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Archive for the ‘North Dakota Environmental Law’ Category

Leaky Laws – Oil Spill Liability in North Dakota

Posted on: May 17th, 2016
by David Ganje

Pipelines, even privately owned, are a publically regulated transportation and operating system. The question is not whether pipelines are “essential to our society.”  Pipelines are already integral to the country: the US had over 1,700,000 miles of oil and gas pipelines in 2014, and North Dakota had 8,080 miles of pipelines in 2011. When a pipeline leak occurs, it only deflects from the problem at hand to discuss a pipeline’s place in modern society. The media puts its attention on the statements of politicians after a pipeline leak has occurred.  Such media attention does address the question of how to manage the risk.  Operating systems will malfunction. The process for legally authorizing operating systems should not. To paraphrase Norman Vincent Peale, the problem with most publically regulated systems is that they would rather be ruined by praise than saved by criticism.

In 2013, a pipeline operated by Tesoro Logistics began leaking thousands of barrels of oil into wheat fields. By the time the leak was caught and stopped, over 840,000 gallons of crude oil spilled into North Dakota. Tesoro Logistics originally estimated that the cleanup would take around $4 million. Two years later, the costs have passed $40 million and continue to rise. Oil spills are not going away – as more pipelines are built, spills are only increasing. The relevant question should be how regulated pipeline leaks will be cleaned up, and who will pay for them.

Under both Federal and state laws, the party responsible for a leak is the one responsible for cleanup. Usually a company like Tesoro Logistics prefers to take care of the cleanup itself. Not only does this help soothe public relations problems resulting from a leak, but it helps the operator control the costs. While North Dakota’s Department of Health is supervising the cleanup, Tesoro Logistics manages the contractors for the cleanup. But a pipeline operator causing a spill may not always be willing or able to clean up a spill. The liable operator could be bankrupt, dissolved, or perhaps not have the money. In these cases, clean up cannot wait for years of court cases or bureaucratic lethargy. The money for a cleanup needs to be there, ready to be used.

The state tells us that ‘them what operates a car must financially assure the public against the risk of its operation.’ Thus, the state has mandatory car insurance. North Dakota can require operators to provide financial assurances of their ability to clean up a spill, but the state can only require such insurance after a spill has already happened. The North Dakota Department of Health “may require insurance coverage or other financial assurance for any additional environmental monitoring or remediation that may become necessary on the property…and must require such…when the projected cost of an active monitoring or remediation program exceeds five hundred thousand dollars.” This requirement applies only to “real property contaminated by regulated substance or other pollution or contamination.” In other words, the state can only require financial assurances for land that has already been contaminated. What about money to help before a spill occurs?

North Dakota also maintains the Petroleum Release Compensation Fund. Unfortunately, this fund is not there to help landowners damaged by oil spills – the PRCF is a fund designed to “reimburse an eligible owner or operator for ninety percent of the costs of corrective action.” In other words, the PRCF is a fund to pay back the operators for money they pay cleaning up their mistakes. The PRCF is funded by oil companies, not taxpayers. And landowners can recover from the fund, but only if very specific requirements are met: the pipeline must have complied with all state and federal rules, the Dept. of Health was notified properly, the operator must have already begun paying the costs of corrective action, and the operator must be cooperating fully. Why these requirements? Because the PRCF is not designed to protect landowners and reimburse them for damages – the PRCF is designed to help companies defray expenses. The only reason the PRCF includes the capability to pay landowners for damages is so the pipeline operator won’t have to do it themselves. The PRCF does help encourage companies to come clean and take responsibility for leaks, knowing that they will be paid back from the fund. But the fund does not solve the problem of providing ongoing financial assurance, also referred to commonly as insurance.

