Oil royalties that producers pay to landowners should be calculated at the well, not at a higher price at some point downstream, North Dakota Supreme Court mentionned this week in a victory for the oil industry.
A lower court asked the Supreme Court of one of the largest oil-producing states in the United States to clarify the wording of landowners’ contracts with oil companies. Plaintiffs David and Paula Blasi argued that they had been underpaid in royalties that oil companies owe them for pumping oil onto their land.
The plaintiffs and their lawyers argued that, in accordance with the terms of the oil royalty contract and the presence of the word “pipeline” in those contracts, the oil royalties should be calculated at a point downstream to a connection to an actual pipeline. As this location is closer to the markets, the royalties are higher.
A North Dakota federal court has asked the North Dakota Supreme Court to clarify the contracts. The complainants argued that “the location of the assessment is independent of the location of the well. Blasi maintains that the point of assessment is “the pipeline,” the judges wrote in their decision.
The judges who were asked to interpret the petroleum royalties clause in issue said: “The royalty provision is unambiguous. It establishes a valuation point at the well. “
The North Dakota Supreme Court’s response to the lower court’s certified question will now affect at least six separate class actions brought by the Blasis as trustees of the Blasi Living Trust, according to Bloomberg Law. In each of these class actions, the plaintiffs argue that they were underpaid in oil royalties from state oil producers.
The plaintiffs are claiming millions of dollars of what they say are underpaid royalties.
The Supreme Court’s clarification of leases and their oil royalty clauses may lead courts to dismiss class actions, Reuters Remarks.
By Tsvetana Paraskova for OilUSD
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