Boom or bust, courts remain busy in North Dakota oil patch

FARGO, N.D. — The Bakken oil boom was in full throttle when a North Dakota couple leased rights to water on their property so it could be used in hydraulic fracturing, the process of extracting sweet crude from the ground. Then, energy prices began to plummet.

The result, Jeffery and Shelley Schmidt say, is they were stiffed on about $90,000 in royalty payments and left on the hook to subcontractors for about $180,000. The Schmidts have filed a lawsuit in state court in an effort to recoup their losses.

It’s a scenario that has become common in western North Dakota in the last year. While the number of oil rigs operating in North Dakota has plummeted to its lowest figure in nine years, the legal action is booming — with most of it shifting from lease and title complaints to larger contract disputes involving major investors and small claims by individuals.

“People say that everything has slowed down,” said Carolyn Probst, clerk of courts for northwestern North Dakota, which includes the oil patch. “Well, the oil may have, but our caseload has not.”

Last year brought a record-setting 9,305 civil cases to the district, including a 32 percent increase in small claims actions from the previous year. The number of civil cases in many of those counties are already on pace to equal last year’s stack.

The oil boom began in earnest in 2007 with developments in fracking and horizontal drilling, attracting thousands of newcomers hoping to get rich. But depressed oil prices led oil companies to pull back in North Dakota — way back; industry officials say more than 20,000 workers have left in recent months.

About 90 percent of attorney Josh Swanson’s cases are based in energy counties — despite the fact he’s in Fargo, about six hours from the heart of oil country.

“Companies that were once willing to let some time go on collecting accounts receivable for services are now filing well liens on a daily basis and trying to collect their money before the debtor goes insolvent,” Swanson said. “It’s all about everyone trying to get paid and working out deals to stay in operation.”

There is a “culture of litigation” in the energy industry, according to Ariston Johnson, a member of a firm in the oil-patch town of Watford City.

“Whether their problems are oil boom-related or not, we really do see it all and we have not found that our opportunities to help people dry up when the price of oil falls through the basement,” said Johnson, who noted the office typically handles cases for farmers, ranchers, small businesses, mineral-rights owners and injured workers. “It’s just a different kind of help that people are likely to need than when prices skyrocket.”

A typical case in 2011, Johnson said, would have been to help negotiate a contract for a farmer from a new well operator. Now, he said, that same mineral owner may need help collecting royalties, or a contractor who did maintenance work may be looking to get his money from the well operator.

North Dakota Petroleum Council President Ron Ness, whose group represents about 450 oil companies, said as finances dwindle, the lawsuits will proliferate.

“My anticipation would be that as you see things continue to tighten, you are probably going to see more squabbles among the contractors,” Ness said.

Probst said the pressure on court personnel, including judges, has been immense and several adjustments have been made to handle the backlog of cases. Scheduling is now done through a “calendar control clerk” and clerks are more dependent on notes from recorders rather than attending court hearings in person.

“I’ve tried to remind staff when they are feeling frustrated that this has been really good for our economy and has had some very positive outcomes,” Probst said.

There is another positive trend among the case numbers: Traffic incidents are way down, likely the result of fewer vehicles, including oil and water trucks, on the roads.

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