The best fund available to aid the state’s immediate spill response is the Hazardous Chemicals Preparedness and Response Fund (HCPPF). This fund is created through an annual fee paid by facilities housing hazardous materials ($25 per hazardous material housed, with a $475 cap) in the state, as well as other appropriations by the legislature. These fees are distributed between the North Dakota Department of Emergency Services and the many Local Emergency Planning Committees, and pay for training, equipment, and disaster relief. This kind of fund is a good start, and ensures that North Dakota has equipment and trained professionals in disaster relief ready to move when a spill is detected. But the limitations on fundraising for the HCPPF means that if a leak like Tesoro Logistic’s occurs, the HCPPF will not be sufficient to manage the cleanup effort – at least, not without taxpayer monies coming from the state to fill the gaps. And landowners should not be forced to pay for oil spills.

This is not to say that North Dakota would be alone in a crisis. Both the Coast Guard and the EPA have trust funds in place to help states and the federal government. But the Coast Guard’s fund only applies to spills into navigable waters, and cannot apply to cleaning up spills on land. Meanwhile, the EPA’s Leaking Underground Storage Tank Fund is funded with a tax on motor fuel – a tax paid by private citizens, not the companies causing the damages in the first place.

A better solution is required to ensure that those who cause the damages pay for it. Waiting until after a spill happens to look for money to fix it cannot be how pipelines are managed. This is especially troublesome when so many spills go undetected for months, like the 3 million gallons of fracking brine that leaked into the Blacktail Creek in 2015; the pipeline had been leaking for over three months before it was detected. The very same pipeline leaked another seven thousand gallons of brine this January. Pipeline spills are not going away. North Dakota reported approximately 1,400 hazardous material release incidents in 2014 alone. Financial assurances for spills must be required before the damage happens, in amounts sufficient to cover the hundreds of spills that happen every year. The legislature needs to create a modern statute addressing financial assurances for pipeline leaks.

David Ganje practices law in the area of natural resources, environmental and commercial law in South Dakota and North Dakota. His website is Lexenergy.net

In North Dakota you can talk to the dead

Posted on: January 27th, 2016
by David Ganje

In North Dakota one can give legal notice by mail to a deceased individual, even though he long ago went to that great oil patch in the sky. It is something out of a Charles Dicken’s novel. You can communicate and give notice to the dead. A landowner seeking to claim mineral interests may recover the deceased’s mineral interests by giving notice by US mail to an address long ago abandoned — and legally so, according to the Dormant Mineral Act.

The North Dakota Supreme Court, in ruling on the Dormant Mineral Act, stated that “…no reasonable inquiry was required where the surface owner mailed the notice of lapse to the mineral interest owners’ address which was of record in 2007, even though the mineral interest owners had died in 1980 and 1999, respectively.” When an individual who owned mineral interests in North Dakota dies, they and their heirs may be out of luck if death never kept up the “current address” in the county recorder’s office.

The Supreme Court in an important recent case called Capps also stated, “…the address of record need not be the mineral interest owner’s correct address for the mailing of the notice of lapse to satisfy the statutory requirement.” In other words, a landowner may serve a notice to recover mineral interests by US mail when mailed to the deceased’s last address in the records and thereby obtain minerals formerly owned by the deceased.

Both the legislature and the courts are attempting to make it easier for surface owners to clear title and reclaim lost mineral rights. The Supreme Court in Capps held that “this Court made it clear that when the mineral interest owners of record are deceased, the notice must still be mailed to the address of the deceased owners of record.” In my practice I have done this. The postman must think I am nuts. This rule derives from the intent to encourage mineral development and extraction.

The Court ruled that the surface owner was not required to conduct a reasonable inquiry into an actual address of a mineral owner even when the owner knew they were deceased. The Court determined that it was immaterial whether the surface owner had actual knowledge of the death of the party notified by mail the party who was the record owner of the mineral interests and the person to whom the statutory notices had been mailed. The Court stated that any heirs of the deceased would have received notice if the deceased had recorded notice of their current addresses. The Court also held that the constitutional safeguards of due process and adequate notice do not apply to the non-litigation Dormant Mineral Act used by the landowners in the Capps case.

The Capps case illustrates the growing body of law that makes it easier to develop and reclaim mineral rights.

