There is much talk in North Dakota and beyond about the booming oil industry in western North Dakota. From Minot to Williston to Dickinson, everywhere the eye can see are pumps, tanks and equipment.
The oil is coming from an oil reserve that covers parts of western North Dakota, eastern Montana and southern Saskatchewan known as the “Bakken” formation, named after the farmer in Williston, North Dakota who owned the land where the formation was initially discovered in 1951. According to a 2008 U.S. Geological Survey report, there is estimated to be about 3 to 4.3 billion recoverable barrels of oil in the reserve using today's technology. Other estimates place the overall reserve at up to 24 billion barrels.
The advent of the modernized technique for extracting the oil from underground shale known as fracking in the late 1990s has enabled oil companies to extract enough oil from the Bakken reserve to make drilling economically feasible.
The result was a massive mobilization of oil company resources to the area including many public companies such as: Concho Resources, Inc., Abraxas Petroleum Corporation, EOG Resources, Inc., Continental Resources, Inc., Whiting Oil & Gas, Inc., Marathon Oil Corporation, QEP Resources, Inc., Brigham Exploration Company, Hess Corporation, Samson Oil and Gas, Ltd, Statoil, and Occidental Petroleum Corp., among others.
Moreover, each of these companies utilize a wide variety of ancillary companies for such services as roustabout work, drilling, excavation, construction, pipeline work, etc. These companies providing ancillary services are often small or medium sized privately owned businesses.
This mobilization of people and resources has brought wealth and opportunity to people in the region, but it has also resulted in conflict and the changes have forced some people out of the region.
For the oil companies, large, sophisticated companies, often with teams of lawyers, the business model is to acquire mineral and drilling rights from the mineral rights owners and the surface owners. While mineral rights in land granted by the state of North Dakota since 1960 were reserved to the state, private landowners whose land was deeded from the government before 1960 often own all or part of the appurtenant mineral rights. Such leases typically will include a clause providing for royalties to the landowner in connection with the oil extraction.
Because mineral rights can be and commonly are severed property rights, it is important for landowners in North Dakota to hire an attorney to help determine what rights they may have in the property they own. Where oil reserves exist and oil industry infrastructure is present, landowners often end up engaged in a dialogue with oil company land men for oil and gas lease rights.
Mineral rights holders are considered the “dominant” estate at common law, which means that where an oil company owns the mineral rights to land, they are entitled to reasonable access for drilling purposes. This is a different legal relationship than for other industries such as wind turbine companies or cellular phone companies, who often do not own any rights relative to the underlying property. However, North Dakota laws protect surface owners to some extent, with the aim of ensuring that they are justly compensated for damage to their property and for interference with their continued use of the property. The laws also require the mineral rights owner to provide detailed notices before testing, construction and drilling activities, and require the mineral rights owner to make a written offer of settlement for damages.
For the companies providing ancillary services, contracts to provide services to oil companies often call for upfront investments in equipment and personnel. Agreements should be structured such that they serve the interests of both parties, and avoid unnecessary risks.
At Hance Law Firm, we are committed to serving landowners and small business owners from North Dakota and beyond to help meet their objectives in this changing marketplace, and to fight for them if conflict arises.