North Dakota’s mineral owners are squaring off against oil companies in court, with a series of lawsuits that take a multi-million swing at rising — and plaintiffs say improper — royalty deductions.
Among the latest of these suits is one filed on behalf of Powell Family Mineral, which seeks class action status against Slawson Exploration. It was filed by Kansas attorneys Rex Sharp and Isaac Diel with Sharp Law and North Dakota attorney Mike Montgomery with Montgomery and Pender.
In the suit, plaintiffs say they signed a lease in December of 2009, and that the lease language entitles Powell Family Mineral to royalties paid “free of cost” into the pipeline.
However, Slawson has been deducting expenses such as gathering and moving oil, preparing oil, and other costs that plaintiffs say violate that lease language.
Slawson has been contacted for comment on this story. If any comments are received, they will be added to this story online.
In addition to Sharp’s case, North Dakota attorney Josh Swanson has filed seven similar cases, all revolving around the same lease language.
“This issue has been percolating for a number of years,” Swanson said. “I would say probably going back four or five years, we started getting phone calls form clients who were noticing that significant deductions were being taken from their royalties that were exponentially greater than previous deductions.”
As the deductions steadily rose, Swanson said, explanations have dwindled.
“We’d get an explanation that either one, didn’t make any sense, or two, what happens most of the time is, mineral owners get stonewalled and the operator just refuses to answer any questions,” Swanson said.
To Swanson’s clients, the lease language is fairly clear, Swanson said.
“(It’s) ‘free of cost into the pipeline,’” he said. “Our contention is free of cost means exactly that, that oil and gas companies cannot be deducting any of their costs from the mineral owners’ royalties.”
The cases have triggered Chief Judge Peter Welte to send a certified question to the North Dakota Supreme Court on the matter, asking that court to rule on the lease language. A hearing for that is set for April 6.
“To say it’s a significant issue and that these are significant cases is probably an understatement,” Swanson said. “There’s tens of thousands of leases with just one oil company that are impacted. So you know, figure that if you’ve got, nearly 15 or 16 oil companies that have been sued in North Dakota.”
Swanson thinks it’s possible oil companies are simply trying to extrapolate a North Dakota ruling in 2009, which allowed such expenses on gas royalties, and apply it to oilfield royalties.
Hess Bakken, in fact, in its motion to dismiss the case had referenced that very case.
“With gas, it’s different than oil,” Swanson said.
Gas requires different steps to get to a usable and marketable state, and leases involving gas thus use different language.
Swanson said the exact dollar amounts involved in these crude oil royalty cases won’t be known until discovery is complete, but he is expecting figures in the millions.
One of Swanson’s cases, filed on behalf of White Earth Minerals against Hess Bakken Investments, lists a sum exceeding $5 million, excluding interests and costs.
“(Royalty owners) should be paying attention to these cases and the outcomes of these cases,” Swanson said.
Should the courts approve these as a class action, mineral owners who would be affected should get notices — but mineral owners can also reach out to their legal advisors for guidance as well.