Developments in the Law of Pore Space in North Dakota

This article by Derrick Braaten discusses the use of subsurface pore space by various energy industries in North Dakota in recent years, where the interplay between the rights of the owner of the surface estate and the rights of the mineral estate have recently become the subject of both legislation and litigation.

Attorney Derrick Braaten moved to North Dakota over a decade ago and has built a reputation in the region as a prominent advocate for landowners and landowner rights. He prides himself on taking on giants, whether those are large corporations or the government, and standing up for the land and its stewards.

Law of Pore Space in North Dakota

The law pertaining to use of subsurface pore space by various energy industries has developed at an increasingly rapid pace in North Dakota in recent years. While pore space ownership by the surface owner has been settled in North Dakota for over a century, the interplay between the rights of the owner of the surface estate and the rights of the mineral estate have recently become the subject of both legislation and litigation.

In 2009 the North Dakota Legislative Assembly passed two new chapters to the North Dakota Century Code. Chapter 38-22 provided for regulation of underground sequestration of CO₂, and Chapter 47-31 set out a policy on pore space, making it illegal to sever the pore space estate from the surface estate, for example. N.D.C.C. § 47-31-03 confirmed that “[t]itle to pore space in all strata underlying the surface of lands and waters is vested in the owner of the overlying surface estate.” As the North Dakota Supreme Court said, “The legislation codifying pore space policy was intended to confirm that surface owners own the pore space under their surface estate. See Hearing on S.B. 2139 Before Senate Natural Resources Comm., 61st N.D. Legis. Sess. (Jan. 16, 2009) (written testimony of Assistant Attorney General Charles Carvell). That testimony is consistent with N.D.C.C. § 47-01-12, N.D.C.C., which dates back to 1877 Civil Code for the Dakota Territory, and states the ‘owner of land in fee has the right to the surface and to everything permanently situated beneath or above it.’”¹ Most jurisdictions in the United States agree that, generally speaking, the surface owner owns the pore space.²

In 2014, two cases focused the North Dakota federal court’s attention on the intersection of the surface owner’s rights in pore space and oil developers’ rights to use the same space for mineral development. In the Mosser and Fisher cases the court addressed whether compensation for use of pore space in a unitized field for a disposal well was required under Chapter 38-11.1 after two developers refused to pay the landowners.³

The federal court in Mosser determined that the term “land” in North Dakota Century Code § 38-11.1.-04 includes pore space. The operator had argued that N.D.C.C. ch. 38-11.1 does not apply to use of the surface owner’s pore space, basing its argument on the use of the word “land” in N.D.C.C. § 38-11.1-04, which requires compensation for lost land value and lost use of and access to a surface owner’s land.⁴ Under N.D.C.C. § 47-01-04, “land” is defined as “the solid material of the earth, whatever may be the ingredients of which it is composed, whether soil, rock, or other substance.” Denbury argued that this definition of land should be applied to N.D.C.C. ch. 38-11.1, and that, therefore, pore space was not compensable under N.D.C.C. ch. 38-11.1. The federal court disagreed and required the developers to compensate for its use of the property. ⁵ The federal court also ruled on similar issues and issued similar holdings in Fisher v. Continental Resources, Inc., 49 F. Supp. 3d 637 (D.N.D. 2014). The North Dakota Supreme Court justices unanimously agreed with both federal judges.⁶

In Fisher, the dispute related to a produced water disposal well drilled by Continental.⁷ Rick and Rosella Fisher owned land within a unitized field that is operated by Continental. Continental drilled the Lonesome Dove 42-17 SWD well on the Fishers’ land without their consent and over their objection. As the unit operator, Continental had also obtained a permit from the NDIC for the well. The federal court ruled that Continental had the right to operate its disposal to dispose of on-unit water, but that Continental must pay damages under Chapter 38-11.1 when it used the well at issue for disposal.⁸ These rulings were again consistent with long-established precedent. Following the federal court’s ruling in Fisher, the parties settled some of the claims, and left open the issue of the amount owed for damages for use of pore space under N.D.C.C. ch. 38-11.1 because at the time of settlement, Continental had not yet started injecting into the Lonesome Dove 42-17 SWD.⁹

Years after the decision in Fisher, on September 7, 2018, and just months before the 2019 legislative session, Continental began injecting into the disposal and refiled the lawsuit that had originally been filed by the Fishers, and asked for a declaratory judgment that it did not have to pay compensation under N.D.C.C. ch. 38-11.1.¹⁰ Continental’s position that it need not compensate for use of the Fisher’s pore space was confusing. The federal court had already ruled “there is no question the Fishers are statutorily entitled to compensation for damage to the Subject Property which is related to the construction and use of the Lonesome Dove 42–17 SWD well in accordance with … N.D.C.C. ch. 38–11.1.”¹¹ This confusion was dispelled shortly after the legislative session commenced, when Senate Bill 2344 was introduced.

