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Published October 05, 2010, 09:07 AM

Farmers and ranchers on oil land need to know their rights

BISMARCK, N.D. — Driving around western North Dakota is a different experience these days. Amongst austere, beautiful buttes, rolling hills and endless sky are oil pads, storage tanks and scoria roads.

By: Derrick Braaten, Special to Agweek

BISMARCK, N.D. — Driving around western North Dakota is a different experience these days. Amongst austere, beautiful buttes, rolling hills and endless sky are oil pads, storage tanks and scoria roads. At night, gas flares abound and illumined drilling rigs look like skyscrapers. The legal landscape is changing too, especially as it pertains to the rights of farm and ranch landowners and lessees.

Some problems we recently have dealt with from our western North Dakota clients include complaints that a developer occupied more land than a surface agreement provided, a developer immunized itself from damages to a whole section, though it occupied only a few acres, a developer insisting on paying a lump sum rather than inflation-adjusted annual payments, even though the well may last for decades, placement of oil well pads near calving pastures and home sites and pollution of water and soil because of defective salt water disposal pipelines or other construction problems.

Know your rights

Owners of surface rights in the oil patch need to know their basic rights.

Where the mineral rights and surface rights of land are separately owned, current law favors the mineral rights, which are considered the “dominant estate.” This means the mineral owner has the right to extract and develop the minerals, subject to only the vague limitation of “reasonable use” of the surface area. However, as a surface owner, you are provided with some protection by the North Dakota Oil and Gas Production Damages Act.

Specifically, you are entitled to compensation for loss of agricultural production and income, lost land value, lost use and access and lost value of improvements caused by drilling operations.

At least 20 days before operations begin, a developer must give the surface owner written notice of contemplated drilling operations and a summary of the plan of operations. More importantly, an operator must provide a written offer of settlement for damages. The offer must be a good faith estimation of damages that will accrue over the life of the operation and must be given before operations begin. You are not required to take this initial offer and have every right to reject it.

If you reject the operator’s initial offer, you can negotiate with the company for an acceptable price for damages (although negotiations don’t have to be completed before the operator begins drilling). If the price isn’t right, you can bring a suit seeking proper compensation.

To keep developers honest, the law provides that if the court awards compensation higher than the damages offered by the operator, you also can recover attorney’s fees, court costs and interest. So go ahead and haggle if you feel you are not being fairly compensated for the damage to your land.

Remember, it is still your land and you may negotiate terms and conditions of use. For instance, it is wise to include such clauses as your prior written consent before any permanent structure is built, that pipelines be buried below plow depth and that any equipment or structures be removed or forfeited at your option.

Because oil operations use an immense amount of water, North Dakota law protects surface and underground water supplies under North Dakota Century Code 38-11.1. You may have a claim against a developer for disruption or diminution in water quality or quantity caused by drilling operations. To establish a water quality baseline, it is important to have your water tested before the developer arrives.

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