ND Oil & Gas Law

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Introduction

Oil and gas production involves several entities, such as the mineral owner, mineral developer and surface owner. The relationships and interactions among these entities often raise legal questions. This page overviews this web site by introducing some of the legal issues.

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The purpose of this web site is to introduce fundamental questions or issues often considered by individuals who own land or mineral rights that are being developed by a mineral company.  In this discussion, the focus will be on oil and gas production in rural or agricultural areas.  Several assumptions underpin the discussion:

  • The land surface is being used for crop production, livestock grazing or another agricultural purpose.
  • The minerals of interest are oil, natural gas and related hydro-carbons.
  • The owner of the mineral rights is an individual who will NOT develop the oil and gas resources.
  • The owner of the mineral rights is NOT interested in selling the mineral rights, but will lease the mineral rights to a company that will explore for and produce the oil and gas.
  • The company that enters into the lease with the mineral right owner may not explore for or produce the oil and gas, but instead contract with another company to perform some or all of these tasks.
  • Exploration and production of oil and gas could cause anywhere from a minor to a major interruption of the agricultural use of the land, and impact nearby surface and ground water.
  • If ownership of the mineral rights and surface rights is severed (that is, owned by two different persons), there is no assurance that the mineral owner and surface owner have an ongoing personal or business relationship between them.
    • The law is clear -- a surface owner cannot prevent a mineral owner from entering onto the land to explore for and produce the minerals.
    • If the landowner does not own the mineral rights (that is, the landowner only owns the surface rights), there is no opportunity (as part of the mineral lease) for the landowner to negotiate with the company about how the land will be used during exploration and production.  In recognition of this issue, North Dakota law has been amended to provide the landowner an opportunity to negotiate with the mineral developer.
  • If the owner of the land also owns the mineral rights, there is an opportunity when negotiating the mineral lease for the owner to address issues concerning both mineral development and land use, but this need to negotiate land use as part of the mineral lease also is changing due to horizontal drilling technology.  Again, the recent amendment of North Dakota law is impacting which issues need to be addressed in a mineral lease.
  • There will be situations in which the surface rights and mineral rights are co-owned by several individuals, such as a husband and wife co-owning the surface rights, or three siblings co-owning the mineral rights; and there is no assurance that the co-owners (such as the co-owners of the mineral rights) will conduct business as a group.

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Based on these assumptions, this web site addresses several broad topics:

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This web site is NOT a substitute for advice from an attorney or other professional knowledgeable about oil and gas matters.  Consult an appropriate professional for answers to questions about the ownership, leasing, and development of mineral rights.

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Information on this web site reflects previous efforts of several colleagues, in particular

  • Professor Owen L. Anderson, Eugene Kuntz Chair in Oil, Gas & Natural Resources, University of Oklahoma College of Law.
  • Dr. Ronald A.  Anderson, Professor Emeritus of Agricultural Economics, NDSU; see Anderson, R.  North Dakota Oil and Gas Leasing Considerations, Extension Bulletin 29, 12 AECO-2, November 1981, revised October 2006, North Dakota State University Fargo, North Dakota 58105.

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Additional information about oil and gas exploration and production is available from numerous sites, such as

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INTRODUCTION

Exploration and production of North Dakota's oil resources is occurring at an accelerated rate. Increased prices for crude oil and the development of new technologies make it possible and profitable to drill for petroleum at greater depths. Improved methods have enabled oil companies to produce more petroleum from existing wells. Enhanced exploration techniques have helped locate large areas in central and eastern North Dakota having geology favorable for the discovery of new oil and gas deposits.

What does this mean for North Dakota landowners? Many individuals who have never thought much about their mineral rights may soon need to make decisions having considerable economic consequences.  The ”rules of the game" are ever changing, and mineral owners who will negotiate an oil and gas lease in the future should be especially alert to maximize their lease benefits.