Senate Bill 2344 was introduced in 2019 by the North Dakota legislature to take away the pore space rights of the surface estate owners in North Dakota and give them to the energy industry (and operators like Continental) to use free of charge. The purpose of the law, as stated in the Bill itself, was to benefit “the state’s coal and power industries, and to benefit the state economy.”¹² Lynn Helms, Director of the NDIC’s Oil and Gas Division, testified about the purported purpose and benefits of S.B. 2344, using an example related to the economics of gas storage.¹³ He explained the point of his illustration, stating “I bring that up because you can see this project stores and reproduces the gas at $2.96, which means it can’t endure any additional burden from having to compensate for pore space being temporarily used for the storage of natural gas.” So the solution was to simply take away the additional burden by giving that pore space to the industry to use for free. This was literally the purpose and intent of S.B. 2344.

Recent headlines in North Dakota announced: “Carbon capture dominates North Dakota energy developments in 2021.”¹⁴ Carbon capture utilizes the landowner’s pore space. The article goes on to explain: “The carbon capture projects dovetail with the goal Gov. Doug Burgum unveiled at the Williston Basin Petroleum Conference in May to make North Dakota carbon neutral by the end of the decade. He told the audience that the state has ‘hit the geologic jackpot’ with rock formations that contain the right characteristics for permanent carbon dioxide storage.” Id. That “geologic jackpot” is the pore space that the State attempted to take away from the Landowners and offered up to mineral developers to use free of charge.

Fortunately for landowners, in 2021 a North Dakota district court struck down the laws enacted by Senate Bill 2344 as unconstitutional, and just recently, on August 5, 2022, the North Dakota Supreme Court affirmed the District Court’s decision with respect to the striking down the provisions challenged by the Northwest Landowner Association, a landowner group in North Dakota that fought against the passage of the law. The District Court previously said the law “acts to give North Dakota landowners’ value from pore space to the oil and gas industry, for free, under the guise of the North Dakota Industrial Commission.”¹⁵ The court declared the law unconstitutional and said North Dakota citizens are protected from such an action by both the state and U.S. constitutions. With respect to the three provisions that NWLA challenged, the Supreme Court of North Dakota said “[t]hese provisions, being in conflict with the higher law of the state and federal constitutions, are unenforceable.”¹⁶

For Rick and Rosella Fisher, these decisions have been critical. After Senate Bill 2344 went into effect, Continental announced to the federal court that with respect to “the Damage Compensation Act, on which [the Fishers] based their initial suit, [S.B. 2344] repealed their remedy effective August 1, 2019.”¹⁷ The federal court agreed stating that “the 2019 Amendments appear to eliminate the right of the surface owner to recover compensation for use of the pore space under § 38-11.1-04—at least as of the effective date of the law.”¹⁸ The federal court continued: “Continental requests that this court conclude that it owes nothing for any injections from its SWD well after July 31, 2020, which is the effective date of SB 2344. The court rejects this request given the ruling of the state district court [that strikes down the law].”¹⁹ As the Fisher’s case illustrates, S.B. 2344 was drafted with surgical precision.

Continental continues to press its lawsuit against the Fishers, although it remains to be seen how it might respond to the loss at the North Dakota Supreme Court. And it is obvious that pore space has become a valuable commodity to the energy industry and it will use every tool it has to accomplish its goals, so it is unfortunately unlikely that the disputes over pore space are now at an end. Groups like Northwest Landowners Association have defended landowner rights vehemently and in the face of overwhelming opposition, and they need all the help they can get from their fellow landowners to keep up the fight in the future.

The law pertaining to use of subsurface pore space by various energy industries has developed at an increasingly rapid pace in North Dakota in recent years. While pore space ownership by the surface owner has been settled in North Dakota for over a century, the interplay between the rights of the owner of the surface estate and the rights of the mineral estate have recently become the subject of both legislation and litigation.

References

1 Mosser v. Denbury Res., Inc., 2017 ND 169, ¶ 16, 898 N.W.2d 406.