American Oil and Gas Reporter - September 2020 - 92

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ConventionSection: North Dakota Petroleum Council

Array Of Oil And Gas Issues
Playing Out In Courtroom
By Del Torkelson
TIOGA, N.D.-Kathleen Neset remembers a time in which the subjects most
pertinent to the North Dakota Petroleum
Council had little or nothing to do with
lawsuits, legal arguments and rulings
about regulatory arcana that carry industrywide implications.
"We used to talk about engineering,
geology and the technical aspects of
drilling and producing wells," recounts
Neset, who chairs NDPC and owns Neset
Consulting in Tioga. "Today, almost all
our focus has shifted to the legal aspects
and ramifications of various regulatory
issues. We have added another committee
to deal with legal issues because they
need a higher level of oversight."
NDPC President Ron Ness calls Neset's
description "exactly right," and laments
that so many critical issues are being decided not in legislative chambers or executive branch offices, but in the courts.
"I hate legal issues, because I don't know
what to do about the outcome. It is not
my cup of tea," he acknowledges. "Give
me legislative or rulemaking issues any
day, but our industry is swamped in litigation about regulatory minutia that is a
drag on industry and investment."
Back And Forth
Ness notes that his preference to tackle
issues in almost every arena but the courtroom holds sway even though NDPC and
its allies have proven relatively successful
in numerous important legal developments.
The Dakota Access Pipeline (DAPL) offers
a prime example of how a legal morass
can weaken the state's industry even when
the higher courts acknowledge the industry's perspective, he remarks.
On July 6, he recalls, Judge James
Boasberg in the U.S. District Court for
the District of Columbia gave pipeline
owner Energy Transfer Partners until Aug.
5 to empty the line and cease operations.
On Aug. 5, a three-judge panel of the U.S.
Court of Appeals for the D.C. Circuit
granted an administrative stay of the order,
but did not overrule Boasberg's determination that the U.S. Army Corps of Engi92 THE AMERICAN OIL & GAS REPORTER

neers must conduct a full environmental
impact statement, instead of the less extensive assessment it already had submitted
(AOGR, August 2020, pg. 16).
"That July decision stymied things,"
Ness considers. "I thought wells were
going to start coming back on line, but
that ruling caused trepidation."
He explains that, even with Boasberg's
order stayed, oil only can continue to
flow through DAPL as long as the U.S.
Army Corps of Engineers' permit that
allowed its construction is held to be
lawful. Like the environmental assessment
on which it is partly based, Ness observes,
that permit was issued under the Obama
administration.
"It still hangs in the balance," he assesses.
"Anyone who knows anything about that
analysis knows there is no need to shut it
down after three years of safe operations.
The EA was the most extensive ever done
and to now say doing an EIS requires
shutting down the pipeline should be scary
for anyone building anything, anywhere."
The pipeline constitutes an important
component of North Dakota's oil and
gas industry, Neset emphasizes. "Efforts
to turn it off probably pose the greatest
threat to the health of our state's industry,"
she assesses. "We are an exporting state,
so losing DAPL would cut into many
bottom lines. Whether we are talking an
extra $5 or $7 a barrel, it would be huge."
Moreover, Ness points out in the midst
of hurricane season, previous decades'
tropical storms not only affected wells
and infrastructure in and along the Gulf,
they also stymied foreign imports, which
often sent consumer fuel prices soaring.
Now, thanks in large part to the 570,000
barrels a day DAPL has moved from the
Williston Basin to Louisiana, he observes,
Hurricane Laura had almost no impact
on U.S. oil or gasoline prices.
As much as U.S. consumers and North
Dakota producers have benefitted from
more than three years of DAPL, Ness
adds, its 570,000 bbl/d capacity was to
be only the first phase. "Not only should
those barrels not be in jeopardy, but we
fully anticipated that pipeline would have
increased to 1.2 million barrels a day by

now," he notes.
Unfortunately, DAPL has become a
cause célèbre for many activists, who
characterize the pipeline as a crucial
battle in the fight against global climate
change, Neset observes. Meanwhile, North
Dakotans overwhelmingly support DAPL,
she indicates, while opponents seemingly
misunderstand the practical implications
of their opposition.
"Take the example of California's energy struggle, where temperatures hit 100
degrees as the state faces rolling blackouts,"
she illustrates. "We have to educate people
and continue to work toward intelligent
energy policies. Of course, we have to
transport our crude oil out of state, but I
want to look at how our country can get
more of a comprehensive energy policy
that thinks of what is good for both California and North Dakota."
A major wild card in such considerations, Ness says, is the possibility of sudden, drastic changes in federal policy.
"We don't really have a timeline about
what comes next," he acknowledges.
A Mystifying Ordeal
Another legal matter with direct implications for many NDPC members deals
with royalties owed to the North Dakota
Department of Trust Lands by companies
extracting state-owned minerals. According
to media accounts, the 2019 North Dakota
Supreme Court decision Newfield Exploration Company v. State of North Dakota
found that state contracts based royalties
on 100% of the commodity sales price
before processing costs, but the case has
returned to a lower court as numerous
particulars remain unresolved.
Meanwhile, the North Dakota Department of Trust Lands has deemed dozens
of other producers with similar contracts
as noncompliant with their royalty obligations. Press accounts indicate that North
Dakota Land Commissioner Jodi Smith
claims more than 30 of them owe tens of
millions of dollars in royalty payments,
late penalties and interest, all of which
she says will continue to accumulate until
they pay.
"The department has lost many legal



American Oil and Gas Reporter - September 2020

Table of Contents for the Digital Edition of American Oil and Gas Reporter - September 2020

Contents
American Oil and Gas Reporter - September 2020 - Intro
American Oil and Gas Reporter - September 2020 - 1
American Oil and Gas Reporter - September 2020 - 2
American Oil and Gas Reporter - September 2020 - 3
American Oil and Gas Reporter - September 2020 - 4
American Oil and Gas Reporter - September 2020 - Contents
American Oil and Gas Reporter - September 2020 - 6
American Oil and Gas Reporter - September 2020 - 7
American Oil and Gas Reporter - September 2020 - 8
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