Largely due to the lack of adequate infrastructure and gathering lines, in recent years approximately one-third of all the gas produced from the wells in North Dakota is flared. Beginning late last year, a group of plaintiffs’ attorneys filed fourteen separate class actions, each against a different defendant, seeking royalty payments on the value of gas flared from all the wells in North Dakota operated by the particular defendant. Each putative class alleged the defendant violated a statute purportedly requiring them to pay royalties on the value of the flared gas. Thirteen of the fourteen defendants removed the lawsuits to federal court under the Class Action Fairness Act, and each defendant filed its own motion to dismiss. A team of lawyers from Stinson Leonard Street represent Continental Resources, Inc. ("CLR") in the largest of these class actions.
On May 14, 2014, Judge Hovland, of the United States District Court for the District of North Dakota, granted the motions to dismiss in each of the thirteen class actions. The court determined, among other things, that the lawsuits should be dismissed because plaintiffs failed to exhaust their administrative remedies before the North Dakota Industrial Commission ("NDIC"), which has jurisdiction over implementation of the act containing the statute upon which plaintiffs relied. The NDIC's jurisdiction includes the authority to determine volume and value of gas flared in violation of the statute.
On June 13, 2014, plaintiffs appealed the various dismissal orders to the United States Court of Appeals for the Eighth Circuit. The Eighth Circuit is holding the appeal proceedings in abeyance pending a ruling on a motion to reconsider filed in the district court in one of the lawsuits. The one defendant remain in state court filed a similar motion to dismiss following the federal court’s rulings.
Following the dismissal orders, but prior to the appeal, plaintiffs’ counsel sent a letter dated May 23, 2014, to the NDIC asking it to determine, upon its own motion, and on a statewide basis, that the operators named as defendants flared gas in violation of North Dakota law. On June 3, 2014, the NDIC declined plaintiffs' request, but invited them to initiate their own action "on wells where they have standing." According to the NDIC, plaintiffs' request to conduct statewide proceedings was "beyond what they have standing to challenge." The NDIC reiterated what the federal court noted several times in its dismissal orders, namely, that each plaintiff has rights as a mineral interest owner to petition the NDIC for relief concerning the wells in which he or she has an interest.
In addition, both before and after the federal court dismissal rulings, several defendants initiated their own proceedings to address the flaring from particular wells. The issues before the NDIC include applications for exemptions from the flaring statute, applications to determine the amount and value of gas flared after the first year of production, and applications asking the NDIC to determine that royalties are not due and owing for gas flared from certain wells after the date the well was connected to gas gathering facility.
On July 1, 2014, the NDIC adopted new rules that limit flaring of gas from all existing and future wells. After September 30, 2014, all existing and future wells completed in the Bakken-Three Forks must comply with the new gas flaring rules. The rules could result in temporary reduced production of oil wells that do not have gas capture plans. The industry has various unanswered questions regarding the rules and intends to seek clarification from the NDIC.