This seems to be the season for oil patch courts to return property to its rightful owners. Last week it was a regulatory taking by the City of Dallas. This week it is Northwest Landowners Association v. State of North Dakota, in which the North Dakota Supreme Court deemed unconstitutional on its face a statute that stripped landowners of their rights in subsurface pore space.
In 2019 the North Dakota Legislature passed SB 2344, which allowed an oil and gas operator to use subsurface pore space in its operations and denied the surface owner the right to exclude others or demand compensation for subsurface use. The Bill granted the North Dakota Industrial Commission rulemaking authority to effectuate the purposes of the Bill and revised the definition of land to exclude pore space. The purpose was to overcome North Dakota’s Damage Compensation Act, which requires mineral developers to compensate landowners for lost land value and use. Finally, the Bill barred tort claims for injection or migration of substances into pore space.
The Association alleged that 2344 constituted an impermissible taking because it stripped landowners of their right to possess and use pore space and allowed the State to redistribute that right to others without the consent of or compensation to the landowners. The Fifth Amendment of the US Constitution guarantees that private property shall not be taken for public use without just compensation. The North Dakota Constitution prohibits taking or damage to private property for public use without just compensation having been first made to or paid into court for the owner.
In its analysis the Court found a number of existing laws establishing the surface owner’s right to subsurface pore space, providing a statutory definition of pore space, and confirming that title to pore space is vested in the surface owner. The Court concluded that the surface owners demonstrated a constitutionally protected property interest in pore space that is recognized under state law.
The Court concluded that 2344 constituted a per se taking by allowing third-party oil and gas operators to physically invade a landowner’s property by injecting substances (such as CO2 or produced water) into the pore space.
An oil and gas operator does have an implied easement to dispose of wastewater into pore space produced within the same unit or pool, but the operator must compensate the surface owner for such disposal.
The Court relied on the plain meaning of ths statute to reject the State’s argument that the dominant mineral estate principle saved 2344 from constitutional infirmity. The statute applied to a broader set of circumstances.
The Court noted that although the use of pore space does not seriously interfere with a landowner’s use of the rest of his land because the pore space is beneath the surface, compensation is required for physical invasions even if the owner suffers only a minimal economic impact. This refuted intervenor Continental Resources’ assertion that pore spaces have no inherent value.
The Court denied the State’s argument that 2344 is not an unconstitutional taking because it is a proper exercise of its police power. The State may use police power only within constitutional limitations.
The Court determined that the constitutional and unconstitutional portions of the statute are independent and that the valid portions could be given effect without the invalid portion. Thus, the entire statute was not unconstitutional.
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