David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in South Dakota and North Dakota. View the original article at the Bismarck Tribune – Brakken Breakout

Bankruptcy in the Bakken

Posted on: January 11th, 2016
by David Ganje

Bankruptcy in the Bakken

Oil and gas production is a result of two basic factors: economics and technology. Economics means the costs of production and distribution. The price of oil is an essential element of the economics of production. One economic risk is bankruptcy. A bankruptcy filing, however, is not the same as a “funeral.” People believe what they want to believe. When I taught bankruptcy law, one of the harder things to get across to the students was the fact that a bankruptcy filing is not automatically “the end.” Nevertheless, several of the law students still came into the class carrying that attitude. One should keep in mind that even if a liquidation bankruptcy case is filed, production in the final analysis often continues. The particular chapter of the bankruptcy code filing, North Dakota property law, as well as state and federal regulations all affect a bankruptcy case. There are as many facets to a bankruptcy case as there are facets on a movie star’s wedding ring, however, in this article I will discuss basically the impact of a bankruptcy filing on the typical lessor and royalty holder.

First let us review a couple of things to watch for concerning a possible bankruptcy filing. If you are the lessor or royalty holder and think a producer may be a bankruptcy candidate, there are steps that can be taken. Your attorney can access the so-called watch list as well as access public records for delisted public companies. And a slow, or no, payment of royalties is also a red flag. But do not panic if a bankruptcy filing occurs. The royalty holder should put his energy into keeping good paperwork and records. This will make a bankruptcy experience tolerable.

Property rights created by an oil and gas lease are treated differently in the various states. In North Dakota, the oil and gas lease gives the lessor a real property interest with real property rights. According to the 1986 North Dakota Supreme Court case Nantt v. Puckett Energy Company, “[o]il and gas leases are interests in real property” and have been considered such since 1951. Although an oil and gas lease is not a lease in a landlord and tenant sense, in North Dakota, an operating lease is treated under bankruptcy law as an “unexpired lease.” In Van Sickles v. Hallmark & Associates, a 2013 case, the North Dakota Supreme Court decided that an oil and gas lease in a bankruptcy case must comply with the requirements set forth in section 365 of the bankruptcy code.

Many operators who file bankruptcy are in arrears on royalty payments. A new law goes into effect at the end of February in North Dakota that allows a royalty holder to file a security lien when the royalty has not been paid when due. The royalty owner must file the lien with the state and record the lien in the county where the well is located within 90 days of production to have a lien. With good records and timely filing and recording, mineral interest owners can gain a secured position in a bankruptcy proceeding. This greatly increases a royalty holder’s chances of a full recovery because secured creditors are paid before unsecured creditors.

In bankruptcy, the debtor must either assume or reject an unexpired lease of the debtor. A debtor may not accept only the favorable parts of an executory contract. If the lease is assumed and not in default, the royalty holder can rest easy, because an oil and gas lease must be assumed in full. The royalty owner will continue to reap the benefits of the contract. If the lease is in default, the debtor must cure the default in order to keep the lease. Therefore, if a bankrupt debtor is delinquent on royalty payments, the debtor must pay the back royalties if they want to assume the lease. Either way, the royalty owner gets paid, at least eventually. However, the bankruptcy court must approve any assumption of a lease. In this circumstances, the court will look to whether the lease is a valuable asset to the debtor and whether its preservation is sufficiently important. A royalty holder or lessor may also request that the court order the debtor to decide whether to assume or reject the lease within a specified period of time. A bankruptcy court can rule that preventing further delay with respect to assumption or rejection is in the best interest of all the parties.

Following a bankruptcy, a royalty holder or lessor may find themselves with the new option of leasing to a different producer. If a debtor elects to reject an oil and gas lease, the lease is no longer valid and the mineral interest is again available on the open market. Another way this could happen is if a producer is in default of the lease agreement. The North Dakota legislature states in N.D.C.C. Sec. 47-16-39.1 that the obligation to pay royalties is “of the essence” in an oil and gas lease and that breach of the obligation “may constitute grounds for cancellation of the lease.” If a mineral owner shows a bankruptcy court that equity requires it, the court may cancel the contract and the mineral owner may then lease to another party. In addition to the statute, some lease agreements contain a provision allowing a landowner to terminate the lease under certain conditions. This avoids the equity power of the court in favor of contract language regarding cancellation. If the terms of the lease are breached in this way, a landowner may be able to terminate the existing lease and sign a lease with another producer.

