23.1080.01000
Sixty-eighth
Legislative Assembly HOUSE BILL NO. 1520
of North Dakota
Introduced by
Representatives B. Anderson, Dyk, Hatlestad, Kempenich, Longmuir, J. Olson
Senators Bekkedahl, Rust
1 A BILL for an Act to create and enact a new subsection to section 38-08-04 and sections
2 38-08-06.5 and 38-08-06.6 of the North Dakota Century Code, relating to jurisdiction of the
3 industrial commission and payment for production from wells; to amend and reenact sections
4 38-08-02, 38-08-06.3, 47-16-39.1, 47-16-39.2, and 47-16-39.4 of the North Dakota Century
5 Code, relating to royalties; and to provide a penalty.
6 BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF NORTH DAKOTA:
7 SECTION 1. AMENDMENT. Section 38-08-02 of the North Dakota Century Code is
8 amended and reenacted as follows:
9 38-08-02. Definitions.
10 As used in this chapter, unless the context otherwise requires:
11 1. "Abandoned pipeline" means an underground gathering pipeline that is no longer in
12 service, is physically disconnected from in-service facilities, and is not intended to be
13 reactivated for future use.
14 2. "Certificate of clearance" means a permit prescribed by the commission for the
15 transportation or the delivery of oil or gas or product and issued or registered in
16 accordance with the rule, regulation, or order requiring such permit.
17 3. "Commission" means the industrial commission.
18 4. "Costs of production" means all costs incurred for exploration, development, primary
19 or enhanced recovery, and abandonment operations including lease acquisition,
20 drilling and completion, pumping or lifting, recycling, gathering, compressing,
21 pressurizing, heater treating, dehydrating, separating, storing or transporting oil to
22 storage tanks or gas to the market pipeline, or other on-unit activities. The term does
23 not include the reasonable and actual direct costs associated with transporting the oil
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1 from the storage tanks to the market or the gas from the point of entry into the market
2 pipeline or the processing of gas in a processing plant.
3 5. "Field" means the general area underlaid by one or more pools.
4 5.6. "Gas" means and includes all natural gas and all other fluid hydrocarbons not
5 hereinbelow defined as oil.
6 6.7. "Illegal gas" means gas which has been produced from any well within this state in
7 excess of the quantity permitted by any rule, regulation, or order of the commission, or
8 any gas produced or removed from the well premises in violation of any rule,
9 regulation, or order of the commission, or any gas produced or removed from the well
10 premises without the knowledge and consent of the operator.
11 7.8. "Illegal oil" means oil which has been produced from any well within the state in
12 excess of the quantity permitted by any rule, regulation, or order of the commission, or
13 any oil produced or removed from the well premises in violation of any rule, regulation,
14 or order of the commission, or any oil produced or removed from the well premises
15 without the knowledge and consent of the operator.
16 8.9. "Illegal product" means any product derived in whole or in part from illegal oil or illegal
17 gas.
18 9.10. "Lessee" means the person entitled under an oil and gas lease to drill and operate
19 wells and that pays the lessor a royalty and retains the remainder, known as the
20 working interest.
21 11. "Lessor" means the mineral owner that has executed a lease and that is entitled to the
22 payment of a royalty on production, free and clear of the costs of production.
23 12. "Oil" means and includes crude petroleum oil and other hydrocarbons regardless of
24 gravity which are produced at the wellhead in liquid form and the liquid hydrocarbons
25 known as distillate or condensate recovered or extracted from gas, other than gas
26 produced in association with oil and commonly known as casinghead gas.
27 13. "Operator" means a person engaged in the business of drilling and producing wells for
28 oil and gas.
29 10.14. "Owner" means the person who has the right to drill into and produce from a pool and
30 to appropriate the oil or gas the person produces therefrom either for that person or
31 others or for that person and others.
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1 11.15. "Person" means and includes any natural person, corporation, limited liability
2 company, association, partnership, receiver, trustee, executor, administrator, guardian,
3 fiduciary, or other representative of any kind, and includes any department, agency, or
4 instrumentality of the state or of any governmental subdivision thereof; the masculine
5 gender, in referring to a person, includes the feminine and the neuter genders.
6 12.16. "Pipeline facility" means a pipeline, pump, compressor, storage, and any other facility,
7 structure, and property incidental and necessary or useful in the interconnection of a
8 pipeline or for the transportation, distribution, and delivery of energy-related
9 commodities to points of sale or consumption or to the point of distribution for
10 consumption located within or outside of this state.
