BISMARCK – A judge has dismissed 13 of 14 lawsuits filed against oil and gas companies by North Dakota mineral owners who claim they are owed royalty payments for natural gas illegally flared from oil wells.
U.S. District Court Judge Daniel Hovland ruled Wednesday that the mineral owners failed to exhaust their administrative remedies through the state’s Industrial Commission, and therefore the federal court lacks jurisdiction.
“As long as administrative procedures are prescribed they must be followed before a party seeks judicial relief,” he wrote.
Mineral owners filed 10 class-action lawsuits in state district court in October against oil and gas operators in western North Dakota’s Bakken oilfield, claiming they were owed millions of dollars in royalties for natural gas they allege was illegally flared, or burned off into the atmosphere, from oil wells.
Four additional cases were filed in January and February. All of the cases were moved to federal court except the lawsuit against Marathon Oil Co., which was filed in Mountrail County by Bismarck attorney and former North Dakota agriculture commissioner Sarah Vogel and is pending in state court.
Attorney Derrick Braaten, who is representing the mineral owners, said Friday they were still analyzing Hovland’s ruling and an appeal is possible.
“The judge’s ruling wasn’t really on the merits of the case,” he said.
Ron Ness, president of the North Dakota Petroleum Council, said the ruling was favorable news for the operators.
“But it doesn’t really change much for our efforts … to reach our flaring target goals set by the Industrial Commission,” he said.
In March, the Industrial Commission adopted several steps to curb flaring, including a requirement starting June 1 that companies submit gas capture plans with their drilling permit applications. The measures aim to reduce flaring to 10 percent or lower by 2020.
North Dakota’s gas flaring rate was 33 percent in March, down from a peak of 36 percent but still well above the national average of less than 1 percent.
Hovland, who called flaring “a wasteful, albeit sometimes necessary and unavoidable, practice,” noted that the Industrial Commission has broad authority to regulate oil and gas activities in the state, including determining whether gas is being flared in violation of state law and ordering the payment of royalties and taxes on improperly flared gas.
North Dakota law generally permits flaring for a one-year period from the date of the well’s first production. After that, the Industrial Commission may grant an exemption allowing flaring to continue if the company shows it’s not economically feasible to stop flaring. If gas is flared in violation of the law, the producer must pay royalties to the royalty owner and production taxes to the state.
Hovland wrote that a “clear and comprehensive administrative remedy” is available for those who believe improper flaring is occurring. That right includes provisions for filing a petition, the right to a hearing, reconsideration and the right to appeal to district court, he wrote.
“In this case the Plaintiff has never filed a petition with the North Dakota Industrial Commission asking it to look into her flaring complaints,” Hovland wrote in dismissing the lawsuit against Hess Corp. “Rather, she has elected to bring her claims directly to court.”
The plaintiffs contended that exhausting their options with the Industrial Commission would be futile because the three-member commission – which consists of the governor, attorney general and agriculture commissioner – can’t be forced to exercise its authority, and that even if it did hear their petitions, the administrative remedy would be inadequate.
Braaten said the plaintiffs reviewed “hundreds if not thousands” of Industrial Commission orders and didn’t find a single case in which a royalty owner brought an action to the panel under the flaring statute.
“There really aren’t any established procedures for doing this,” he said.
But Hovland disagreed, writing that a “multitude” of Industrial Commission orders demonstrate that it has the jurisdiction to enforce flaring regulations, “and that it has exercised its authority to do so on numerous occasions.”
“Had the Plaintiff initially brought her claims before the Industrial Commission, the Court has no doubt her petition would have been heard,” he wrote in the Hess case ruling. “Speculation otherwise is unavailing. Futility is not demonstrated by mere speculation or doubt regarding what actions an agency may take to resolve a claim.”
The mineral owners have asked the court to certify a class of all people owning royalty interests who haven’t been paid royalties for illegally flared gas, but the class certification has yet to be addressed, Hovland noted.
In addition to Hess Corp., Hovland dismissed the lawsuits against Hunt Oil Co., Burlington Resources Oil & Gas Co. LP, WPX Energy Williston LLC, Continental Resources Inc., XTO Energy Inc., HRC Operating LLC, Statoil Oil & Gas LP, Crescent Point Energy U.S. Corp., Samson Resources Co., SM Energy Co., EOG Resources Inc. and Kodiak Oil & Gas (USA) Inc.
Reach Nowatzki at (701) 255-5607 or by email at email@example.com.