BAKKEN BONANZA

TEXAS ENERGY COMPANIES GO NORTH

CHARLES R. PEISSELPEISSEL LAW FIRM, L.L.P.WWW.PEISSEL.COMNOVEMBER 2013

POP QUIZ!

QUESTION #1The state capital of North Dakota is:

a) Grand Forksb) Minotc) Bismarck

ANSWER

c) Bismarck

QUESTION #2The state bordering North Dakota on the west is:

a) Wyomingb) Montanac) Ohio

ANSWER

b) Montana

QUESTION #3The population of North Dakota (as of 2012) is:

a) 910,000b) 700,000c) 450,000

ANSWER

b) 700,000

QUESTION #4Approximate number of drilling rigs operating in North Dakota today:a) 50b) 110c) 183d) 350

ANSWER

c) 183

QUESTION #5The name “Bakken” is derived from:

a) creature that lived during the Jurassic periodb) a type of whiskey sold during Prohibitionc) farmer Henry Bakken in Williston, North Dakota

ANSWER

c) farmer Henry Bakken in Williston, North Dakota

WHY DO WE CARE ABOUTNORTH DAKOTA?

GOING UP!

Source: North Dakota Dept. of Mineral Resources

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

North Dakota Daily Oil ProductionJanuary 2000 to August 2013 (est.)Barrels

Estimate

PART I

IN THE BEGINNING…..

Map credit: Compiled by H. George Stoll, Hammond Incorporated, 1967;Revised by U.S. Geological Survey 1970

EXPLORATION

Source: Wikipedia Commons

1851-1870

Source: www.landgrant.org

1861

Source: Wikipedia

LEGAL MILESTONE #1

HOMESTEAD ACT OF 1862

1874 – GOLD IN THE BLACK HILLS

LEGAL MILESTONE #2

DAWES ACT OF 1877

Source: Federal Reserve Bank of Minnesota

BAKKEN GEOLOGY

Source: www.nasa.gov

PART II

GENERAL ISSUES…….

IT’S NOT SIMPLE AND IT’S DIFFERENT 61 years of activity 1280 acre units are common 2560 acre units are becoming more

common Title opinions can reach 600 pages or

more Title standards are numerous and complex

IT’S NOT SIMPLE AND IT’S DIFFERENT Land practices are not state of the art Everybody is understaffed and running

behind Attorneys unfamiliar with North Dakota

are rendering North Dakota title opinions

Drilling is running ahead of title opinions

FEDERAL LANDS ARE EVERYWHERE North Dakota started out as federal

property Federal leases are issued by the Department of the Interior through the BLM

4.1 million acres administered by the BLM in the western 1/3 of the state

Approximately 1,700 federal oil and gas leases

Drilling permits may take up to 10 months

INDIAN COUNTRY

Map Credit: North Dakota Indian Affairs Commission

WHAT LAW GOVERNS INDIAN LAND?

Federal

TribalState

INDIAN COUNTRY Indian lands scattered throughout the

state BLM, BIA, ONRR Tribes are sovereign entities and are

your lessors, with the consent of the BIA

State laws may or may not apply State laws adopted by tribe may be

handled by the BIA

INDIAN LEASING ACTSA lease of Indian lands may be executed under the following statutes:

Indian Mineral Leasing Act (IMLA) Indian Mineral Development Act (IMDA) Indian Tribal Energy Development and Self

Determination Act (ITEDSA) Allotted Lands Leasing Act

INDIAN RECORD DEPOSITORIES BLM State Land Office

Master Title Plat Historical Index

BIA Land Title Records Office Land Index and referenced documents Title Status Reports Probate files

BIA Regional Office Unit Agreements, Development agreements, Lease Sale Notices Sale Files, environmental reviews, assessments Leases

BIA Agency Realty Office Lease files Land ownership plats

Tribal Records Tribal liens, Tribal Tax liens

County Records

RAILROADS – BIG TIME PROPERTY OWNERS

Land grants totaling 11 million acres – 23% of North Dakota

Right of way Lands, Place Lands and Indemnity Lands within a 120 mile strip

400 or 200 foot easement along the right of way

Map Credit: www.nd.gov

Map Credit: www.nd.gov

BNSF RAILWAY TODAY

WATER, WATER EVERYWHERE…..

Map credit: USGS

WATER LAW – STATE OWNERSHIPThe state of North Dakota claims title to the bed of the Missouri River, which would include the underlying oil and gas.

WATER LAW – PRIVATE OWNERSHIPNorth Dakota State law grants riparian owners title to the low watermark (NDCC 47-01-15).

INTERSECTION OF WATER LAW AND INDIAN LAW

North Dakota’s first constitution expressly disclaimed all right and title to Indian Lands. ND Const. art., XVI, § 203 (1889)

Did the bed of navigable waterways within the boundaries of Indian Country in North Dakota pass to the state under the equal footing doctrine or was it vested in the Tribe?

PART III

NOW THE NUTS AND BOLTS…….

LEGAL ISSUE #1

NO COMMUNITY PROPERTY

But…….homestead laws apply

Two signatures on one document or it’s void

LEGAL ISSUE #2

DORMANT MINERAL ACT

Mineral interest must be used or it may be claimed by the surface owner after 20 years.

LEGAL ISSUE #3

PROBATE AND INTESTATE SUCCESSION

Probate statutes amended frequentlyDecree of heirship may be necessaryDeath deeds are effective

LEGAL ISSUE #4

FORCE POOLING

Commission must grant pooling order if criteria met.

Unleased mineral interest owners entitled to royalty – weighted average or 16%

LEGAL ISSUE #5SURFACE OWNER PROTECTION ACT

Compensation for the surface owner and tenant

20 days advance written notice of operations

Actual and punitive damages

LEGAL ISSUE #6

POST PRODUCTION COSTS

i. North Dakota apparently follows the Texas rule allowing deduction of post production costs on non-federal leases

ii. Federal and Indian leases are governed by specific regulations set out in 30 C.F.R. Part 206.

LEGAL ISSUE #7TAX TITLES

i. Old tax foreclosures are suspectii. Affidavit of Marketable Title may

be helpfuliii. Quiet title action or quitclaim from

prior owner (Good Luck!)

LEGAL ISSUE #8AFFIDAVIT CONFIRMING PRODUCTION IN PAYING QUANTITIES

File before expiration of primary term!

LEGAL ISSUE #9RATIFICATION BY NONEXECUTIVE INTERESTS

Leases and amendments should be ratified by nonexecutive mineral owners and possibly by nonparticipating royalty owners

Require stipulation as to who receives production payments and shut-in payments

LEGAL ISSUE #10RELEASE OF OIL AND GAS LEASES

Statutory duty to release within 15 days of termination or forfeiture

ONLY IN THE BAKKEN

Be careful where you drill…………

LOTS OF HISTORY

Source: Bismarck Tribune March 18, 2013

150 SILOS!

LAND OF OPPORTUNITY!