11 13.17. "Pool" means an underground reservoir containing a common accumulation of oil or
12 gas or both; each zone of a structure which is completely separated from any other
13 zone in the same structure is a pool, as that term is used in this chapter.
14 14.18. "Producer" means the owner of a well or wells capable of producing oil or gas or both.
15 15.19. "Product" means any commodity made from oil or gas and includes refined crude oil,
16 crude tops, topped crude, processed crude, processed crude petroleum, residue from
17 crude petroleum, cracking stock, uncracked fuel oil, fuel oil, treated crude oil,
18 residuum, gas oil, casinghead gasoline, natural-gas gasoline, kerosene, benzine,
19 wash oil, waste oil, blended gasoline, lubricating oil, blends or mixtures of oil with one
20 or more liquid products or byproducts derived from oil or gas, and blends or mixtures
21 of two or more liquid products or byproducts derived from oil or gas, whether
22 hereinabove enumerated or not.
23 16.20. "Reasonable market demand" means the demand for oil or gas for reasonable current
24 requirements for consumption and use within and without the state, together with such
25 quantities as are reasonably necessary for building up or maintaining reasonable
26 working stocks and reasonable reserves of oil or gas or product.
27 17.21. "Reserve pit" means an excavated area used to contain drill cuttings accumulated
28 during oil and gas drilling operations and mud-laden oil and gas drilling fluids used to
29 confine oil, gas, or water to its native strata during the drilling of an oil and gas well.
30 22. "Royalty" means the mineral owner's share of production, free of the costs of
31 production.
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1 18.23. "Underground gathering pipeline" means an underground gas or liquid pipeline with
2 associated above ground equipment which is designed for or capable of transporting
3 crude oil, natural gas, carbon dioxide, or water produced in association with oil and
4 gas which is not subject to chapter 49-22.1. As used in this subsection, "associated
5 above ground equipment" means equipment and property located above ground level,
6 which is incidental to and necessary for or useful for transporting crude oil, natural
7 gas, carbon dioxide, or water produced in association with oil and gas from a
8 production facility. As used in this subsection, "equipment and property" includes a
9 pump, a compressor, storage, leak detection or monitoring equipment, and any other
10 facility or structure.
11 19.24. "Waste" means and includes:
12 a. Physical waste, as that term is generally understood in the oil and gas industry.
13 b. The inefficient, excessive, or improper use of, or the unnecessary dissipation of
14 reservoir energy.
15 c. The locating, spacing, drilling, equipping, operating, or producing of any oil or gas
16 well or wells in a manner which causes, or tends to cause, reduction in the
17 quantity of oil or gas ultimately recoverable from a pool under prudent and proper
18 operations, or which causes or tends to cause unnecessary or excessive surface
19 loss or destruction of oil or gas.
20 d. The inefficient storing of oil.
21 e. The production of oil or gas in excess of transportation or marketing facilities or in
22 excess of reasonable market demand.
23 20.25. "Working interest" means the interest granted under an oil and gas lease, giving the
24 lessee the right to work on the leased property to search for, develop, and produce oil
25 and gas and the obligation to pay all costs of production.
26 26. The word "and" includes the word "or" and the use of the word "or" includes the word
27 "and". The use of the plural includes the singular and the use of the singular includes
28 the plural.
29 SECTION 2. A new subsection to section 38-08-04 of the North Dakota Century Code is
30 created and enacted as follows:
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1 The commission may not determine the legal relationship between a lessor and a
2 lessee or enforce lease terms or division orders.
3 SECTION 3. AMENDMENT. Section 38-08-06.3 of the North Dakota Century Code is
4 amended and reenacted as follows:
5 38-08-06.3. Information statement to accompany payment to royalty owner - Penalty.
6 Any
7 1. Except as otherwise provided in subsection 2, any person whothat makes a payment
8 to an owner of a royaltyan interest in land in this state for the purchase of oil or gas
9 produced from that royalty interest shall provide with the payment to the royalty owner
10 an information statement that will allow the royalty owner to clearly identify the amount
11 of oil or gas sold and the amount and purpose of each deduction made for the
12 reasonable costs of drilling and completion of day-to-day well operations made from
13 the gross amount due.
14 2. A royalty owner may not be charged directly or indirectly for any capital costs
15 downstream of the well or for overhead, risk capital, interest charges, cost of money,
16 rate of return, or similar charges, whether actual or anticipated.
