Dec. 17 (Bloomberg) -- North Dakota property owners asked a state court judge to rule against the government and declare them the owners of subterranean mineral rights worth millions of dollars in lands along navigable waterways.
The band of earth between the high- and low-water marks, known as the shore zone, increased in value after it was discovered to contain oil. The property owners argue the state relinquished title to the strata when it set the boundary for its own riparian rights at the low-water mark after entering the union in 1889.
“The state cannot renege on that choice -- made nearly 125 years ago -- simply because oil has been discovered in the shore zone,” the landowners told Williams County District Court Judge David W. Nelson in September.
North Dakota, rather than reneging, is asserting a mineral rights claim that it never relinquished, Attorney General Wayne Stenehjem said in a filing in October.
Nelson today heard about 90 minutes of argument from attorneys for the property owners, including lead lawyer Jan Conlin, and from Assistant Attorney General Charles M. Carvell, at a courthouse in Williston, about 70 miles south of the Canadian border.
The oil is being extracted from the Bakken shale formation, part of the geologic region called the Williston Basin, centered beneath Williston, a city of 14,716, according to the 2010 census.
The state produced more than 21.7 million barrels of crude in August, second only in U.S. production to Texas’ 62 million, according to U.S. Energy Information Administration data.
That productivity has pushed North Dakota to the top of Bloomberg’s rankings of the economic health of U.S. states for the one-year period ending with the second quarter of 2012.
While the oil in question is about two miles below the surface of the shore zone, the extraction is performed by horizontal drilling, or fracking, Conlin told the court today.
Carvell countered that oil and gas companies aren’t paying royalties on oil extracted from zone lands because they don’t know whether to pay the state or private property owners.
Part of the uncertainty stems from differing interpretations a 1994 North Dakota Supreme Court ruling in a case Carvell argued unsuccessfully for the state.
The court, reversing a trial judge’s decision, ruled the state had “coexistent, overlapping interests” with property owner Walter Mills.
Conlin, a partner in Minneapolis-based Robins Kaplan Miller & Ciresi LLP, said the Mills ruling “sets the road map in this case,” while Carvell said the first thing Nelson needs to do is decide Mills’s meaning.
North Dakota’s ownership of the zone and its resources was established from the time the territory became a state and has been consistently and repeatedly asserted, the attorney general said in court papers, citing U.S. Supreme Court precedent.
Conlin, who represents lead plaintiff Stanford Reep and a proposed land owners’ class, concedes that point in part, contending that while the state held the lands in a “public trust” requiring it to preserve the public’s use of navigable waterways and riverbeds, North Dakota also had the authority to transfer its shore zone interests and did so.
“The state chose to enact a statute providing that upland owners take their interest to the low-water mark, which necessarily includes the shore zone,” Reep’s lawyers said in court papers, adding that some form of that statute has remained part of the state’s laws since 1889.
“No authority in North Dakota -- the courts, the attorney general, the state engineer or the legislature -- ever has suggested that the public trust applies to subsurface minerals,” the plaintiffs’ lawyers said, adding that the state’s shore zone interest is limited to its preservation of public waterways and the surface of its river beds.
“Private owners of shore zone minerals have been deprived of millions of dollars in payments by the state’s taking and leasing of their interests,” Conlin said in a Sept. 21 filing.
Attorney General Stenehjem asked the court to look at the issue more broadly.
“The public values associated with the land along our rivers and lakes are not just ‘economic,’” he argued in his filing. “These lands have extraordinary benefits and they will be compromised,” if title is transferred to private parties.
The statute at issue doesn’t convey the shore zone to riparian land owners, Carvell said today.
Nelson told the parties he was unlikely to rule before mid-January.
“No matter what I do, we know this is going to the Supreme Court,” where they can answer the question once and for all, the judge said.
The case is Reep v. State of North Dakota, 53-2012-CV-00213, District Court of North Dakota, Northwest Judicial Circuit (Williston).
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