Bloomberg News

North Dakota Shale-Oil Boom Rushes Past Riverbank Dwellers

March 15, 2012

North Dakota landowners say the state’s claim to oil deposits beneath riverbanks and lake shores is robbing them of millions of dollars in rent and royalties from a drilling boom that has quadrupled crude production in the past five years.

The state is accused in a lawsuit by private landowners along the Missouri and Yellowstone rivers of “unlawful taking of mineral interests” by improperly applying a public-use doctrine dating back to the state’s emergence from territorial status in 1889.

Private property owners have historically held title to mineral rights on land down to the low-water mark along the Missouri River and other navigable waterways, unless they sold or gave them away, Charles Neff, an attorney for the plaintiffs, said today. The state’s claim that it owns the mineral rights up to the high-water mark is based on century-old laws intended to protect public use of riverside roads and parks, said Neff, an attorney with Neff Eiken & Neff PC in Williston, North Dakota.

“Now that oil wells are being punched all over the place, there’s a lot of fussing about who owns the minerals,” Neff said in a telephone interview. “The state has the right to make sure the public has access to things they can use like parks, lakes, roads -- not minerals 10,000 feet underground that no one even could conceive of 100 years ago.”

Defendants Named

The lawsuit was filed March 12 in state court in Williston and names as defendants the state, the North Dakota Board of University and School Lands and North Dakota Trust Lands Commissioner Lance Gaebe, according to an electronic record of the suit filed on the court’s website.

The plaintiffs, including several generations of landowners in or near Williston in the northwest part of the state, are asking the court to grant class-action status so other North Dakota landowners can be included, according to a copy of the complaint provided by Robins, Kaplan, Miller & Ciresi LLP, a Minneapolis law firm also representing the plaintiffs.

The landowners seek an order barring the state from claiming absolute title to mineral rights in land below the “ordinary high-water mark,” as well as awarding damages to the landowners.

Double Leasing

“We have no comment at this time,” Liz Brocker, a spokeswoman for North Dakota Attorney General Wayne Stenehjem, said today in a telephone interview from Bismarck, the state capitol.

Gaebe, the lands commissioner, didn’t immediately return a phone message left at his office in Bismarck. Jeff Zent, a spokesman for Governor Jack Dalrymple, the highest-ranking member of the school lands board, also didn’t immediately return a voice mail.

Oil explorers have been sidestepping disputes over who owns the mineral rights by double leasing: the practice of paying both the state and a private landowner thousands of dollars an acre for the right to drill wells, Neff said. Millions of dollars in royalties from producing oil wells have been set aside in escrow-like bank accounts until the ownership disputes can be hashed out, he said.

“An oil company is not going to drill a $10 million well with any title problems so they’re paying both sides for leasing,” Neff said. “With the wells that have already been drilled and are now in production, the oil companies don’t know who to pay” royalties to.

Disputed Well

Stanford Reep, the lead plaintiff, said the well drilled on his riverfront property in Williston by Statoil ASA (STL)’s Brigham Exploration (BEXP) unit produced 100,000 barrels of crude in the past year. Brigham, an Austin, Texas-based explorer that was acquired by Norway’s Statoil in December, opted not to double lease in his case and made a deal with the state, Reep said today in a telephone interview.

With oil from that region fetching an average of $97.55 a barrel during the past 12 months, the output of that single well had a value of about $9.76 million. Reep said he hasn’t calculated what his share would have been if the state hadn’t laid claim to the mineral rights.

“There have been many wells drilled along the river here,” said Reep, a 79-year-old retired farm-equipment dealer. “This one here on my land is one of the prime disputed wells.”

Oil Boom

North Dakota’s crude production surged 59 percent in January to a record 546,000 barrels a day from a year earlier, state figures showed. The number of producing wells climbed 24 percent during that period to 6,617.

Horizontal drilling techniques, tougher drill bits and intensive rock-fracturing practices known as fracking have allowed explorers such as Continental Resources Inc. (CLR), Exxon Mobil Corp. (XOM) and EOG Resources Inc. (EOG) to unlock crude trapped in the Bakken Shale, a previously-impenetrable rock formation beneath North Dakota and Montana.

The case is Reep v. State of North Dakota; 53-2012- CV-00213, District Court of North Dakota, Northwest Judicial Circuit (Williston).

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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