The opinion just issued by the Eighth Circuit Court of Appeals in Anderson v. Hess Corporation (go here for a PDF copy) primarily concerns the phrase “drilling or reworking operations”. It occurs several times in the five mineral leases at issue.
Does “drilling” constitute a noun, or is it an adjective modifying “operations”? In other words, the question posed was, according to the court, “whether the term ‘engaged in drilling or reworking operations’ included ‘drilling operations’ and ‘reworking operations,’ or ‘drilling’ and ‘reworking operations’.” This was a significant distinction, as to engage in drilling you’d have to actually drill into the ground, whereas “drilling operations” could include activities in addition to drilling.
So what we have here is syntactic ambiguity, which arises when it’s uncertain what part of a sentence a given phrase modifies, or what part of a phrase a given word modifies. This instance of syntactic ambiguity is a basic as it gets, but it generated a couple of years’ worth of litigation.
In holding that “drilling” modifies “operations”, the Eighth Circuit cited North Dakota caselaw. To resolve this kind of ambiguity you have to reach outside the contract. You can read the contract until you’re blue in the face, but that won’t allow you to determine what the parties had intended.
To avoid this kind of embarrassing hassle, you have be attuned to the sources of syntactic ambiguity and how to get around them. You might want to consult MSCD chapter 11.
In this case, the drafter would have been better off referring to “drilling operations or reworking operations” or “reworking operations or drilling”, depending on which meaning was intended.
