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The oil royalties which producers pay landowners should be calculated at the well, not at a higher price at some point downstream, the North Dakota Supreme Court said this week in a win for the oil industry.
The Supreme Court of one of the largest U.S. oil-producing states was asked by a lower court to clarify language in landowners’ contracts with oil companies. The plaintiffs David and Paula Blasi have argued that they had been underpaid royalties that oil firms owe them to pump oil on their land.
The plaintiffs and their lawyers argued that as per the oil royalty contract clauses and the presence of the word “pipeline” in those contracts, oil royalties should be calculated at a point downstream at a connection with an actual pipeline. Since this place is closer to markets, it makes royalties higher.
The Supreme Court of North Dakota was asked to clarify the contracts by a North Dakota federal court. The plaintiffs argued that “the valuation location is independent of the well’s location. Blasi argues the valuation point is “the pipeline,” the justices wrote in their decision.
The justices who were asked to interpret the oil royalty clause at issue said that “The royalty provision is unambiguous. It establishes a valuation point at the well.”
The response of the North Dakota Supreme Court to the certified question from the lower court will now affect at least six separate class action lawsuits brought by the Blasis as trustees of the Blasi Living Trust, according to Bloomberg Law. In each of those class action lawsuits, the plaintiffs argue they have been underpaid oil royalties from oil producers in the state.
The plaintiffs are seeking millions of dollars of what they say is underpaid royalties.
The Supreme Court’s clarification of the lease contracts and their oil royalty clauses may lead to courts dismissing the class actions, Reuters notes.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.