As carbon capture utilization and storage (“CCUS”) investments ramp up across the U.S., energy producing states continue to resolve questions around ownership, use, and compensation of pore space integral to CCUS projects.  The North Dakota Supreme Court’s August 4, 2022 decision affirms the rights of North Dakota surface owners to (i) profit from use of pore space for disposal or storage operations; and (ii) to seek damages for unauthorized injection or migration into pore space.  Particularly in states whose CCUS statutes mirror North Dakota’s, project developers and oil and gas operators may consider the rights of surface owners and the breadth of potential risk in acquiring and using pore space for CCUS projects.    

Background

On August 4, 2022 the North Dakota Supreme Court issued its unanimous decision in Nw. Landowners Ass'n v. State, --- N.W.2d ---, 2022 WL 3096724 (N.D. August 4, 2022), striking down key portions of a state statute that authorized oil and gas operators to inject into the pore space without compensation to the surface owner. 

North Dakota has long recognized that the pore space belongs to the surface owner.¹  In 2019, however, the North Dakota legislature enacted S.B. 2344, which restricted the ability for surface owners to seek compensation or recourse for use of their pore space in connection with unit operations for enhanced oil recovery (including operations involving carbon dioxide) or any other operation authorized by the North Dakota Industrial Commission.  The passage of S.B. 2344 gave rise to this litigation. 

The dispute in Northwest Landowners Association centered on two statutory provisions of S.B. 2344:  North Dakota Century Code §§ 47-31-09 and 38-08-25.  First, Section 38-08-25(5) allowed an oil and gas operator to use subsurface pore space without the consent of the surface owners, and denied the surface owner the right to exclude others or to demand compensation for this subsurface use.² Second, Section 47-31-09(1) barred a surface owner’s tort claims for injection or migration of substances into pore space for purposes of oil, gas and mineral production or for disposal operations.³  The language of both provisions, in simple terms, effectively precluded a surface owner from seeking compensation or damages relating to certain uses of his or her pore space. 

The Northwest Landowners Association (the “Association”) filed a complaint against the State, challenging the constitutionality of S.B. 2344 on its face. The Association argued S.B. 2344 constituted a taking because it “strips landowners of their right to possess and use the pore space within their lands and allows the State of North Dakota to directly redistribute that right to others without the consent of or compensation to the landowners.”⁴ The district court granted the Association’s motion for summary judgment, concluding that the entirety of S.B. 2344 is unconstitutional under both the state and federal takings clauses.

Summary of Decision

The North Dakota Supreme Court affirmed in part and reversed in part. The Court first recognized that “North Dakota law has long established that surface owners have a property interest in pore space”⁵ and “conclude[d] that surface owners have demonstrated they have a constitutionally protected property interest in pore space that is recognized under state law.”⁶

The Court held that portions of the statute amounted to an unconstitutional taking as a physical intrusion on a landowner’s property.⁷ The Court reasoned that the statute’s “[a]llowing such usage takes away one of the most treasured property rights because it takes away landowners’ right to exclude oil and gas operators from trespassing and disposing waste into their pore space.”⁸ This is the case even if the intrusion is only temporary.⁹ The Court then concluded that “[s]urface owners have a right to compensation for the use of their pore space for disposal and storage operations.”¹⁰  

The Court rejected the State’s argument that the dominant mineral estate principle saved S.B. 2344 from a takings violation.  The Court recognized that a mineral owner’s implied easement for use of the surface estate allows the mineral owner to conduct disposal operations within a pooled spacing unit or unitized field for saltwater produced from wells located within that particular unit or field and that such “disposal operations are ‘reasonably necessary’ for the production of minerals within that unit or field.”¹¹  However, the Court held that the broad scope of S.B. 2344 created a takings violation because it barred landowners from bringing a tort action for “disposal operations beyond the scope of the implied easement [that] would otherwise be considered a trespass.”¹²  

Notably, the Court also held that the district court erred by striking down the entirety of S.B. 2344 because other provisions of S.B. 2344, such as those redefining “pore space” and “surface owner” and those containing legislative findings that use of carbon dioxide for secondary recovery is in the public interest, did not present takings issues.¹³  

What this means for Oil and Gas Operators Going Forward

Northwest Landowners Association does not strike at the core viability of CCUS projects, but rather emphasizes that surface owners will be stakeholders due to their vested property rights in the pore space.  The decision firmly cements the surface owner as not only the owner of the subsurface pore space, but also the party that is entitled to compensation for its use.  Practically speaking, this suggests that operators and parties seeking to engage in CCUS might seek surface use agreements or other contractual arrangements with surface owners before injecting anything into the pore space.  In North Dakota, at present, a CCUS operator must obtain consent of persons who own at least sixty percent of the storage reservoir’s pore space in order to receive a permit from the North Dakota Industrial Commission.¹⁴  Therefore, a CCUS operator is likely to already be in contact with the pore space owners associated with a given project.  However, because Northwest Landowners Association indicates that unauthorized subsurface trespass into pore space is actionable, CCUS operators should consider seeking agreements or leases covering a broad enough area to reduce the potential for unauthorized subsurface trespass that may occur as injected CO2 migrates into nearby pore space.

Because pore space ownership remains unsettled in many states where CCUS industries are beginning to emerge, the North Dakota decision may inform other states considering CCUS statutes. For instance, the statute that now governs ownership of pore space in Wyoming is nearly identical to the North Dakota statute vesting pore space ownership with the surface estate, so the North Dakota Supreme Court’s decision may provide guidance for stakeholders in Wyoming.¹⁵  Further, the North Dakota decision may spur developers’ interest in acquiring additional rights to pore space to mitigate the risk of subsurface trespass claims by providing a buffer surrounding the injection and plume migration zones.

The authors would like to thank 2022 Summer Associate Haekyong Min for her research assistance.

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¹ See N.D.C.C. § 47-31-03 (“Title to pore space in all strata underlying the surface of lands and waters is vested in the owner of the overlying surface estate.”).

² Section 25(5) provides that “any other provision of law may not be construed to entitle the owner of pore space to prohibit or demand payment for the use of the subsurface geologic formation for unit operations for enhanced oil recovery, utilization of carbon dioxide for enhanced recovery of oil, gas, and other minerals, disposal operations, or any other operation.”  N.D.C.C. § 38-08-25(5) (Control of Gas and Oil Resources).

³ Section 9(1) provides that “injection or migration of substances into pore space for disposal operations, for secondary or tertiary oil recovery operations, or otherwise to facilitate the production of oil, gas, or other minerals is not unlawful and, by itself, does not constitute trespass, nuisance, or other torts.” N.D.C.C. § 47-31-09(1) (Subsurface Pore Space Policy).

⁴ Nw. Landowners Ass'n v. State, --- N.W.2d ---, 2022 WL 3096724 at *2 (N.D.  August 4, 2022).

⁵ Id. at *5.

⁶ Id.

⁷ Id. at *6.  

⁸ Id. at *6.

⁹ Id. (citing Cedar Point Nursery v. Hassid, --- U.S. ---, 141 S. Ct. 2063, 2071 (2021)).

¹⁰ Id. at *7. 

¹¹ Id. (citing Fisher v. Cont'l Res., Inc., 49 F. Supp. 3d 637, 646-47 (D.N.D. 2014)).

¹² Id.

¹³ Id. at *10.

¹⁴ N.D.C.C. § 38-22-10.

¹⁵ Compare Wyo. Stat. Ann. § 34-1-152 (addressing ownership of pore space), with N.D.C.C. § 47-31-03 (same).

 

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