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Royalty Owner Lawsuit Over Gas Flaring Before North Dakota Supreme Court

The North Dakota Supreme Court heard oral arguments last Thursday for a case of a mineral owner suing a Bakken producer for payment of royalties for flared natural gas volumes. It has the potential to spur other future action by royalty owners in the state.

The mineral owner, Sarah Vogel, is also a former two-time agricultural commissioner and current potential candidate in the state's next governor's race. She is appealing a judge's past decision to dismiss her case again Marathon Oil Co.

 Vogel's lawsuit was one of 14 filed in 2013, and the only one that was not dismissed by a federal judge last year. The dismissal was on a procedural basis, claiming the mineral rights owners who brought the lawsuits had not exhausted their administrative remedies with the state (see Shale DailyMay 19, 2014).

Neither the North Dakota Petroleum Council (NDPC), nor the state Department of Mineral Resources (DMR) officials wanted to comment on the case, noting it was pending litigation. An inquiry to Marathon's Houston office did not prompt any response from the oil company.

A favorable ruling from North Dakota's high court could kick off a flurry of activity by mineral rights owners and state officials overseeing the oil/gas space.

In the earlier rejections, Bismarck-based U.S. District Court Judge Daniel Hovland said the plaintiffs had not exhausted possible remedies with the North Dakota Industrial Commission (IC) for their claims they are owed royalty payments on natural gas that has been illegally flared. The mineral rights owners went to court seeking a class action against exploration/production (E&P) companies in the Williston Basin (see Shale Daily, Oct. 10, 2013). Ten cases were filed in state district court initially and four more were added in 2014, with all of them being consolidated in federal district court.

"As long as administrative procedures are prescribed they must be followed before a party seeks judicial relief," Hovland wrote in the 13 dismissal orders. The remaining case against Marathon Oil Corp. was left pending in state court; it was never consolidated with the others.

A spokesperson for DMR, which is overseen by the state Industrial Commission, said to date, there is no indication any of the royalty owners have brought their complaints to the IC.

Lawyers for the royalty owners have maintained that the lower court rulings did not address the merits of the plaintiffs' case, but were procedural in essence.

In the past, oil/gas industry officials have stressed the need to allow operators to focus on the statewide goals for reducing flaring, which was down substantially in the most recent DMR production report (see Shale DailyDec. 11). They maintain that the legal action should not change the industry goal and the need of meeting infrastructure targets set by the IC.

The NDPC has supported the state requirement for gas capture plans on new permits and the phased goals for reducing overall flaring percentages.

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