In the recent opinion of Powell, et al. v. Statoil Oil & Gas, the North Dakota Supreme Court emphasized that the responsibility to pay royalties under an oil and gas lease constitutes a contract embedded in a document influencing ownership rights to real property, as defined by N.D.C.C. § 28–01–15(2). The Court held that the 10-year statute of limitations in this statute applies to cases involving delayed payment of royalties. Further, if an operator fails to notify a mineral owner of a title dispute and fails to pay oil and gas royalties within 150 days after the oil and gas produced is marketed and cancellation of the lease is not sought, the operator is required to pay interest at a rate of 18% per annum until the royalties have been paid.
This opinion resulted from the Plaintiff’s (Fonda Jo Powell and Mary T. Henke, Co-personal Representatives of the Estate of June A. Slagle) appeal from a judgment of dismissal after the district court granted Statoil’s motion for summary judgment. The district court concluded that a title dispute allowed Statoil to suspend royalty payments and that the Plaintiffs were not entitled to statutory interest. The Plaintiffs argued in their appeal that the district court erred in concluding there was a title dispute. However, Statoil argued that a 3-year statute of limitations under N.D.C.C. § 28-01-17(2) barred the Plaintiff’s action altogether. Ultimately, the North Dakota Supreme Court reversed, concluding that the action was not barred by the 3-year statute of limitations, and the district court had erred in concluding Statoil had lawfully suspended royalty payments.
June Slagle owned mineral interests in McKenzie County, North Dakota, including a life estate interest, before her death in 2016. The June Slagle Family Mineral Trust (“the Trust”) held the remainder interest in the life estate minerals. In 2010, an oil and gas lease for June Slagle’s life estate minerals was recorded, executed by “Fonda Powell, power of attorney for June Slagle,” to Brigham Oil and Gas L.P. (later acquired by Statoil, n/k/a Equinor Energy L.P.). The lease contained a 20% royalty for the lessor. Despite an initial payment for consideration to “June Slagle & Fonda Powell P.O.A.,” no power–of–attorney instrument was recorded in the McKenzie County Recorder’s Office.
The Patent Gate 7-6 #1H well was spud in October 2011, and began producing from a spacing unit which included the life estate minerals in April 2012. However, June Slagle never received any royalties during her lifetime. In 2017, Statoil paid the Trust approximately $750,060 for the suspended royalties related to the life estate mineral interest. In 2019, Plaintiffs Fonda Powell and Mary Henke, co-personal representatives of the estate of June Slagle, initiated legal action, claiming Statoil breached its obligation to pay royalties in a timely manner. Statoil argued that the claims were time-barred and justified the royalty suspension due to the unrecorded power–of–attorney (the “title dispute”). Plaintiffs countered, claiming they had not been informed of the alleged title defect and that Fonda Powell had provided Brigham with a copy of the power of attorney instrument when the lease was executed. The legal dispute focused on whether Statoil’s suspension of royalties was justified and the correct time limit (3 or 10 years) of the statute of limitations for the Plaintiff’s claims. The district court granted summary judgment in favor of Statoil, concluding that a title dispute existed, allowing Statoil to suspend royalty payments.
North Dakota Supreme Court Review
Upon review of the parties’ statute of limitations arguments, the North Dakota Supreme Court concluded the ten-year statute of limitations under N.D.C.C. § 28-01-15(2), as determined in Kittleson v. Grynberg Petroleum Company (established that interpreting a statute of limitations is a question of law fully reviewable on appeal), applied to the Plaintiffs’ claim for untimely payment of royalties under the oil and gas lease, making their action timely. Statoil argued for a three-year limitation under N.D.C.C. § 28-01-17(2), asserting that the Plaintiffs’ 18% statutory interest claim under N.D.C.C. § 47-16-39.1 qualified as an action upon a statute for a penalty. Statoil contended that the 18% interest is a penalty, not true interest, based on definitions, legislative history, and precedents from other jurisdictions. However, the Court rejected this argument, emphasizing the legislature had clearly delineated between interests and penalties.
Finally, the Court addressed the Plaintiff’s argument that the district court had made an error in determining that a title dispute existed to justify Statoil’s suspension of royalties. According to N.D.C.C. § 47-16-39.1, mineral owners can receive 18% interest per annum on untimely royalty payments unless a title dispute affecting royalty distribution exists. In Vic Christensen Mineral Tr. V. Enerplus Res (U.S.) Corp., mineral owners sued each other to quiet title in their interests, and the Court found that the operator lawfully suspended royalty payments because of this dispute. However, the Court found that, in the present case, there was no quiet title action between mineral owners, and Statoil had failed to demonstrate that another owner’s interest affected June Slagle’s life estate interest. The Court noted that under N.D.C.C. § 47-16-39.4, an operator is required to provided notice of the dispute to the mineral owner, including a description and proposed resolution, if a dispute arises between said mineral owner and operator. The Court held that when combining N.D.C.C. §§ 47-16-39.1 and 47-16-39.4, if an operator fails to notify a mineral owner of a title dispute affecting royalty distribution and does not pay royalties within 150 days after oil or gas is marketed, the operator must pay interest at 18% annum until paid. Because Statoil did not provide evidence of notifying June Slagle of a title dispute and failed to pay royalties in a timely manner, the Court concluded that Statoil must pay interest at the rate of 18% on untimely paid royalties. The judgment of dismissal and order for summary judgment was reversed and the Court remanded for further proceedings consistent with its opinion.
This North Dakota Supreme Court opinion clarifies the contractual nature of the obligation to timely pay royalties under an oil and gas lease, solidifying it as a contractual duty within the scope of N.D.C.C. § 28-01-15(2) and subject to a ten-year statute of limitations. Ultimately, this case underscores the importance of properly notifying a lessor of suspended royalty payments. Going forward, this precedent suggests that the North Dakota Supreme Court prioritizes upholding the contractual obligations incorporated in oil and gas leases, enforcing applicable statutes of limitations, and scrutinizing the justifications for royalty payment suspensions, thus providing clearer guidance for future legal disputes in the state’s energy sector.
Kuiper Law Firm, PLLC specializes in all aspects of onshore operations including oil, gas, & mineral leases. We will continue to monitor any updates on this case law. If you have any questions about the information in this article or how it may affect your operations, please do not hesitate to contact us.