and 15th.” Id. at ¶¶ 6, 8. The well operator was “very
proactive” in addressing the “production problems” and brought the well back
into operation on November 4. Id. at ¶ 7. “By mid-November, the [well] was



                                       11
back to producing 20 Mcf of gas per day, which had previously been over the
benchmark for profitability.” Id. Despite this production, November also proved
to be unprofitable. Id. at ¶ 8. On appeal, the lessee’s successors-in-interest
argued the 60-day savings period in the cessation of production clause does not
apply “until a longer look-back period . . . demonstrates that a cessation—not
merely an interruption—of profitable production has occurred.” Id. at ¶ 24
(emphasis omitted). The Oklahoma Supreme Court agreed and reversed the
trial court, concluding the cessation of production clause does not define the
time period for assessing profitability. Id. at ¶¶ 27, 36-37. It further reasoned
that the event preventing termination under the cessation of production
clause—the “resum[ption of] operations for drilling a well within sixty (60)
days from such cessation”—shows cessation must have been permanent, “as
only a permanent cessation would require the remedy of drilling a new well.”
Id. at ¶ 34. The Oklahoma Supreme Court concluded, “Such a temporary
interruption in profitable production should not trigger the 60-day time limit
in the cessation-of-production clause.” Id.

[¶26] Here, the district court found Zavanna proved a total cessation of
production from November 5, 2015, until at least the end of February 2016.
Unlike Tres C, profitability cannot seriously be contested for this period. The
Golden Well produced 3 barrels of oil and 11 Mcf of gas over a period of almost
four months. While a “look-back period” may be necessary in cases where it is
unclear whether (profitable) production ceased, cessation of production is not
genuinely at issue from November 5, 2015, until the end of February 2016. To
the extent that Tres C would require a “look-back period” in every case, even
where production ceased completely and profitability is not at issue, such is
not required in North Dakota. Under North Dakota law, where profitability of
the well is not at issue so as to affect when production in paying quantities
ceased, cessation commences on the first day of no production and ends on the
last day of no production. See Horob v. Zavanna, LLC, 

,

. GADECO apparently recognizes this to be the case for gap
period one, conceding that because production ceased for over 120 days during
that period, the Court need only analyze whether reworking or drilling
operations were commenced during period one. Accordingly, if a total cessation



                                       12
of production exceeds the time period established in the lease’s cessation of
production clause, the lease terminates unless it provides conditions
preventing termination (i.e., reworking operations are commenced within the
time period).

[¶27] In Horob, the lease contained a cessation of production clause stating
that if production ceases “from any cause,” the lease “shall not terminate if
lessee commences additional drilling or reworking operations within sixty (60)
days thereafter.” 

. The well did not produce oil from April
2004 through September 2004. Id. at ¶ 4. We concluded the common law
doctrine of temporary cessation—preventing a temporary cessation of
production to automatically terminate a lease by allowing the operator a
reasonable time to bring the lease back into production—did not apply where
the lease contains a cessation of production clause. Id. at ¶¶ 14-15. We
concluded the cessation of production clause was triggered. Id. at ¶ 15. Because
it was “undisputed that production from the [ ] well ceased from April 2004 to
September 2004,” the lease “would terminate under its cessation of production
clause unless [the operator] began drilling or reworking operations within 60
days of the cessation.” Id. at ¶ 16. Although the lease did not terminate due to
a communitization agreement, id. at ¶ 26, we held the cessation of production
clause dictates the production cessation period, id. at ¶¶ 15-17.

[¶28] Accordingly, we distinguish Tres C from this case in that Tres C was
concerned with measuring profitability over a reasonable period of time. In
other words, Tres C asked whether a cessation in production in paying
quantities occurred based on profitability. But, unlike here, the well in Tres C
did not completely stop production of oil and gas for the time period stated in
the cessation of production clause. When the court finds a well was not
profitable for the duration provided in the cessation of production clause, an
accounting period to determine profitability serves no purpose. More
importantly, the cessation of production clause in the Continental Leases and
our precedent require no accounting period under these circumstances.
Further, the cessation of production clause in the Continental Leases state the
leases shall not terminate if the lessee commences additional drilling or



                                      13
reworking operations. Recall, the cessation of production clause in Tres C only
allowed the lease to be saved if the lessee resumed drilling operations, which
the Oklahoma Supreme Court noted is indicative of permanent cessation.
Here, the Continental Leases specifically allow for reworking operations of an
existing well, which is indicative of temporary cessation. Moreover, because the
parties to the Continental Leases contracted for a 90-day cessation of
production period in which additional drilling or reworking operations must be
commenced to prevent termination, the common law temporary cessation
doctrine does not apply. Horob, 

.

