ND Supreme Court rules in favor of state on royalty case

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BISMARCK, N.D. - North Dakota's Supreme Court unanimously ruled in favor of the state on how companies should pay their gas royalties. The case centered around how much a natural gas producer must pay the state.

In the six-page decision, the justices agreed with the state's arguments that gross proceeds of a sale essentially means the market price. The decision could mean tens of millions of dollars for state education trusts.

When the state argued before North Dakota's Supreme Court in the Newfield case in June, they weren't expecting a ruling less than a month later. The court's unanimous ruling favored the state.

"You're looking at tens of millions of dollars from this one lawsuit. So this will have a significant impact on our trusts and our ability to pay for kids to go to school in the state of North Dakota,” said Jodi Smith, land commissioner.

The Newfield case centered around whether natural gas producers who use third party companies to refine the gas should pay royalties based on what the third party pays them or the total market price. Newfield was paying the state based on what a third party company paid them for the natural gas.

In the decision, the court says the state's leases with Newfield "unambiguously provides the state's royalty must include the value of any consideration, in whatever form, that directly or indirectly compensates, credits, or benefits Newfield."

Smith says more in the Common Schools Trust Fund means less coming out of the General Fund for education.

"When there's less money that comes out of the General Fund, there's more money that could spent on infrastructure projects and other priorities around the state because we're able to offset the expenses for the state,” said Smith.

Newfield has 14 days from July 11 to ask the court to reconsider.

North Dakota Petroleum Council President Ron Ness issued a statement on the decision:

“The North Dakota Petroleum Council was not a party to the Newfield case, but we are very disappointed and surprised the Supreme Court reversed the lower court’s decision in favor of Newfield. The Court’s reversal adversely impacts all operators in North Dakota, especially at a time when we are faced with gas capture and flaring challenges. Requiring an oil company to pay royalties on the end price of their product is like taxing a farmer on the price of bread rather than the price of wheat.”