Oil and Gas Lawyer Blog
Last week the Supreme Court of North Dakota handed down its opinion in Northwest Landowners Association v. State of North Dakota, 2022 ND 150. The court struck down portions of a statute passed by the North Dakota Legislature, Senate Bill 2344, dealing with ownership rights to “pore space.” North Dakota law defines “pore space” as “a cavity or void, whether natural or artificially created, in a subsurface sedimentary stratum.” The purpose of the statute was to facilitate operators’ use of pore space for saltwater disposal and CO2 injection in tertiary recovery operations, and to deny landowners the right to compensation for such uses. But the language of the statute is much broader:
Notwithstanding any other provision of law, a person conducting unit operations for enhanced oil recovery, utilization of carbon dioxide for enhanced recovery of oil, gas, and other minerals, disposal operations, or any other operation authorized by the commission under this chapter may utilize subsurface geologic formations in the state for such operations or any other permissible purpose under this chapter. Any other provision of law may not be construed to entitle the owner of a subsurface geologic formation to prohibit or demand payment for the use of the subsurface geologic formation for unit operations for enhanced oil recovery, utilization of carbon dioxide for enhanced recovery of oil, gas, and other minerals, disposal operations, or any other operation conducted under this chapter. As used in this section, “subsurface geologic formation” means any cavity or void, whether natural or artificially created, in a subsurface sedimentary stratum.
North Dakota (unlike Texas) has a statute, the Damage Compensation Act, requiring that requiring a mineral developer to compensate the surface owner for “lost land value, lost use of and access to the surface owner’s land, and lost value of improvements caused by drilling operations.” N.D.C.C. sec. 38-11.1-04. Senate Bill 2344 amended the Damage Compensation Act to exclude “pore space” from its definition of “land.”
The North Dakota Supreme Court had previously addressed the issue of ownership of pore space in Mosser v. Denbury Resources, Inc., 898 N.W.2d 406 (2017), answering certified questions submitted to the court by a U.S. magistrate judge in a dispute between the Mossers and Denbury Resources over whether Denbury had to compensate the surface owners for injecting salt water under their land, under the Damage Compensation Act. The court concluded that it did; the Mossers, as owners of the surface estate, were the owners of the pore space under their land and were entitled to compensation for its use under the Damage Compensation Act. In 2009, the legislature had passed N.D.C.C. sec. 47-31-03 and -05 to confirm that title to pore space is vested in the surface owner.
The court in Northwest Landowners Association held that the statute constituted a taking of private property in violation of the takings clauses of the U.S. and North Dakota constitutions.
Surface owners have a right to compensation for the use of their pore space for disposal and storage operations. Although an oil and gas operator has a right under the implied easement to dispose of waste water within the same unit or pool, the operator must compensate the surface owner for the disposal of waste. By prohibiting the right to compensation for the use of the surface owner’s pore space and eliminating the right to exclude, S.B. 2344 removes all rights that make ownership of pore space valuable.
The State argued that the mineral owner’s right to use the surface estate saved S.B. 2344 from a constitutional challenge. The court disagreed. The statute is too broad:
Instead of stating that a person conducting unit operations for disposal operations may utilize subsurface geological formations within the unit, the provision specifically provides that “a parson conducting … disposal operations … may utilize subsurface geological formations in the state.” This language plainly authorizes disposal of saltwater from outside the unit. … Even when a severance of minerals has created an implied easement permitting use of the surface estate by the owner of the severed minerals, S.B. 2344 constitutes a taking.
S.B. 2344 also provides that injection or migration of substances into pore space for disposal or for secondary or tertiary recovery operations “is not unlawful and, by itself, does not constitute trespass, nuisance, or other tort.” The court concluded:
Alth0ough disposal operations beyond the scope of the implied easement would be otherwise considered a trespass, S.B. 2344 bars landowners from bringing such a tort action. Senate Bill 2344 declares that such disposal operations “by [themselves] do[] not constitute trespass.” Thus, the dominant mineral estate principle does not save S.B. 2344 from this takings claim.
It seems to me that S.B. 2344 could have achieved its purpose and survived constitutional challenge had it not been so broad. North Dakota, like Texas, recognizes that the mineral estate is the dominant estate and that the mineral owner has the right to use the surface estate for mineral development, including injection of salt water and CO2 for disposal or secondary or tertiary recovery operations. The surface owner’s right to compensation for such use is statutory, not constitutional. North Dakota law, unlike Texas, provides by statute that the surface owner is entitled to reasonable compensation for such use. If the legislature had amended North Dakota’s Damage Compensation Act to delete a right to compensation for use of pore space, without more, I think the court might have reached a different conclusion.
Texas has no statutory definition of pore space and no statute declaring pore space an attribute of the surface estate. But the Texas Supreme Court’s recent decision in Lightning Oil v. Anadarko seems to put to rest in Texas that pore space is an attribute of the surface estate.
Pore space has become a valuable right with the recent advent of projects for carbon sequestration and storage. The Inflation Reduction Act, recently passed by the U.S. Senate, increases tax incentives for CSS projects, and major oil companies have begun leasing pore space from landowners for such projects.