[¶29] We conclude the district court did not clearly err in finding the total
cessation of production from November 5, 2015, through February 2016,
including de minimis amounts, triggered the cessation of production clause in
the Continental Leases, providing GADECO, the well operator, 90 days to
commence reworking operations. Because the district court did not err in
finding production ceased from November 5, 2015, through February 2016, any
production in March 2016 is irrelevant to the termination of the Continental
Leases.

                                       2

[¶30] Continental argues that GADECO commenced reworking operations by
diagnosing and troubleshooting the ESP failure, performing water treatments,
obtaining a price quote from Baker Hughes, and communicating with a
contractor on a workover plan. The district court concluded that none of these
activities constituted reworking operations. As to the communications with the
contractor on a workover plan, the court found the evidence failed to show
when any such plan was implemented. The court found these activities were
not intimately connected with resolving the ESP failure at the physical site of
the well. The district court did not clearly err in finding these actions are
“minimal preparatory steps” which do not constitute commencement of
reworking operations. Serhienko, 

.

[¶31] Further, the district court found that GADECO did not exercise due
diligence or make a bona fide effort to begin reworking operations or restore



                                      14
production as soon as possible. The court found that the Golden Well did not
return to regular production until June 2016 (7 months after production
ceased). We conclude the court did not err in finding GADECO failed to
commence reworking operations within 90 days of production cessation. Thus,
the Continental Leases terminated in gap period 2.

                                        V

[¶32] GADECO argues the district court erroneously concluded the force
majeure clauses in the Grynberg, GADECO, and Parke Energy Leases do not
apply. A force majeure clause “allocat[es] the risk of loss if performance
becomes impossible or impracticable, esp[ecially] as a result of an event or
effect that the parties could not have anticipated or controlled.” Entzel v.
Moritz Sport & Marine, 

, 

 (second alteration in
original). “What types of events constitute force majeure depend on the specific
language included in the clause itself.” 

 “An express force majeure clause in
a contract must be accompanied by proof that the failure to perform was
proximately caused by a contingency and that, in spite of skill, diligence, and
good faith on the promisor’s part, performance remains impossible or
unreasonably expensive.” 

 “A party relying on a force majeure clause to
excuse performance bears the burden of proving that the event was beyond its
control and without its fault or negligence.” 

[¶33] The Grynberg Leases provide:

             This lease shall not expire, terminate or be forfeited in whole
      or in part nor shall Lessee be liable in damages for failure of Lessee
      to comply with any express or implied covenants hereunder so long
      as compliance therewith is hindered, delayed, prevented or
      interrupted by force majeure. The term “force majeure,” as used
      herein, shall mean and include state and federal statutes, all
      orders, rules and regulations of any governmental body (either
      federal, state or municipal), fire, storm, flood, war, rebellion, riots,
      strikes, differences with workmen, acts of God, breakage or failure
      of machinery or equipment, inability to obtain material or
      equipment or the authority to use the same (after effort in good
      faith), failure of pipelines normally used to transport or furnish


                                        15
      facilities for transportation or any other cause (whether similar or
      dissimilar) beyond the reasonable control of Lessee.

(Emphasis added.) The GADECO Leases and Parke Energy Leases allow for
suspension of obligations if compliance is hindered or prevented by adverse
weather or market conditions or an inability to obtain materials in the open
market. GADECO argues it is excused from any delay in commencing
reworking operations because of machinery or equipment failure, inability to
obtain materials, and adverse weather and market conditions. Because
GADECO argues adverse weather only affected cessation period three and we
have concluded all of the Bottom Leases terminated by the end of period two,
this alleged force majeure event is irrelevant to our decision.

