BAKKEN SHALE:

N.D. lawsuit foretells lengthy disputes over mineral rights

TRENTON, N.D. -- From a hill above their farmhouse, Mary Beth and James "Doc" Ferguson can look out over the Missouri River as it sweeps into North Dakota from Montana.

Decades ago, Mary Beth's father farmed in the bottomlands along the Missouri. He gave up part of his land when the Army Corps of Engineers dammed the river to create Lake Sakakawea, the giant reservoir that slices across North Dakota.

Like a lot of oil-producing states, though, North Dakota allows separate owners of the surface and the mineral rights -- the right to drill for oil and gas.

So Ferguson's father held onto the mineral rights to the land he gave up and left the deed to his daughters, along with the rest of the farm.

When oil producers started tapping the Bakken Shale underneath the Missouri, the Fergusons looked forward to supplementing their income by leasing the right to drill. That's when they discovered that the state of North Dakota had also staked a claim to the mineral rights along the river, citing its historical ownership of the riverbed.

The Fergusons and dozens of their neighbors sued the state and, after losing a round with a district judge, have asked the state Supreme Court to let them continue with the lawsuit. No matter what the Supreme Court decides, the lawsuit is likely just the first round in a series of disputes that may take years to settle, as producers pull oil from beneath farmland, valleys and lake beds.

"A lot of these kinds of disputes simmer and lay dormant until there's something to fight about. Bakken oil gives you something to fight about," said Owen Anderson, a law professor at the University of Oklahoma who previously worked for the North Dakota State Land Board.

At issue is ownership of the "shore zone" -- the land that's between the normal high- and low-water marks of the river. Historically, the state has owned the land below the high-water mark, although adjacent landowners have often used it for grazing and to gain access to the river.

Down the river from the Fergusons and their neighbors, the North Dakota Trust Lands Department has surveyed an additional 180 miles of the Missouri's shoreline, a move that may create more conflicts over ownership of the mineral rights. Landowners in some of those downriver areas say they're watching the state Supreme Court to decide whether they want to fight the state over the shore zone.

Another dispute may be brewing over the mineral rights to the riverbed on the Fort Berthold reservation, much of which was submerged to form Lake Sakakawea.

The potential prize is huge. The lawsuit in front of the Supreme Court involves owners along the Missouri and Yellowstone rivers from the Montana border to the city of Williston. It covers more than 25,000 acres -- an area twice the size of Manhattan Island -- said Jan Conlin, an attorney for the landowners.

The state has already collected $134 million in bonuses and other revenue from land that may have disputed ownership, state Trust Lands Commissioner Lance Gaebe said in an interview.

If the state prevails, the money will be used for roads, schools and hospitals, just like the income from the other 2.5 million acres that North Dakota has already leased for oil development, Gaebe said.

North Dakota has always claimed ownership of its rivers up to their high-water mark, Gaebe said. That has put the state in conflict with landowners who have lived near the river for generations, or who hung onto mineral rights when they gave up land for Lake Sakakawea.

Delineating the ownership is a giant task. The undammed portion of the Missouri meanders through a wide valley and has shifted its course during floods, making the definition of the high-water mark hard to determine. Lake Sakakawea is the third-biggest reservoir in the U.S. -- 178 miles long with a surface of 382,000 acres.

Much of the area in the shore zone was inaccessible to oil exploration until new technology came along in the last decade. Using horizontal drilling rigs, exploration companies can reach for 2 miles or more -- enough to reach from the shore to the center of Lake Sakakawea.

When the Bakken boom started, the state paid an engineering firm to survey the location of the high-water mark of the Missouri. That required reconstructing maps showing the historical riverbed beneath Lake Sakakawea using aerial photos that predate the lake.

"There's not a dispute over the ownership of the bed of these navigable rivers in general -- really the dispute is, where is the edge of that river?" Gaebe said.

'The state had simply taken it'

Apart from the land involved in the Ferguson case, the state has surveyed two other sections of the river. One survey, which covered 92 miles of the historical riverbed from just west of Williston to New Town, N.D., found 41,825 acres below the historical high-water marks of the river. It's not clear how much of that land is in dispute -- the survey doesn't specify how many acres are in the shore zone and how many are in the old river channel.

Another survey, from New Town to the eastern edge of the lake at the Garrison Dam, found 40,600 acres below the high-water marks. Almost all of that area falls inside the Fort Berthold Indian Reservation, home to the Mandan, Hidatsa and Arikara nations, which are known as the Three Affiliated Tribes. The state and the tribal government both claim ownership of the mineral rights to the riverbed.

