royalty payments. However, the Statute does not apply in the event of a dispute of title affecting the distribution of royalty payments. This is sometimes referred to as the “Safe Harbor” provision. In 2022’s Vic Christensen Mineral Trust v. Enerplus Res. (USA) Corp. , an “erroneous” comment in a title opinion caused certain royalty payments to be placed in suspense. 12 The trusts sued each other to quiet title, but ultimately found that no issue existed and signed a stipulation of interest to clear title. The trusts then sued Enerplus Resources Corporation (“Enerplus”) for statutory interest, claiming that Enerplus had wrongfully placed their interest in suspense. The Vic Christensen court held that the Safe Harbor provision does not require a successful title claim, but merely an existing dispute of title. Otherwise, an operator would have to evaluate the legal merits of a dispute, a job best left to the courts. 13 In Vic Christensen , the “crucial facts” were that the operator notified the mineral owners of a title discrepancy, and thereafter the mineral owners sued each other. This “undoubtedly creat[ed] a ‘dispute of title’ that would affect their royalty payments from [the operator].” 14 Here, unlike Vic Christensen , there was no quiet title action or other disagreement between mineral owners. Under N.D. C ent . C ode § 47-16-39.4, “if the mineral owner and mineral developer disagree over the mineral owner’s ownership interest in a spacing unit, the mineral developer shall furnish the mineral owner with a description of the conflict and the proposed resolution or with that portion of the title opinion that concerns the disputed interest.” Unlike Enerplus in Vic Christensen , Statoil did not contact June Slagle providing a description of the disputed interest or advise her that it was suspending her royalties. 15 The Powell court declined to address whether failure to record a power of attorney in the county where the property is located qualifies as a title dispute under the Suspense Statute. Instead, because the dispute was between the mineral owner and the operator (as opposed to between mineral owners) notice of the dispute was required under N.D. C ent . C ode § 47-16-39.4. 16 Statoil did
not notify June Slagle of her title defect, and failed to pay royalties to June Slagle on her life estate interest during her lifetime. Thus, Statoil did not avail itself of the Safe Harbor provision and statutory interest was due and owing. 17
IV. Takeaways from Powell
Several noteworthy takeaways emerge from the Powell decision. First, Powell serves as a reminder that the obligation to pay royalties in North Dakota is a condition (not a covenant) under an oil and gas lease. Failure to pay royalties, underpayment of royalties, or untimely payment of royalties can result in lease forfeiture or, alternatively, the assessment of interest under the Suspense Statute. Second, the North Dakota Supreme Court declined in Powell to treat interest under the Suspense Statute as a penalty or forfeiture within the meaning of the three-year statute of limitations. Instead, the nonpayment, underpayment, or untimely payment of royalties falls within the purview of a contract contained in a conveyance affecting title to real property and the ten-year statute applies. Third, Powell highlights an important distinction regarding notice of a title dispute under the Safe Harbor provision if the dispute is between a mineral or royalty owner and a mineral developer. Construing N.D. C ent . C ode §§ 47-16- 39.1 and 47-16-39.4 together, if an operator fails to notify a mineral owner of a title dispute affecting her distribution of royalties and fails to pay royalties within 150 days after oil or gas produced under the lease is marketed, and cancellation of the lease is not sought, the operator will likely be obligated to pay the 18% per annum statutory interest under
[12] 969 N.W.2d 175 (N.D. 2022). [13] Id. (at ¶ 11). [14] Id. [15] Powell at ¶ 16. [16] Id. at ¶ 17. [17] Id.
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