[¶34] GADECO contends several experts testified that the market conditions
in 2014 made it more difficult to obtain a workover rig. The court found
GADECO failed to meet its burden in showing an inability to obtain materials:

      GADECO did not introduce any evidence that the alleged difficulty
      in obtaining equipment in Gap Period 1 or 2 could not have been
      anticipated by GADECO, and, despite its skill, diligence, and good
      faith, was impossible or unreasonably expensive. In fact, GADECO
      produced no witnesses who worked for GADECO during Gap
      Period 1 and 2 who testified that it did not anticipate needing a
      new ESP or that obtaining one was impossible or unreasonably
      expensive.

GADECO does not point to any evidence establishing what specific attempts it
made to secure a workover rig, which proved unsuccessful. The fact that there
was an oil boom during 2014 and equipment was generally more difficult to
obtain does not excuse GADECO’s lack of performance under its leases.
GADECO bore the burden to prove that its ability to comply with its
obligations under the leases was actually hindered or prevented by adverse
market conditions or an inability to obtain materials, not just potentially or
hypothetically hindered or prevented. GADECO has failed to cite any evidence
showing it, specifically, was unable to obtain materials or equipment. Thus, the
court did not err in concluding GADECO failed to show the force majeure



                                      16
provisions concerning adverse market conditions and inability to obtain
materials applied and excused its failure to commence reworking operations.

[¶35] GADECO asserts the district court’s finding that the ESP failed was by
itself sufficient to excuse its obligation to commence reworking operations
under the force majeure clause in the Grynberg Leases. The clause, quoted in
full above, includes “breakage or failure of machinery or equipment” as a force
majeure event. But this item is included in a list that ends with the general
wording “or any other cause (whether similar or dissimilar) beyond the
reasonable control of Lessee.” This clause is structured with a list of specific
causes followed by a general term including all causes “beyond the reasonable
control of Lessee.” Because the list of causes ends this way, it is clear that each
specific cause is an example of the same general category and thus every cause
must be beyond the reasonable control of Lessee. Just as an equipment failure
must be beyond the reasonable control of the Lessee, this clause
unambiguously requires that fires, differences with workmen, and inability to
obtain material or equipment are not alone sufficient but must be “beyond the
reasonable control” of GADECO.

[¶36] The case law emphasizes that to establish force majeure, performance
must be impossible or unreasonably expensive, despite the lessee’s skill,
diligence, and good faith. Entzel, 

. Zavanna’s expert, Besler,
testified that the common industry practice for operators is to have a plan for
an alternative artificial lift in place prior to an ESP failure. Concerning the
first ESP failure commencing gap period one, Besler testified that GADECO
likely waited longer than it should have to install a new ESP, approaching the
end of its optimum use, and should have considered an alternative lift type.
Continental’s expert, Thomas Hohn, agreed that a prudent operator utilizing
an ESP establishes a contingency plan for the eventual failure of the ESP.
Hohn was not aware of any contingency plan of GADECO’s in place prior to the
ESP failure in July 2014, commencing gap period one. The district court found
that GADECO had “no discernable alternative plan or backup ESP staged on
location.”




                                        17
[¶37] We conclude there is no clear error in the district court’s finding that
GADECO failed to show that the ESP failure could not have been anticipated
or was beyond its reasonable control so as to render performance impossible or
unreasonably expensive. As stated above, the district court did not clearly err
in finding that, even after the ESP failure, GADECO failed to diligently
commence reworking operations. Therefore, the district court did not err in
concluding the force majeure provisions concerning machinery or equipment
failure did not apply and GADECO’s obligation to commence reworking
operations was not excused under the Grynberg Leases.

[¶38] Because GADECO failed to show a force majeure condition saved the
leases from termination, all of the Bottom Leases terminated under their terms
when production ceased and GADECO failed to timely commence reworking
operations.

                                     VI

[¶39] The judgment is affirmed.

[¶40] Jon J. Jensen, C.J.
      Daniel J. Crothers
      Lisa Fair McEvers
      Jerod E. Tufte
      Douglas A. Bahr




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