Are You Ready to Pay Revenue on Production Under Lake Sakakawea?

August 25, 2020

By Jason R.S. Cassady

Revenue held in suspense due to ambiguities related to the location of the ordinary high water mark below Lake Sakakawea will be required to be released from suspense by December 24, 2020, or June 24, 2022, depending upon location of the lands.

In the 1950s, the United States Corps of Engineers constructed the Garrison Dam, creating Lake Sakakawea in what had once been the flood plain of the Missouri River. During this time, the United States condemned hundreds of thousands of acres of land–in most instances without condemning the underlying mineral interests.

Since 2000, the use of horizontal drilling to access the Bakken and Three Forks formations has become common in North Dakota–including beneath Lake Sakakawea. However, the difficulty in determining unambiguous record title to the mineral interests under Lake Sakakawea has been a thorn in the side of mineral owners, working interest owners and operators. In 2008, the North Dakota Board of University and School Lands commissioned surveys of the ordinary high water mark along the Missouri River, including the Ordinary High Water Mark Survey Task Order #2 Final Technical Report (State Phase Two Survey) which relied upon 1950s aerial photography of the Missouri River and its flood plain to determine the historical ordinary high water mark of the Missouri River before construction of the Garrison Dam.

The State Phase Two Survey resulted in the state asserting ownership which often significantly differed from the Corps of Engineers’ Segment Maps which had been used for the condemnation of the lands related to the construction of the Garrison Dam and creation of Lake Sakakawea. The differences between the State Phase Two Survey and Segment Maps have resulted in much confusion and many disputes regarding ownership of mineral interests in Lake Sakakawea. To alleviate the differences, disputes and continued confusion regarding ownership of mineral interests beneath Lake Sakakawea, the North Dakota legislature adopted N.D. Cent. Code ch. 61-33.1, which applies to the determination of mineral ownership for all wells spud after January 1, 2006.

As it relates to Lake Sakakawea, N.D. Cent. Code ch. 61-33.1 defines the Historical Missouri Riverbed Channel as that part of the Missouri River from the closure of the Garrison Dam to the southern border of Sections 33 and 34-T153N-R102W. The law provides that the State of North Dakota owns the entire mineral interest in the Historical Missouri Riverbed Channel up to the ordinary high water mark (specifically excluding that portion in the Fort Berthold Reservation). The law established the Corps of Engineers Segment Maps as the presumptive location of the ordinary high water mark found in the Historical Missouri Riverbed Channel, subject to surveys to be prepared and ultimately approved by the North Dakota Industrial Commission and the Board of University and School Lands.

The law required a full review of the Historical Missouri Riverbed Channel as shown in the Corps of Engineers’ Segment Maps to determine whether clear and convincing evidence existed that these maps did not reflect the ordinary high water mark of the Historical Missouri Riverbed Channel. The law provides a detailed list of what constitutes clear and convincing evidence, and, where doubt exists, establishes presumptions in favor of the upland riparian owners. The law does not permit the review of the ordinary high water mark adjacent to unpatented parcels owned by the United States, and all authority to survey the location of the ordinary high water mark adjacent to these parcels was ceded to the Branch of Cadastral Study of the Bureau of Land Management.

On June 25, 2020, the Board of University and School Lands adopted an Acreage Adjustment Survey (the Acreage Determination), which provided acreage below and above the ordinary high water mark of the Historical Missouri Riverbed Channel on a quarter-quarter section or government lot basis (with the exception of part or all of sixteen sections). The result of this adoption is that deadlines set by statute now have specific dates attached to them. These deadlines impact operators of units which include part of Lake Sakakawea.

December 24, 2020:

With respect to any royalty proceeds attributable to tracts lying entirely above the ordinary high water mark of the Historical Missouri Riverbed Channel as shown on both the Corps of Engineers Segment Maps and the State Phase Two Survey, within six months following approval of the Acreage Determination, the Board of University and School Lands must release to operators, and operators must release to all riparian royalty owners, all proceeds they are holding in suspense (unless there are other title defects affecting the mineral title).

June 24, 2022:

  • The Board of University and School Lands and Operators is required to implement acreage and revenue adjustments, refunds and payment demands within two years of the approval of the Acreage Determination.
  • Likewise, operators are required to have all revenue decks adjusted and removed from suspense (insofar as the suspense solely relates to the location of the ordinary high water mark) within two years of the approval of the Acreage Determination.
  • The Acreage Determination also triggered a two-year statute of limitations for any interested party to file suit challenging the location of the ordinary high water mark as delineated in the final report. Absent any suit being filed as to any parcel of land, two years after approval of the Acreage Determination the lawful location of the ordinary high water mark and lawful acreages above and below the same will be those shown on the Acreage Determination.

June 25, 2022:

Absent a recorded lis pendens or other title defect supporting suspense, applicable penalties, liability or interest for late payment of royalties or revenues will begin to accrue two years after approval of the Acreage Determination.

If you have questions relating to title matters as they relate to the ownership of mineral interests beneath Lake Sakakawea, please feel free to contact Jason Cassady or Kristen Hansen. If you have questions relating to litigation matters as they relate to the ownership of mineral interests beneath Lake Sakakawea or the location of the ordinary high water mark as shown on the Acreage Determination, please feel free to contact Lawrence Bender.