Oil & Gas

North Dakota Supreme Court says “stop” to class action royalty litigation

On May 20, 2021, the North Dakota Supreme Court held that the following “free of cost, in the pipeline” oil royalty provision sets the point of valuation at the well:

To deliver to the credit of the Lessor, free of cost, in the pipeline to which Lessee may connect wells on said land, the equal part of all oil produced and saved from the leased premises.

See opinion here.

This opinion comes after most producers in North Dakota have been sued in federal court in a series of putative class actions asserting virtually identical claims for deductions of downstream costs.  Those claims are no longer viable because the point of valuation is now established as a matter of law to be at the well, so the producers were permitted to deduct downstream costs.

The North Dakota Supreme Court’s central reasoning is that the reference to “pipeline to which Lessee may connect wells on said land” unambiguously established that the producer is required to deliver the royalty oil to the lessor at the “wells on said lands.”  The Court also reasoned that the use of “may connect” means that the producer cannot avoid paying royalties by not connecting a pipeline.  Regardless of whether there is a pipeline, the royalty oil must be delivered (or valued if paid in cash) at the “wells on said land.”

With its decision yesterday, the North Dakota Supreme Court has likely saved industry from protracted, overlapping class action litigation and the uncertainty divergent decisions in the multitude of federal cases would have created.

 

 

Published by
Jens Jensen

Recent Posts

Big Win in California Real Estate Dispute

Welborn attorneys Sam Bacon, Ed Blieszner, and Matt Nadel recently secured dismissal of all claims…

1 week ago

Team Building at the Inaugural Welborn Olympics

Welborn had a blast at our attorney retreat in Vail last week! The retreat gave…

2 weeks ago

Summary Judgment Win for Welborn Team

The Welborn team of Sam Bacon, David Hrovat, and Joe Pierzchala recently won summary judgment…

1 month ago

Golfing for a Cause

The weather was ideal for last week's 2024 Annual Denver Petroleum Club Golf Tournament! Welborn…

1 month ago

Two Welborn attorneys’ work featured in recent publications

In the Summer 2024 edition of the American Bar Association's Natural Resources & Environment, Danielle…

2 months ago

New additions to our Denver office

We are thrilled to announce the newest additions to our Denver office:  Andrew Comer, a…

3 months ago