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Members of the Land Board, from left, Secretary of State Al Jaeger, Gov. Doug Burgum and Treasurer Kelly Schmidt, meet on Dec. 17 at the Capitol. The board plans to hire an engineering firm to do a second phase of review of the Missouri River but needs support from the Legislature. Tom Stromme / Bismarck Tribune

Questions over Lake Sakakawea mineral ownership return to 2019 session

BISMARCK -- Royalty owners who supported legislation in 2017 related to oil and gas mineral ownership under Lake Sakakawea will likely have to make return trips to the state Capitol next year.

The bill that legislators approved two years ago will be back for discussion in 2019, with a proposal to extend the time frame for royalty owners to be paid.

The Legislature in 2017 ordered a review of the historical ordinary high water mark of the Missouri River before the construction of the Garrison Dam, which created Lake Sakakawea.

The legislation, known as Senate Bill 2134, aimed to resolve uncertainty over mineral ownership and set up deadlines for royalty and bonus payments to be distributed. Millions of dollars have been held in escrow or in suspense while disputes over who owns the minerals are resolved.

But the Board of University and School Lands says the study ordered by the Legislature in 2017 doesn’t provide enough detail to proceed with those payments.

Now the board plans to hire an engineering firm to do a second phase of review, but needs support from the Legislature.

Sen. Brad Bekkedahl, R-Williston, said he plans to introduce a bill that would extend the deadlines in the legislation to accommodate the additional review.

Land Commissioner Jodi Smith, who is working with Bekkedahl on the proposal, said the plan is to award a contract in May to allow time for input from legislators.

That means it would likely be 2020 at the earliest before any payments are distributed, a delay that is likely to frustrate royalty owners. The potential liability for the Department of Trust Lands to return to operators is estimated at $229 million.

“Every year this drags out costs people a lot of money,” said attorney Josh Swanson, who represents several royalty owners affected by the legislation. “Not only are they having to pay attorneys, we’re talking about millions of dollars being tied up that mineral owners aren’t getting. They're just sitting in suspense.”

First round of study

Under the direction of Senate Bill 2134, the North Dakota Industrial Commission hired a consultant to investigate the accuracy of the 1950s U.S. Army Corps of Engineers survey of the Missouri River as it existed before Lake Sakakawea was formed.

The Department of Trust Lands, governed by the Land Board, leases oil and gas minerals based on a 2009 survey the state conducted to define the ordinary high water mark of the Missouri River.

Differences between the two surveys have led to multiple parties claiming ownership of the same minerals.

The legislation clarifies that the state owns minerals under the historical Missouri River channel, but does not own minerals under Lake Sakakawea. It does not affect the Fort Berthold Reservation.

Legislators determined that the corps survey must be considered the ordinary high water mark of the Missouri River unless the study ordered by the Industrial Commission finds “clear and convincing” evidence that it should be modified.

The Industrial Commission adopted the findings from firm Wenck Associates in September after accepting extensive public comments. The report found that the state owns about 9,500 more acres than the corps survey of the river showed.

The adoption of the study triggered deadlines in the legislation for the Department of Trust Lands and oil and gas operators to issue refunds or adjustments of bonus or royalty payments.

But Smith said the study does not allocate acreage above or below the ordinary high water mark, information the department needs to make payment adjustments. Both Smith and the North Dakota Petroleum Council raised that concern to the Industrial Commission in June.

The Industrial Commission concluded in its order that providing accurate acreage allocations for property transfer was outside the scope of the legislation. The commission also said in its order that the cost to complete the necessary research and surveys significantly exceeds the funds appropriated by the Legislature.

Wenck received $386,500 to complete the study. The Legislature approved up to $800,000.

Next phase

Gov. Doug Burgum is chairman of both the Industrial Commission and the Land Board. Attorney General Wayne Stenehjem also serves on both boards.

The Land Board at its December meeting approved a request for proposals to hire a firm to do land boundary research and survey the exact acres above and below the ordinary high water mark.

“This is obviously an essential piece of work for us to continue to move forward with 2134,” Burgum said as the Land Board approved the document.

Proposals are due Jan. 31. The work is expected to be done within 12 months.

The bill that will be introduced by Bekkedahl will give the Land Board permission to proceed with the survey work, according to Bekkedahl. A bill draft had not been filed as of last week.

It’s unknown how much the survey will cost until proposals are received, Smith said. The funding would come from the Strategic Investment and Improvement Fund.

The timelines from Senate Bill 2134 would be extended, with the clock starting after the Land Board approves its final study.

Deadlines unlikely

The first deadline for some royalty proceeds to be paid is on March 27 under the current legislation. However, it appears unlikely that any funds will be distributed.

Smith said a court injunction from a lawsuit prevents the department from releasing the funds. The lawsuit, filed by Rep. Marvin Nelson, D-Rolla, former Republican governor candidate Paul Sorum and others, challenges the constitutionality of Senate Bill 2134. Oral arguments are scheduled in the case on Jan. 4.

Smith said she anticipates the second phase of study will be done by the time the lawsuit is resolved.

The court injunction does not prevent oil and gas operators from releasing funds.

However, Ron Ness, president of the North Dakota Petroleum Council, said he doesn’t know how operators would release the funds without the detailed survey information that the Land Board is seeking.

“There’s no possible way that you could do it until you get the specific data on each section by section analysis,” Ness said.

Extending the deadlines also gives royalty owners more time to dispute the outcome of the survey, Ness said.

Swanson, among the attorneys who testified in support of the legislation two years ago, said he hopes legislators will provide some resolution for private property owners.

“I would hope they would be very much in support of speeding this up as fast as possible so we’re not at the next legislative session in 2021 still wrestling with these same questions,” Swanson said.