The Fergusons and other landowners say the state is stretching the boundaries of the high-water mark and grabbing land that has been privately owned for generations. The Fergusons have deeds showing they own the mineral rights along the shore, and they had already leased them for drilling before, in the 1980s.

They didn't realize what was going on until after they signed a lease with Brigham Exploration. They were waiting on payment and learned from the oil company that the state was leasing the mineral rights to the same land.

"The state had simply taken it," Mary Beth Ferguson said.

The Fergusons and other residents sued the state. Eventually, several suits were sent to court together under the name of Stanford Reep.

The landowners say in court documents that a separate state law gives them title to land to the low-water mark and that a 1994 state Supreme Court decision gave the state and private landowners overlapping ownership of the shore zone. A district judge in Williams County has already ruled against the Reep case's landowners once, saying, "It is the State of North Dakota -- as part of its title to the beds of navigable waterways -- that owns the minerals in the area between the ordinary high and low watermarks on these waterways."

The landowners appealed that decision to the state Supreme Court, which heard arguments in September. It's unclear when the court will rule, but it could take six months or more.

Brigham was acquired by Norwegian oil producer Statoil ASA in 2011. Its lawyers have filed an interpleader, essentially asking the court to decide who owns the mineral rights so the company can know whom to pay, according to documents.

"Hopefully, the Supreme Court will resolve clearly this high-water mark issue," said Anderson, the Oklahoma law professor. "If they leave it kind of in limbo -- something loosey-goosey -- that's just going to create more litigation."

Sandi Wisness, a retired nurse, tells a story similar to the Fergusons'. Her grandfather homesteaded along the Missouri River north of Watford City around 1900, in an area now under Lake Sakakawea. When the water's low, the old homestead's foundations are sometimes still visible, she said.

Wisness inherited the mineral rights to about 29 acres and leased it in 2005. When the original oil company didn't drill on it, she tried to lease the acreage again in 2009, only to learn that the state had also claimed part of the land.

Wisness said she and her husband make a decent income from other land they've leased for oil development. They've spoken with an attorney, who advised them to wait until the Reep lawsuit is decided before pressing any claim against the state.

Starla Norstedt also inherited minerals rights to her grandfather's homestead, near where the White Earth River enters Lake Sakakawea. Parts of the farm were taken when the lake was flooded, but Norstedt inherited the mineral rights to about 34 acres.

Norstedt said she leased her share of the old farm once in the 1980s. When she tried to lease it again to a driller looking to tap into the Bakken formation, she found out the state had claimed a little more than half of it, leaving her with the drilling rights to about 16 acres.

"It's not like it has never been leased in my name," she said. Like Wisness, she's talked to a lawyer and is waiting for the outcome of the Reep lawsuit.

Sovereign claims

Looming beyond the Reep case is the question of the Fort Berthold Reservation. More than 150,000 acres of the reservation was submerged when Lake Sakakawea was built.

Marilyn Hudson, 77, grew up on her father's cattle ranch on the reservation. Like most tribal members, he lived close to the river, which provided water for crops and livestock.

"We grew up with the understanding you could utilize the river and its resources but really no one person owned it," Hudson said.

Starting in 1949, the Army Corps of Engineers began acquiring tribal land for Lake Sakakawea. In 1953, the family moved to a new ranch near Parshall, N.D. The land wasn't as good, and eventually Hudson's father quit ranching, she said.

"The tribal leaders in those years tried very desperately to retain the minerals -- they didn't know there was a lot of oil there, but they were shrewd enough to realize there might be something under the water," Hudson said.

Gaebe, the land commissioner, said the state owns the mineral rights to the historical channel of the river beneath the lake -- although he's quick to point out that the state isn't claiming the rest of the lake.

The Three Affiliated Tribes, though, have their own claim.

"We are a sovereign nation with a treaty signed by the U.S. government," spokeswoman Glenda Embry wrote in an email.

Asked how the dispute will be resolved, Gaebe said, "It's a difficult question -- I don't know."

It's unclear how the courts may interpret any disputes about mineral rights on the reservation, Anderson said.

"Depending upon how the treaty that established that reservation is interpreted, the tribes might argue we own the riverbed," he said. "That's very much a treaty-by-treaty, reservation-by-reservation issue."

Complicating matters is the fact that most of the land that was flooded was owned by individuals before the lake was built, not by the tribal government, Hudson said.

The Army Corps returned the mineral rights under Lake Sakakawea after Congress passed the 1984 Fort Berthold Mineral Restoration Act. But the law gave the mineral rights to the tribal government, not the original owners, Hudson said. She and other landowners have asked the Interior Department to turn over land their families owned, citing part of the 1984 law.

"It seems like it may leave a little door open," Hudson said.

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