allows operators to place funds that have not been timely distributed in a “suspense account” to be held for the rightful distributees. If the late payments are improperly suspended, they will begin to accrue statutory interest. However, this penalty may be excused under a “safe harbor” provision. For example, the funds can often be held in suspense without accruing interest if: (i) there is a legitimate title dispute; (ii) the operator is relying in good-faith on a requirement in a title opinion; or (iii) an owner simply cannot be found with reasonable diligence. In many states, suspense statutes and the right to receive interest on unpaid royalties are held to apply to more than just unleased mineral interests and lease royalty interests. They may cover a combination of royalty interests, nonparticipating royalty interests, unleased mineral interests, overriding royalty interests, and working interests. For example, the suspense statute in New Mexico applies to all persons entitled to the payment of “oil and gas proceeds,” 3 including royalty interests, overriding royalty interests, and working interests. 4 The Texas suspense statute defines a “payee” as “any person or persons legally entitled to payment from the proceeds derived from the sale of oil or gas . . .” 5 This broad definition includes payments to working interest owners, royalty owners, and overriding royalty owners. 6 The Montana statute applies to the payment of “royalties to the royalty owner or the owner’s assignee,” which may include overriding royalties. 7 Despite this “majority” view on the types of interests that fall within the scope of a suspense statute, there is a recent line of federal court decisions in North Dakota that appear to limit statutory interest on suspended funds to mineral royalties only. These decisions are driven by a combination of the unique wording of North Dakota’s suspense statute and strict interpretation by the federal district court.
“The obligation arising under an oil and gas lease to pay oil or gas royalties to the mineral owner or the mineral owner’s assignee . . . is of the essence in the lease contract, and breach of the obligation may constitute grounds for the cancellation of the lease in cases in which it is determined by the court that the equities of the case require cancellation. If the operator under an oil and gas lease fails to pay oil or gas royalties to the mineral owner or the mineral owner’s assignee within [150] days after oil or gas produced under the lease is marketed and cancellation of the lease is not sought or if the operator fails to pay oil or gas royalties to an unleased mineral interest owner within [150] days after oil or gas production is marketed from the unleased mineral interest owner’s mineral interest, the operator thereafter shall pay interest on the unpaid royalties, without the requirement that the mineral owner
[3] N.M. Stat. Ann. § 70-10-3. [4] N.M. Stat. Ann. § 70-10-2.B. [5] Tex. Nat. Res. Code § 91.401(1).
[6] See Concord Oil Co. v. Pennzoil Exploration & Prod. Co. , 966 S.W.2d 451 (Tex. 1998); Stable Energy, L.P. v. Newberry , 999 S.W.2d 538 (Tex. App.—Austin 1999, writ denied). [7] Mont. Code Ann. § 82-10-103(2). We note that there is little case law interpreting the Montana statutes. However, it is possible that the conspicuous use of the phrase “royalties to the royalty owner or the owner’s assignee” instead of North Dakota’s “royalties to the mineral owner or the mineral owner’s assignee” could very well be interpreted to include overrides. Whether statutory interest can be assessed on late payments to non-operated working interest owners in Montana is an open question. [8] We note that the first portion of N.D. Cent. Code § 47-16- 39.1 is sometimes referred to as the “Prompt Pay” provision. We refer herein to the Prompt Pay provision and the “Safe Harbor” provision collectively as the Suspense Statute.
II. North Dakota’s Suspense Statute
North Dakota’s suspense statute is set forth in N .D. C ent . C ode § 47-16-39.1 (hereinafter the “Suspense Statute” 8 ), which provides in relevant part:
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G rowth T hrough E ducat i on - A pr i l / M ay / J une 2025
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