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BAKKEN BONANZA
TEXAS ENERGY COMPANIES GO NORTH
CHARLES R. PEISSELPEISSEL LAW FIRM, L.L.P.WWW.PEISSEL.COMNOVEMBER 2013
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POP QUIZ!
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QUESTION #1The state capital of North Dakota is:
a) Grand Forksb) Minotc) Bismarck
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ANSWER
c) Bismarck
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QUESTION #2The state bordering North Dakota on the west is:
a) Wyomingb) Montanac) Ohio
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ANSWER
b) Montana
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QUESTION #3The population of North Dakota (as of 2012) is:
a) 910,000b) 700,000c) 450,000
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ANSWER
b) 700,000
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QUESTION #4Approximate number of drilling rigs operating in North Dakota today:a) 50b) 110c) 183d) 350
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ANSWER
c) 183
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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
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ANSWER
c) farmer Henry Bakken in Williston, North Dakota
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WHY DO WE CARE ABOUTNORTH DAKOTA?
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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
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PART I
IN THE BEGINNING…..
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Map credit: Compiled by H. George Stoll, Hammond Incorporated, 1967;Revised by U.S. Geological Survey 1970
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EXPLORATION
Source: Wikipedia Commons
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1851-1870
Source: www.landgrant.org
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1861
Source: Wikipedia
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LEGAL MILESTONE #1
HOMESTEAD ACT OF 1862
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1874 – GOLD IN THE BLACK HILLS
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LEGAL MILESTONE #2
DAWES ACT OF 1877
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Source: Federal Reserve Bank of Minnesota
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BAKKEN GEOLOGY
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Source: www.nasa.gov
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PART II
GENERAL ISSUES…….
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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
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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
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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
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INDIAN COUNTRY
Map Credit: North Dakota Indian Affairs Commission
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WHAT LAW GOVERNS INDIAN LAND?
Federal
TribalState
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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
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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
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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
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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
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Map Credit: www.nd.gov
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Map Credit: www.nd.gov
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BNSF RAILWAY TODAY
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WATER, WATER EVERYWHERE…..
Map credit: USGS
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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.
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WATER LAW – PRIVATE OWNERSHIPNorth Dakota State law grants riparian owners title to the low watermark (NDCC 47-01-15).
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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?
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PART III
NOW THE NUTS AND BOLTS…….
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LEGAL ISSUE #1
NO COMMUNITY PROPERTY
But…….homestead laws apply
Two signatures on one document or it’s void
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LEGAL ISSUE #2
DORMANT MINERAL ACT
Mineral interest must be used or it may be claimed by the surface owner after 20 years.
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LEGAL ISSUE #3
PROBATE AND INTESTATE SUCCESSION
Probate statutes amended frequentlyDecree of heirship may be necessaryDeath deeds are effective
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LEGAL ISSUE #4
FORCE POOLING
Commission must grant pooling order if criteria met.
Unleased mineral interest owners entitled to royalty – weighted average or 16%
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LEGAL ISSUE #5SURFACE OWNER PROTECTION ACT
Compensation for the surface owner and tenant
20 days advance written notice of operations
Actual and punitive damages
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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.
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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!)
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LEGAL ISSUE #8AFFIDAVIT CONFIRMING PRODUCTION IN PAYING QUANTITIES
File before expiration of primary term!
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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
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LEGAL ISSUE #10RELEASE OF OIL AND GAS LEASES
Statutory duty to release within 15 days of termination or forfeiture
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ONLY IN THE BAKKEN
Be careful where you drill…………
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LOTS OF HISTORY
Source: Bismarck Tribune March 18, 2013
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150 SILOS!
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LAND OF OPPORTUNITY!