In the Bakken, A Big Problem Lurks Below the Surface
Spend any time in Williston, ND this summer and you will feel the energy. No, it is not 2014 again, but the activity and optimism is unmistakable. The Bakken has seen challenges over the past few years and the signs are that the oil and gas industry in North Dakota is alive and well.
But, challenges remain. The August 2018 Director’s Cut released by the North Dakota Department of Mineral Resources showed that daily oil production dropped over 20,000 barrels in June from the record set in May. Issues with natural gas capture and processing were given as the primary cause of the production drop, but there is another issue affecting drilling activity around Lake Sakakawea, the battle over property rights.
When I served in the ND Legislature there was a saying “Whiskey is for drinking, but water is for fighting.” Battles over water rights were common and colorful. Today the fight is not about water itself, but what lies beneath that water. Specially, who owns the minerals lying under Lake Sakakawea. This battle has far reaching implications.
Both sides in this legal battle agree with certain basic facts. It is understood that the federal government owned the rights to the Missouri River, including the river bed, from Ordinary High Water Marks (“OHWM”) on either side of the river. And, when North Dakota was granted statehood that property became state-owned under the equal footing doctrine. The legal question centers on the definition of the OHWM.
The Missouri River enters North Dakota about 20 miles west of Williston and runs diagonally through Bismarck and to the South Dakota border. In 1944, the U.S. Congress authorized several flood control projects along the Missouri River, one of those projects was the Garrison Dam. The U.S. Army Corps of Engineers (“Corp”) acquired surface rights to the lands that would be inundated by the reservoir created by the Garrison Dam, named Lake Sakakawea.
Over a series of legal battles the ownership of the minerals under Lake Sakakawea has been disputed. In 2017, the ND Legislature passed SB 2134 attempting to clarify the mineral ownership issue. The current lawsuit is an action challenging that statute.
There is no question that the surface and mineral interests outside the traditional Missouri River channel have been held privately by families for generations. The issue stems from the government’s decision to dam the Missouri River near Garrison, ND and the result was the reservoir known as Lake Sakakawea. Is Lake Sakakawea merely an extension of the Missouri River as some argue? If so, they argue that the minerals lying under the lake are now owned by the state of North Dakota.
Private property owners argue that a man-made decision to dam the river did not convert the underlying minerals to state-owned property but those minerals remain with the prior owners. This is an important property rights issue.
Of course, the reason for these legal battles is money. The Bakken tight oil play and horizontal drilling make the oil and gas under Lake Sakakawea safely accessible, and quite valuable. Historically, U.S. Highway 85 that runs north and south through western North Dakota has been a dividing line between Lake Sakakawea and the Missouri River. Highway 85 crosses the “Missouri River” just a few miles west of Williston, ND and the water lying east of the Highway 85 bridge was considered Lake Sakakawea, while the water to the west was considered the Missouri River. For many years, State policy was to claim the historic riverbed east of Highway 85 and the current riverbed west of Highway 85. Leases were executed between mineral owners and oil companies and hundreds of wells were drilled in reliance on that policy.
The Bakken oil play is still in the early stages, just under 13,000 unconventional wells have been drilled to date and it is estimated that another 47,000 wells are required to fully develop the Bakken resources. The royalties to the oil and gas located under Lake Sakakawea are significant and the North Dakota Department of Mineral Resources estimates that there are approximately 12,600 private royalty interest owners affected by the legal battles.
When horizontal drilling accessed the minerals under the Lake the State’s position on those minerals changed. In an earlier case the state argued “simply because the Corps dams up a river, and backs up water, and gives that water body a new name, it does not mean that the water body did not exist at statehood” (“Murky Waters: Industry, royalty owners question whether state is trying to claim minerals under Lake Sakakawea”, Dickinson Press October 14, 2016).
The argument that the minerals lying under Lake Sakakawea are owned by the State was picked up in the current lawsuit. The Plaintiff’s argue that the statute passed by the Legislature in 2017 attempting to clarify mineral ownership under the Lake amounts to an unconstitutional give-away of state owned property. Not surprisingly, private mineral owners affected by the Lake see things differently.
This dispute is having a significant impact in North Dakota with drilling programs covering affected areas being delayed. These delays impact the orderly and efficient development of the resources, increasing costs and ultimate recovery. For existing wells in affected areas, leases have been executed, lease bonuses royalties have been paid in reliance on prior State policy. But, depending on how this issue is resolved the leases could be invalid if the proper owner was not a party to the lease. Also, will parties receiving royalties under any invalid lease be responsible to refund those royalties?
Who owns the minerals? In Wilkinson v. Board of University and School Lands the state argued “[T]he [ordinary high water mark] must be determined as it exists today, including the effect of man-made features such as the Garrison Dam.” If the Court agrees with this argument the impact on private property rights will be significant.
Bette Grande
Research Fellow, Energy Policy
The Heartland Institute
Email: Bette@BetteGrande.com
Mrs. Grande represented the 41st District in the North Dakota Legislature from 1996 to 2014.
Originally published Bakken Oil Report