Jonathan T. Garaas and David Garaas, as Co-Trustees of the Barbara Susan Garaas Family Trust; Jonathan T. Garaas, as Trustee of the David and Elizabeth Garaas Family Trust; and David Garaas, as Trustee of the Jonathan & Jill Garaas Family Trust v. North Dakota Industrial Commission and Petro-Hunt L.L.C.

Summary

The North Dakota Supreme Court reviewed an appeal concerning the allocation of production from a lease-line spacing unit to an underlying base spacing unit. The Court held that the North Dakota Industrial Commission had statutory authority to allocate production among spacing units under N.D.C.C. § 38-08-04(1)(c), but that the Commission did not regularly pursue its authority in issuing the challenged order. The Court reversed the district court’s judgment and vacated NDIC Order No. 33453.

Holdings

1. N.D.C.C. § 38-08-08(1) does not authorize NDIC to allocate production from one spacing unit to an owner of an interest in another spacing unit. The statute limits pooling and allocation under a pooling order to interests within the pooled spacing unit.
2. N.D.C.C. § 38-08-04(1)(c) gives NDIC legal authority to limit and allocate oil and gas production from any field, pool, or area, including among spacing units.
3. NDIC did not regularly pursue its authority because its allocation effectively enlarged the spacing unit for the well without an application to modify the existing spacing orders and without providing proper notice and an opportunity for all potentially affected interest owners to participate.
4. The Trusts were not entitled to attorney's fees because the record did not support a finding that NDIC acted without substantial justification.

Questions Presented

1. Whether NDIC had statutory authority to allocate production from a lease-line overlapping spacing unit to an underlying base spacing unit that was not wholly contained within the overlapping unit.
2. Whether NDIC regularly pursued its authority when it approved the allocation without modifying the existing spacing or pooling orders and without the notice and opportunity to participate required for potentially affected interest owners.
3. Whether the Trusts were entitled to attorney's fees under N.D.C.C. § 28-32-50.

Disposition

reversed