In Van Sickle, the plaintiffs each owned a royalty interest in a well that was originally leased by Comanche Oil Company, which later assigned its interests to Athens/Alpha Gas Corporation. Alpha later filed for reorganization under Chapter 11 of the bankruptcy code, and the plan was approved without inclusion of the Van Sickles' claims. The Van Sickles sought to hold both companies liable under the doctrine of successor liability for pre-bankruptcy-court-confirmation royalties under the N.D.C.C. § 47-16-39.1, which provides in part:
The obligation arising under an oil and gas lease to pay oil or gas royalties to the mineral owner or the mineral owner’s assignee, or to deliver oil or gas to a purchaser to the credit of the mineral owner or the mineral owner's assignee, or to pay the market value thereof is of the essence in the lease contract, and breach of the obligation may constitute grounds for the cancellation of the lease in cases where it is determined by the court that the equities of the case require cancellation. If the operator under an oil and gas lease fails to pay oil or gas royalties to the mineral owner or the mineral owner's assignee within one hundred fifty days after oil or gas produced under the lease is marketed and cancellation of the lease is not sought, the unpaid royalties shall thereafter bear interest calculated at the rate of eighteen percent per annum until paid, . . .
The North Dakota Supreme Court ultimately found that, in part, because the statute provides that the obligation to pay royalties is of the essence, the duties under those leases were indeed assigned and both parties should be liable under the doctrine of successor liability.
The Van Sickles also appealed the district court's award of simple interest, rather than compound interest, for the unpaid royalties in question. The Court held that the simple interest awarded by the district court was appropriate because the plain language of the statute in question did not require the award of compound interest. Instead, it merely required that interest be calculated at a rate of eighteen percent. This suggests that other North Dakota courts will similarly find that only simple interest is appropriate under the statute.
Companies acquiring leases in North Dakota should do appropriate due diligence to know what unpaid royalty burden they are assuming as part of the transaction, and this case provides support for E&P companies to continue to pay simple, rather than compound, interest when interest is due.