Holding Oil & Gas Leases Past Primary Term

Posted on: December 13th, 2015
by David Ganje

This page has moved to ‘Canceling’ An Oil And Gas Lease

Brownfields-An Unused Part of North Dakota’s Environmental Law

Posted on: April 19th, 2014
by David Ganje

 

BROWNFIELDS – AN UNUSED PART OF NORTH DAKOTA’S ENVIRONMENTAL LAW

 

Laws by their nature create tension between different economic interests in a democratic society.  When the free market system includes environmental laws which affect the market­ability and development of contaminated or polluted property, the system must also include a mechanism to protect the owner’s ability to sell and develop such property.  Man-made ‘controls’ created by man-made regulations need man-made protections to reduce the affect of these ‘controls’.  Environmental laws and regulations are no exception.  Contemporary environmental laws contain many restrictions on transfer of property, as well as hazardous spill reporting and cleanup requirements.  Such laws affect the marketability of property.  State and federal agencies in recent years have focused attention on the cleanup and redevelopment of contaminated property sites in North Dakota.  These sites are called brownfields.

Brownfields are properties the use, expansion or redevelopment of which is complicated by the presence or potential presence of a hazardous substance.  Environmental laws now include financial assistance for the cleanup of such properties.  Brownfield cleanup can address mine-scarred lands, sites contaminated by petroleum, chemicals or sites contaminated as a result of manufacturing.

Environmental issues in North Dakota are primarily the jurisdiction of the state’s Department of Health, Environmental Health Section (EHS).  The EHS has significant management authority over environmental matters in the state and has had cooperative agreements in place with the U.S. Environmental Protection Agency (EPA) under which the EHS is the principal state government agency dealing with environmental matters.

North Dakotans are fortunate in that the EHS is generally accessible and open in its regulatory and management style.  Such accessibility is not always the norm among environmental agencies across the country.  EHS has established policies that promote the development of environmentally affected properties. The brownfields program is application based.  Cities, counties or local government groups may apply for assistance under the program.

Many North Dakota municipalities and local governments are missing the boat.  Not all environmental regulations are bad.  One useful but underused environmental program in the state is North Dakota’s State Response Program (Brownfields Program).  This program is a source of funding for site assessments and, if necessary, cleaning up qualified brownfield sites throughout the state.  Access is available to qualified property owners (counties and municipalities), community development organizations, and nonprofits.  The expenses of approved site assessment and environmental testing can be cost free to the property owner; The North Dakota Brownfield Program manages and pays for these expenses.

One can be fairly certain that in North Dakota many cities and counties, in both rural and urban areas, have abandoned, underutilized, or potentially contaminated properties.

EPA data indicates that only three North Dakota municipalities and five tribal organizations have received Brownfield Grants since 1998.

The prevailing view is that many people think that brownfield sites are only associated with abandoned manufacturing sites that were so prevalent in the rust belt states located east of the Mississippi River.  Brownfield sites exist in very state and they include but are not limited to abandoned gas stations, dry cleaners, factories, warehouses, bus facilities, parking lots, aircraft hangars and heavy equipment repair and storage centers.

In years to come we will probably see an increase in North Dakota brownfield sites due to the development of oil and gas resources in the Bakken Formation.  The state’s Brownfield Program will enable qualified property owners to clean up Brownfield sites so they can be put to better economic use for the benefit of investors and residents of North Dakota.

The EPA reports that qualified applicants are eligible for up to $200,000 in cleanup grants per property and that 3 out of 4 applications received in 2013 were successful.  The cleanup grant recipients are required to provide a 20% share (e.g. $200,000 Grant has a $40,000 match).  The cost share does not have to be money; it could be in the form of a contribution of labor, material, or services from a non-federal source.  Hardship waivers can also be requested.

That environmental problems with properties should remain hidden based upon a public misunderstanding is the old way of doing business.  EHS and affected communities and counties should partner up and pursue this course of action.  It would be in the economic interest of the communities in which such properties are located and the state.