North Dakota High Court backs state in dispute with oil company

BISMARCK, ND (AP) — The North Dakota Supreme Court has overturned a lower court ruling that sided with a Houston-based energy company over disputed oil and natural gas royalties, a move that could potentially net millions of dollars for public schools and colleges across the state. .

The case stems from a lawsuit Newfield Exploration filed against the state after the Department of Trust Lands conducted an audit in 2016 that claimed the company was underpaying royalties to the agency that manages several land trust funds. the state, including one that benefits public schools.

Northwestern District Court Judge Robin Schmidt ruled last year that the state’s claim of breach of contract could not be proven because the state failed to provide “a contract or lease…that allows this court to meaningfully review contractual obligations and whether a breach has occurred.”

In a unanimous decision on Thursday, High Court judges said the lower court should have focused on the state’s position that the company had underpaid royalties from its drilling operations, not the issue whether the State could prove a breach of contract of its leases.

The case was remitted to the trial court to determine, in part, the amount of unpaid royalties.

State Lands Commissioner Joseph Heringer estimated that Newfield owed between $6 million and $8 million.

Newfield is owned by Denver-based Ovintiv. A spokeswoman said the company does not comment on litigation.

Heringer, a barrister, called the High Court ruling a precedent and said it could help settle around 20 similar cases with energy companies that may have “tens of millions” in unpaid royalties.

“I think it helps or brings clarity from a legal standpoint,” he said. “I hope this helps all of these outstanding claims to be resolved.”

Heringer said his agency has already managed to secure financial deals with several other companies.

Royalty disputes center on post-production costs, which are expenses associated with preparing the gas before it is sold. Companies sought to deduct these costs from royalties owed to the state

Ron Ness, chairman of the North Dakota Petroleum Council, does not believe the High Court’s decision will impact other cases of alleged unpaid or underpaid royalties.

“It won’t impact other companies because they all have unique circumstances,” he said.

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