BISMARCK — A Watford City judge has upheld a recently passed law that sets limits on how far back oil companies must pay old royalties to North Dakota.
Companies agree to pay oil and natural gas royalties and any late fees to the state for the right to extract publicly owned minerals, but industry-backed legislation approved earlier this year by the Republican-led Legislature and Gov. Doug Burgum retroactively established a statute of limitations for state collections of royalty payments, meaning the Department of Trust Lands can't require firms to pony up on outstanding royalty bills from before August 2013.
The judgment handed down by Judge Robin Schmidt on Thursday, Sept. 16, rejects the argument, filed on behalf of the Board of University and School Lands, that the law is unconstitutional, keeping it on the books. Land Commissioner Jodi Smith could not be reached for comment Friday.
The ruling comes as a win for Newfield Exploration during the firm's longstanding legal battle with the state over royalty payments, though the fight isn't over yet.
At the heart of a 2018 lawsuit filed by Newfield lies a disagreement over whether companies should be able to take deductions from their royalty bills to cover the costs of transporting and purifying oil.
The Department of Trust Lands said the deductions taken for many years were improper and violated the lease agreement between the state and the company, which is now owned by Denver-based Ovintiv. Newfield, which argues the deductions were always allowed, sued the state after the department demanded that the company and about 40 other firms had to pay back the millions of dollars they had taken in deductions.
The North Dakota Supreme Court ruled in the state's favor two years ago, but the case has since returned to Schmidt's Watford City district court to be further adjudicated. A trial is scheduled for next month.
The company filed a motion earlier this summer asking the court to acknowledge that the new law meant the state couldn't collect on overdue royalty payments from before August 2013.
The state's response argued the new law violates part of the U.S. Constitution that says a state cannot pass laws that impair the obligation of previously agreed contracts. The state also contends that letting Newfield off the hook for royalties owed prior to the new statute of limitations would unlawfully deprive trust funds managed by the department, including one dedicated to public K-12 education.
Schmidt's 11-page ruling says the law is not a substantial impairment of the lease signed between the company and the state because the law only modifies the legal remedies available when suing for unpaid royalties and does not change the contract itself. The judge also rejects the notion that the law is illegally depriving the trust funds, noting that the law is an allowable "expression of public policy" to limit the state's legal entitlements to old payments.
Ron Ness, president of the North Dakota Petroleum Council, celebrated the judgment, saying "it's a proclamation of the Legislature's fine work" in trying to extinguish lingering disputes over unpaid royalties. Ness said he hopes the Newfield case results in an end to the continuous nagging obligations of the companies and the state to sort out old payments.