17 3. Royalties may not result in a negative payment and negative payment numbers may
18 not be carried forward. However, if the payor has made a verifiable mistake in
19 calculating a royalty owner's overriding royalty owner's decimal interest in a well, any
20 excessive payments made in the previous one hundred eighty days may be recouped
21 from future payments.
22 4. The statement must be on forms approved by the industrial commission and contain
23 the information thatprescribed by the commission prescribes by rule.
24 5. A person whothat fails to comply with the requirements of this section is guilty of a
25 class B misdemeanor.
26 6. If the plaintiff prevails in litigation filed under this section, the court shall award the
27 plaintiff:
28 a. Reasonable attorney's fees; and
29 b. If the actual damages to the plaintiff are less than two hundred dollars, an
30 additional amount so the total amount of damages equals two hundred dollars.
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1 SECTION 4. Section 38-08-06.5 of the North Dakota Century Code is created and enacted
2 as follows:
3 38-08-06.5. Royalty owner information statement.
4 When payment is made for oil or gas production to an interest owner, whether pursuant to a
5 division order, lease, servitude, or other agreement, the following information must be included
6 on the check stub or on an attachment to the form of payment, and by electronic means,
7 including a portable document format or Microsoft Excel comma-separated values file, included
8 free of charge.
9 1. The lease, property, or well name or any lease, property, or well identification number
10 used to identify the lease, property, or well; provided, that if a lease, property, or well
11 identification number is used, the royalty owner initially must be provided the lease,
12 property, or well name to which the lease, property, or well name refers. The well
13 name must comply with the rules prescribed by the industrial commission and include
14 the well file number.
15 2. The month and year during which sales occurred for which payment is being made.
16 3. One hundred percent of the corrected volume of oil, regardless of ownership, which is
17 sold measured in barrels, and one hundred percent of the volume of either wet or dry
18 gas, regardless of ownership, which is sold or removed from the premises for the
19 purpose of sale, or sale of its contents and residue, measured in thousand cubic feet
20 [28.32 cubic meters].
21 4. The weighted average price per barrel received by the producer for all oil sold during
22 the period for which payment is made. The price must be the net price received by the
23 producer after all deductions.
24 5. The weighted average price per thousand cubic feet [28.32 cubic meters] received by
25 the producer for all gas sold and weighted average price per gallon received by the
26 producer for all natural gas liquids sold during the period for which payment is made.
27 The price must be the net price received by the producer after all deductions.
28 6. The total amount of state severance and other production taxes.
29 7. The producer's net value of total sales after taxes and deductions.
30 8. The amount and purpose of each owner deduction made, identified as transportation,
31 processing, compression, or administrative costs. Deductions and costs are limited to
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1 day-to-day operating costs and exclude overhead, risk capital, interest charges, cost
2 of money, rate of return, or similar charges.
3 9. The amount and purpose of each owner adjustment or correction made. Adjustments
4 are not allowed after thirty-six months from the date of the first sale of the production
5 unless there has been a change in the spacing unit of a well or a change in the
6 decimal interest in a mineral owner.
7 10. The owner's interest in sales from the lease, property, or well expressed as a decimal.
8 The royalty owner's decimal must be reported as an aggregate sum of any split
9 decimals the payor includes or expressed as a single decimal which includes the
10 royalty owner's entire interest for each well.
11 11. The owner's share of the total value of sales before removing any taxes. The value
12 can be calculated before or after removing owner's deductions if it is clearly noted on
13 the royalty statement or included on an attachment to the royalty statement.
14 12. The owner's share of sales value less taxes and deductions.
15 13. An address as provided by the industrial commission indicating where additional
16 information may be obtained and any questions answered. If information is requested
17 by certified mail, the answer must be mailed by certified mail within thirty days of
18 receipt of the request.
19 SECTION 5. Section 38-08-06.6 of the North Dakota Century Code is created and enacted
20 as follows:
21 38-08-06.6. Ownership interest information statement - Penalty.
22 1. Within one hundred twenty days after the end of the month of the first sale of
23 production from a well or change in the spacing unit of a well or a decimal interest in a
24 mineral owner, the operator or payor shall provide the mineral owner with a statement
25 identifying the spacing unit for the well, and the effective date of the spacing unit
26 change or decimal interest change if applicable, the net mineral acres owned by the
27 mineral owner, the gross mineral acres in the spacing unit, and the mineral owner's
28 decimal interest that will be applied to the well.
29 2. An address provided under section 38-08-06.5 also must provide where additional
30 information may be obtained regarding how the operator or payor has calculated the
31 mineral owner's deci