or the mineral owner’s assignee request the payment of interest, at the rate of [18%] per annum until paid . . . (emphasis added) This section does not apply if mineral owners or their assignees elect to take their proportionate share of production in kind, in the event of a dispute of title existing that would affect distribution of royalty payments, or if a mineral owner cannot be located after reasonable inquiry by the operator; however, the operator shall make royalty payments to those mineral owners whose title and ownership interest is not in dispute.”
Court for the District of North Dakota held that the Suspense Statute does not apply to the holders of overriding royalty interests. The court first noted that there is no North Dakota Supreme Court case specifically addressing the application of the Suspense Statute to overriding royalty interests. 11 Defendant Equinor argued that Plaintiff SunBehm, as the holder of an unpaid overriding royalty, was not entitled to 18% interest because it is not a “mineral owner” or a “mineral owner’s assignee.” 12 SunBehm countered that an override is: (i) a type of royalty; and (ii) is effectively a smaller carveout of the mineral estate, such that an overriding royalty owner is technically a “mineral owner’s assignee.” 13 In rejecting SunBehm’s argument, the district court looked to the plain meaning of the Suspense Statute. An overriding royalty interest, it reasoned, is carved out of the net revenue interest under an oil and gas lease, and not directly from the mineral estate. Overriding royalty interest owners thus do not have an ownership interest in the minerals under the ground. Put differently, the right to a landowner’s royalty interest does not rise from the lease but from the ownership of the minerals, while an overriding royalty interest springs from the lease itself. 14 This is – in the court’s view – a critical difference between overriding royalties and other types of royalties, and takes overrides outside the scope of the Suspense Statute. [9] Some commentators state that “as a practical matter, the [lease cancellation portion of the Suspense Statute] may not be that useful. If the company missed a royalty payment, but later acknowledged the fact and paid the royalty plus interest, an equitable situation would then exist and the lease most likely couldn’t be cancelled. However, if the landowner could prove some kind of bad faith on the part of the company, he may have a case for cancellation.” Anderson, Ron, North Dakota Oil & Gas Leasing Considerations, Extension Bulletin 26 (Revised October 2006, available at https://www.dmr.nd.gov/ oilgas/leasingconsiderations.pdf, last retrieved February 24, 2025). [10] 2020 U.S. Dist. LEXIS 73097 (D.N.D. Apr. 27, 2020). [11] Id . at 5.
Note that the North Dakota Suspense Statute creates a heightened obligation to timely pay royalties, as long as there is no legitimate title dispute, and the mineral owners can be found. Failure to pay lease royalties on time can lead to lease cancellation if “equitable.” Only one other state, Montana, takes this approach, which stands in contrast to the majority of states where the payment of royalties is a covenant rather than a condition of lease maintenance. Only in the event that a mineral owner or mineral owner’s assignee does not seek lease cancellation does the remainder of the statute apply. 9 But who exactly falls within the robust protection of the North Dakota Suspense Statute? This is a question that has been posed in the federal district court numerous times in recent years. Of particular interest in the decisions outlined below is the Suspense Statute’s repeated use of the phrase “mineral owner or the mineral owner’s assignee.” What the legislature intended in including this phrase has been hotly contested, and the federal district court has consistently adhered to a narrow reading.
III. Au Revoir to Overrides – SunBehm Gas, Inc. v.Equinor Energy, LP 10
[12] Id . [13] Id . [14] Id . at 9.
In SunBehm Gas , the United States District
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N at i onal A ssociation of D i v i s i on O rder A nalys t s
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