Entering into a mineral lease is a business transaction; documented by means of a contract negotiated between a mineral owner and an oil and gas company.  However, the exploration and production of oil and gas also are regulated by state law.  This web site discusses concepts persons want to understand as they negotiate a mineral lease, but it also introduces the role of state regulation.  For example, there will be a few topics where state law specifies the relationship between the mineral owner, surface owner, and the oil company, despite what the parties may have willingly agreed to.  More frequently, there will be situations where state law will be applied because the mineral owner and oil company overlooked a particular topic when negotiating a mineral lease.  Understanding the interaction between state law and the opportunity for mineral owners and oil companies to negotiate an agreement is one objective of this web site.

Regulation of energy development is primarily a matter of state law; federal law has a lesser role in directing the exploration and production of minerals owned by individuals.  Accordingly, much of the discussion in this web site focuses on North Dakota law.  Persons involved with mineral ownership and development in another state should consult a person knowledgeable about mineral laws in that state.  There will be similarities as well as differences among the laws of the states.  Do not assume that each issue is addressed the same way in every state.

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As will be stated many times on this web site:

Seek appropriate professional counsel before taking action involving mineral rights.

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PARTIES OR ENTITIES INVOLVED IN OIL AND GAS DEVELOPMENT

This web site focuses on several different roles or perspectives relating to oil and gas production in North Dakota.  These perspectives are discussed throughout this web site.

  • The mineral owner – the person who owns the mineral rights associated with a tract of land.
  • The surface owner – the person who owns the right to use the surface of the land; often considered the landowner.
  • The company that has leased the mineral rights from the mineral owner and other entities in the oil and gas industry.
  • State government – in the case of oil and gas in North Dakota, the Industrial Commission is the lead agency.

Even though oil and gas production can be described as having these four primary perspectives, each perspective may involve more than one person or entity.  The various perspectives brought to the interactions among the different parties can be a source of legal issues or disputes.

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PURPOSE OF WEB SITE

Providing information to help the citizens of North Dakota better understand the oil and gas exploration and production process and related leasing considerations fits within the objectives of the NDSU Extension Service. Oil and gas companies also will benefit from this educational effort.  An informed public is less apprehensive and easier to deal with, which should reduce the number of disagreements caused by misunderstanding the leasing process and the need for various leasing provisions to protect both the mineral owner and oil company.

Specifically, the purpose of this web site is to:

  1. Serve as a general guide to the oil and gas exploration and production process for individuals not yet acquainted with the process.
  2. Acquaint non-experts with the more common provisions of an oil and gas lease, relate these provisions to the various steps in the exploration and production process, and introduce their legal significance.
  3. Detail specific provisions a mineral owner may wish to include in a mineral lease for additional personal benefit or protection.

Mineral leasing is a matter of negotiation, and mineral owners should be aware of a number of basic factors before beginning these negotiations.  Less-experienced or uninformed mineral owners may be at a disadvantage in arranging for the future use of their mineral resources. Topics discussed in this web site were chosen either because they may be of special concern to mineral owners or because they are basic to the structure of an oil and gas lease.

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NEED FOR LEGAL ADVICE

Negotiating a mineral lease will likely begin with an oil company offering the mineral owner a standard or form lease for the mineral owner to consider.  Even though the mineral owners may feel they need to accept the terms offered by the company, a mineral lease can be negotiated.  Mineral owners should familiarize themselves with relevant questions and potential issues, carefully review any offered lease (perhaps with the assistance of a knowledgeable attorney), and offer appropriate alternative lease language.  A company interested in the minerals will not necessarily reject the mineral owners' proposal.

Before a lease is signed, an attorney knowledgeable in the oil and gas leasing should review the lease offered by the company to determine if it meets the specific needs of the mineral owner. Seeking legal advice when a problem arises after the lease is signed may be too late. At that point, the lease is a legal contract and resolution of the problem may be difficult.

Likewise, always get knowledgeable legal advice in drafting a mineral deed, royalty assignment, or deed to land containing a mineral or royalty assignment. Drafting these documents is highly technical and legal matter. Knowledgeable legal assistance can avoid possible problems and resulting disagreements and lawsuits.

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Next Pages

This web site contains several pages, however, an individual unfamiliar with oil and gas exploration and production process may want to read that brief introduction next.

Email: david.saxowsky@ndsu.edu

This material is intended for educational purposes only. It is not a substitute for competent legal counsel. Seek appropriate professional advice for answers to your specific questions.

This material is protected by U.S. copyright laws.

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