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North Dakota to appeal ruling in royalty dispute with oil company

A western North Dakota judge ruled in favor of Newfield Exploration and against North Dakota in October.

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A pumpjack is pictured at an oil well in western North Dakota.
Forum News Service file photo
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BISMARCK — The state of North Dakota will appeal a ruling rendered last year that favored an oil company in a longstanding dispute over old royalty payments, Land Commissioner Jodi Smith told Forum News Service.

A western North Dakota judge ruled in favor of Newfield Exploration and against the state in October, but the three-page judgment in the extremely complex and potentially precedent-setting case left major questions unanswered.

The Board of University and School Lands, which includes Gov. Doug Burgum and four other statewide elected officials, recently decided to appeal the ruling to the state Supreme Court, Smith said.

Newfield sued North Dakota in 2018 after the state Department of Trust Lands demanded back payments from the company and about 40 other oil and gas firms that were deducting the costs of transporting and purifying oil from their royalty bills for years.

The department said the firms violated their lease agreements with the state by taking the deductions, but Newfield, now owned by Denver-based Ovintiv, argued the deductions were always allowed.

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The royalties would go to trusts that fund public K-12 schools and colleges if recovered by the state.

The Supreme Court ruled in the state's favor two years ago, but the case was returned to Judge Robin Schmidt's Watford City district court to be further adjudicated.

Schmidt's October judgment said North Dakota failed to prove it had a lease agreement with Newfield. It is common for companies to produce oil from wells under leases held by another firm or person, so the operators producing oil may not be named in original leases with the state.

The ruling baffled some industry observers as it did not address whether the deductions taken by the company were improper, nor did it clarify whether the old royalty payments are still owed to the state by the original lessee or some other entity.

The board also opted to appeal an earlier Schmidt ruling that upheld industry-backed legislation approved last year that retroactively established a statute of limitations for state collections of royalty payments. That judgment, viewed as a victory for the industry, prevents the Department of Trust Lands from requiring firms to pony up on outstanding royalty bills from before August 2013.

Jeremy Turley is a Bismarck-based reporter for Forum News Service, which provides news coverage to publications owned by Forum Communications Company.
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