The North Dakota Supreme Court issued a reversal in *Garaas, et al. v. NDIC, et al.*, a closely watched case involving the allocation of oil production that has drawn attention from across the state's energy sector. The court's opinion, authored by Justice Crothers, overturned a McKenzie County District Court decision that had previously affirmed a North Dakota Industrial Commission order.
The case involves Jonathan T. Garaas and David Garaas, who serve as trustees for three family trusts: the Barbara Susan Garaas Family Trust, the David and Elizabeth Garaas Family Trust, and the Jonathan & Jill Garaas Family Trust. The trustees challenged a North Dakota Industrial Commission order that allocated production from a well located in a lease-line spacing unit to a section outside the trusts' mineral interests.
The dispute centers on complex oil and gas regulatory issues that are common in North Dakota's Bakken formation, where spacing units and production allocation can significantly impact mineral owners' royalty payments. The NDIC, which regulates oil and gas development in the state, had issued an order regarding how production from a specific well should be allocated among different mineral interest owners.
The case proceeded through the McKenzie County District Court, where Judge Benjamen J. Johnson initially affirmed the NDIC's order. However, the trustees appealed to the state's highest court, arguing that the commission's allocation methodology was incorrect and violated their property rights.
The level of industry interest in this case was evident from the numerous amicus curiae briefs filed by major energy companies operating in North Dakota. Continental Resources, Inc., one of the state's largest oil producers, filed a brief supporting one side of the dispute. The case also attracted attention from Chord Energy Corporation, Oasis Petroleum North America LLC, Whiting Oil and Gas Corporation, Enerplus Resources (USA) Corporation, Hess Bakken Investments II, LLC, and Devon Energy Williston, L.L.C., which jointly filed an amicus brief.
Additional amicus briefs were filed by individual mineral owners Allen Dominek and Arlen Dominek, as well as a group including Thurmon Andress, Melissa Sandefer, Julie Sandefer, Lisa Sandefer, Thomas Thompson, Robert Fulwiler, McTan Holdings, LP, Tejon Exploration Company, Randa K. Upp, and David Halbert. This broad participation suggests the case addresses issues that could affect numerous mineral owners and operators throughout North Dakota.
The defendant in the case was Petro-Hunt L.L.C., a Texas-based limited liability company that operates in North Dakota's oil fields. Petro-Hunt was represented by attorneys Wade C. Mann and Zachary R. Eiken from Bismarck. The North Dakota Industrial Commission was represented by Assistant Attorney General Davis P. Garner.
The Supreme Court's reversal indicates that the justices found error in either the NDIC's original order or the district court's affirmation of that order. While the full reasoning for the reversal is not detailed in the available portions of the opinion, the decision will likely require the NDIC to reconsider its allocation methodology or the district court to apply different legal standards.
This case highlights ongoing tensions in North Dakota's oil and gas sector regarding how production should be allocated when wells are drilled across property lines or spacing units. Such disputes have become increasingly common as horizontal drilling techniques allow operators to access minerals from multiple properties with a single well.
The involvement of multiple family trusts as plaintiffs also reflects the complex ownership structures often found in North Dakota mineral rights, where families may hold interests through various trust arrangements for estate planning and tax purposes.
For the energy industry, the Supreme Court's reversal could signal a shift in how courts evaluate NDIC allocation decisions. The broad industry participation through amicus briefs suggests companies were concerned about potential precedential effects on similar disputes.
The case will now return to the lower court for proceedings consistent with the Supreme Court's ruling. Depending on the specific nature of the reversal, this could involve reconsideration of the NDIC order, application of different legal standards, or potentially a complete reassessment of the production allocation.
The decision comes at a time when North Dakota continues to be a major oil-producing state, with production allocation disputes affecting millions of dollars in royalty payments annually. The state's industrial commission plays a crucial role in regulating these disputes, making Supreme Court guidance on its authority and procedures particularly significant for the industry.