It’s a long, drawn-out mess.” That’s how Drew Combs of the Minerals Management Division of North Dakota’s Trust Lands describes the dispute with the federal government over Missouri River tracts.
As Petroleum News Bakken reported in the Sept. 14 edition, when oil and gas exploration in the Bakken took off in the late 2000s, the state had a fiduciary responsibility to determine what land it owned along the river in order to issue leases and to collect payments. It hired an engineering firm to survey the entire river and use the State Water Commission’s standard of a high water mark to delineate what land is owned by the state. While state law dictates that the state owns to the high water mark - a decision rendered from Reep v. State in 2013 - where that mark lies has seen its fair share of debate.
One of those debates is with the federal Bureau of Land Management, BLM. That agency, however, does not rely solely on the state’s survey to determine water marks, but rather relies on its own surveys - primarily ones which date back to before North Dakota’s statehood and another prior to the construction of the Garrison Dam. It’s this difference in delineating the high water mark that has stirred controversy.
A critical partnership
The disagreement becomes significant as millions of dollars’ worth of royalty payments owed to the state are at stake. When operators were racing to obtain leases for oil development in the state, they needed to pay the rightful owner for the lease. Since the state understood the ownership issue was still in dispute, it allowed operators to obtain a lease with a bonus payment so they could begin development and then escrow the royalty payments until the ownership battle was resolved. The state has leased nearly 72,000 acres along the Missouri River and received more than $197 million in bonus payments for those leases.
Combs said that the escrow accounts allow operators to avoid losing their lease and then whoever prevails at the end of the lengthy process to identify ownership would be paid from escrow. Currently, those escrow accounts at the Bank of North Dakota total $13.3 million.
Combs said BLM is not as flexible and doesn’t use that method. Instead, he said, BLM demands operators pay royalties for its percentage of a spacing unit, even if the unit’s ownership is in dispute, or it will take back the lease.
BLM officials told Petroleum News Bakken that the Department of Interior’s Office of Natural Resources Revenue, ONRR, the U.S. agency charged with managing America’s energy and mineral leases, would notify an operator for failure to report and pay royalties, and if the operator refused to do so, there are assessments and penalties. BLM said it would not terminate the lease unless ONRR directs them to do so or the operator stops production in the spacing unit.
Getting the money back
If it is determined that BLM received payments that should have gone to the state, Combs anticipates a lengthy process to get that money back.
BLM’s Acting Deputy State Director Don Judice said the ONRR will pay back any monies that have been overpaid to the government if ownership is redefined.
“(The agency has) the ability to recoup and redistribute funds if they have found to be collected in error,” said Judice. “That’s the easiest way to resolve this instead of trying to hold monies.” He said operators can be “absolutely” assured that they will get their money back because there is federal law requiring it.
Judice said the federal government does not have a means for putting the money into suspension or escrow, so it instructs operators to pay according to its survey until an updated survey becomes official and land is redefined. Updated surveys are done by BLM periodically in townships along the river, prioritized by where the river has shown the greatest change in movement. Those new surveys are then open for public comment and the state has the opportunity to share any technical information it has obtained to be given consideration before BLM renders its final decision on ownership boundaries.
The updated surveys are published in the Federal Register, but Combs said the state was not aware of the comment period on one published this spring. When BLM published the next survey on the latest four townships, it made a point to give notice to the state. Trust Lands and the state engineer’s office initiated protests of the survey results. “We offered a liberal 90-day window for a protest - it’s normally 30 days - knowing the complexities of it,” Judice said.
That 90-day period closes on Dec. 8. BLM officials said although the recent survey includes only four townships, a decision could potentially affect any township that has a federal-interest riparian parcel along the Missouri and Yellowstone Rivers. Once BLM has reviewed the protests and publishes a decision, the state has the option to appeal to the Interior Board of Land Appeals. This would involve a court system which Judice said has no set timeline.
“It’s really hard to say how long things take in the judicial system,” Judice said.
“This whole time that clock’s ticking. We’ve got hundreds of wells by that time producing,” Combs said.
“Maybe we’re not getting the money we’re owed, but there’s a bunch of collateral damage because a lot of fee owners are not getting money either because of a title dispute for a well drilled,” said Trust Lands’ Keith Bayley.
In many cases, the federal government is the only entity receiving a check. Combs anticipates asking the state’s congressional delegation to get involved to resolve the dispute. Judice said the state retains its authority to determine ownership under the Equal Footing Doctrine, but it must use only federal criteria and case law in its determination.
“It’s a complex federal process but in the spirit of collaborative and cooperative working relationships, we are working through this,” said Melodie Lloyd, BLM communications chief, “It’s important to know that we are being as cooperative as our process will allow us to be.”
Who owns the river?
Meanwhile, a specific river location is causing additional problems for Trust Lands. Ownership of the Missouri River acreage that flows through the Fort Berthold Indian Reservation has never been resolved. The Three Affiliated Tribes and the state both claim the original river channel, but Trust Lands’ attempts to reach the tribe and the Bureau of Indian Affairs for discussion of an agreement to the dispute have gone unanswered.
Despite several attempts, Petroleum News Bakken was unable to obtain comment from the Three Affiliate Tribes, and the BIA had not provided responses to questions by press time.
When U.S. Sen. John Hoeven was governor, he developed an agreement in 2008 with the tribe regarding gross production and extraction taxes on oil and gas, but Hoeven’s Chief of Staff Ryan Bernstein told Petroleum News Bakken that in that meeting, the river ownership topic was only briefly discussed.
“To get to that (tax) agreement we agreed that we could not come to an agreement on who owns the riverbed and, frankly, we set that aside and did not discuss that or talk about that at all,” Bernstein said.
Stuck in the middle
As the state and tribe both claim the river, operators are stuck in the middle wondering who to pay. Calgary-based Enerplus operates in North Dakota solely on the Fort Berthold Indian Reservation and Communications and Public Affairs Coordinator Jessie Koerner told Petroleum News Bakken that the company has only paid the federal government for leases on the river. However, Koerner said when the dispute between the tribe and state is settled, Enerplus will pay the state what it is owed at that time.
Petroleum News Bakken attempted to contact several other operators, but none could be reached for comment.
“At some point we’re going to have to start talking to the tribe and engage the tribal leaders and figure out the river,” Combs said. “The state leased some of it and the feds and tribes are claiming it, too. We’re going to assert our claim ... it’s just another layer to this whole river issue.”
