Companies agree to pay oil and natural gas royalties and any late fees to the state for the right to extract state-owned minerals, but industry-backed legislation approved by the legislature led by Republicans and Governor Doug Burgum retroactively established a statute of limitations for the state. collection of royalty payments, which means the Department of Trust Lands cannot require companies to reimburse unpaid royalty invoices before August 2013.
The law only came into effect one day before the state submitted a legal brief on Monday, August 2, asking a McKenzie County judge to overturn it. Until a court decides to strike down the law, it will stay on the books.
The state challenge comes as another important development in a long-standing legal battle over royalty payments.
At the heart of a 2018 lawsuit filed by Newfield Exploration against the state is a disagreement over whether companies can deduct oil transportation and purification costs from their royalty bills.
The department said the deductions made for many years were inappropriate and violated the lease agreement between the state and the company, which is now owned by Denver-based Ovintiv. Newfield, who maintains that deductions were still allowed, sued the state after the department said the company and about 40 other companies had to repay the millions of dollars they took in deductions.
The North Dakota Supreme Court ruled in favor of the state in 2019, but the case has since returned to a district court in Watford City for further trial. A trial is scheduled for October.
The company filed a petition earlier this summer asking the court to recognize that the new law meant the state could not collect overdue royalty payments until August 2013.
State briefing Monday on behalf of Board of University and School Lands argues new law violates part of the U.S. Constitution that says a state cannot pass laws that undermine the obligation of contracts previously agreed. The state also argues that letting Newfield fend for the royalties owed before the new statute of limitations would illegally deprive the trust funds managed by the department, including one dedicated to K-12 public education.
A Newfield lawyer did not immediately respond to a request for comment, and a spokeswoman for the state attorney general’s office, which represents the board and the department, declined to comment.
Ron Ness, chairman of the North Dakota Petroleum Council, said the new law is a good solution to a contentious problem and the state’s challenge is disappointing. In the meantime, Ness said he is advising his clients, which include more than 650 oil and gas-related companies, to follow the new law.
Land commissioner Jodi Smith, who declined to comment on the lawsuit, said the new law had prompted several companies to pay old royalty bills and many more to begin negotiating terms with the department. The department says more than 20 companies, including industry giants Continental Resources, ConocoPhillips and Hess, still owe the state hundreds of millions of dollars in old royalty payments.
Ron Ness, Chairman of the North Dakota Petroleum Council, speaks at the Williston Basin Petroleum conference in Bismarck on May 12, 2021 (Jeremy Turley / Forum News Service)