“Beyond the Wellhead” – The North Dakota Supreme Court Declares Salt-Water Gathering a Post-Production Cost Outside NDIC Adjudicatory Jurisdiction

1. Introduction

Equinor Energy LP (“Equinor”) operated 16 Bakken wells in western North Dakota. Versa Energy, LLC (“Versa”) later obtained non-operating working interests in those wells. As the operator, Equinor contracted with its affiliate, Equinor Pipeline LLC (“EPL”), to transport produced (salt) water by pipeline to disposal sites. Versa alleged that the fees Equinor charged for that service exceeded the “reasonable actual cost” contemplated by N.D.C.C. § 38-08-08(2) and petitioned the North Dakota Industrial Commission (“NDIC” or “Commission”) to set a proper rate.

The NDIC asserted “cradle-to-grave” authority over produced water, capped the gathering charge at US $0.35 per barrel, and rejected Equinor’s challenge to its jurisdiction. The district court affirmed. The Supreme Court, however, reversed, holding the Commission had no adjudicatory power to resolve this purely private payment dispute. The decision draws a bright line between the NDIC’s regulatory oversight of oil-field activities and its much narrower role as an adjudicator of cost disputes under § 38-08-08(2).

2. Summary of the Judgment

1. Jurisdiction under § 38-08-04. The statutory verb “to regulate” does not, by itself, enlarge the agency’s authority to adjudicate contractual controversies. Administrative adjudicatory power must be expressly granted.
2. Interpretation of § 38-08-08(2). The phrase “drilling and operation of a well” embraces only production costs—expenses required to bring hydrocarbons to the surface—not post-production costs incurred to treat, transport, or market the product. Federal and state jurisprudence (Highline, Bice, Kittleson) recognize this industry distinction.
3. Characterization of Salt-Water Gathering. Removing produced water and transporting it through gathering pipelines is a post-production activity akin to treating/transporting hydrocarbons for market. Accordingly, such expenses are outside the scope of § 38-08-08(2).
4. Disposition. Because neither § 38-08-04 nor § 38-08-08(2) authorizes the NDIC to decide this dispute, the Commission’s order was void. The district court’s affirmance was reversed, and the NDIC order vacated.

3. Analysis

3.1 Precedents Cited and Their Influence

• Blue Appaloosa, Inc. v. NDIC (2022 ND 119) – Restated the deferential “substantial evidence” review of NDIC fact-finding but acknowledged full judicial review on questions of law. Provided the review framework for the Court’s statutory interpretation.
• Kirkpatrick v. N.D. Dep’t of Transp. (2023 ND 190) – Reiterated that an administrative agency possesses only the adjudicatory jurisdiction expressly conferred by statute. Used to dismantle NDIC’s claim of implicit jurisdiction.
• Highline Exploration v. QEP Energy Co. (D.N.D. 2021) aff’d 43 F.4th 813 (8th Cir. 2022) – Distinguished production from post-production costs under North Dakota law; recognized that “operation” costs refer exclusively to production. Relied on by the NDIC in a prior order (No. 31754) and ultimately adopted by the Supreme Court.
• Bice v. Petro-Hunt, L.L.C. (2009 ND 124) – Adopted the “at the well” rule and catalogued typical post-production costs (transportation, gathering, treating, etc.). Provided doctrinal basis to class salt-water gathering as post-production.
• Kittleson v. Grynberg Petroleum Co. (2016 ND 44) – Confirmed that parties can contractually shift or waive the default “at the well” cost-allocation, reinforcing the production/post-production dichotomy.
• Secondary Oil-Patch Authorities (Danciger, Smith, Colburn, Pro-Chem, COPAS guidelines) – Cited by Versa but ultimately unpersuasive; none classified salt-water gathering as a production cost.

3.2 Legal Reasoning

1. Textualism & Ordinary Meaning. The Court looked first to statutory language. “Regulate” (§ 38-08-04) was read according to its ordinary dictionary meaning—“to control by rule”—which does not equal “to adjudicate.”
2. Separation of Regulatory & Adjudicatory Power. Drawing on administrative-law doctrine, the Court stated that agencies require a specific legislative grant to resolve private disputes. Absent such a grant, parties remain in ordinary civil court.
3. Industry-Specific Terminology. The Court adopted the industry meaning of “operation” as confined to production costs, citing Highline and widespread oil-and-gas treatises. Any cost incurred after the wellhead—gathering, treating, compressing, dehydrating, marketing—falls outside that sphere.
4. Classification of Produced-Water Handling. Treating produced water was analogized to “treating” raw hydrocarbons—an archetypal post-production expenditure. The Court cited Summers Oil & Gas § 33:5, reinforcing that water separation occurs after the reservoir fluids have been lifted to surface.
5. Policy Underpinning. Allowing the NDIC to arbitrate every billing quarrel over gathering or midstream fees would convert a regulatory body into a civil court of general jurisdiction—contrary to legislative design and burdensome for the agency.

3.3 Likely Impact

• Reinforces Jurisdictional Limits. The decision signals that NDIC proceedings are not a forum for routine operator/non-operator accounting disputes unless the challenged cost plainly falls into production activities.
• Clear Cost Taxonomy. Operators and interest owners must now treat salt-water gathering, disposal, and arguably other produced-water logistics as post-production costs for all North Dakota statutory contexts—royalties, pooling recoveries, and NDIC cost-setting.
• Contract Drafting Incentive. Non-operators unable to trigger NDIC review may negotiate more robust auditing, most-favored-nation, or “no deductions” clauses in JOAs and accounting procedures to protect against allegedly inflated gathering fees.
• Litigation Forum Shift. Future disputes over such costs will gravitate to state district courts (breach of contract, breach of fiduciary duty, etc.) rather than NDIC hearings.
• Administrative Efficiency. By narrowing NDIC’s adjudicatory docket, the case likely preserves agency resources for core regulatory functions—well spacing, flaring, environmental protection.

4. Complex Concepts Simplified

Produced Water / Salt-Water

Underground reservoirs often contain brine that is lifted with oil or gas. Environmental rules require its separation and disposal in dedicated facilities.

Production vs. Post-Production Costs

Production Costs: expenses to drill, complete, and lift hydrocarbons to the surface—e.g., drilling mud, pump maintenance, wellhead equipment.
Post-Production Costs: expenses after extraction to make the product saleable—e.g., gathering, treating, dehydrating, compressing, transportation, marketing, and in this case, produced-water disposal.

Pooling Order (§ 38-08-08)

An NDIC order combining multiple mineral interests into one “spacing unit” so a single well can efficiently drain the reservoir. The statute lets the Commission allocate and, when disputed, determine “reasonable actual” production costs across participants.

Regulatory vs. Adjudicatory Jurisdiction

Regulatory: power to issue rules, permits, and enforcement orders of general applicability.
Adjudicatory: power to act like a court, deciding specific disputes between identifiable parties; must be clearly granted by statute.

5. Conclusion

Equinor Energy v. NDIC adds an important jurisdictional chapter to North Dakota oil-and-gas law. The Supreme Court declared that (1) the mere power “to regulate” produced-water management does not allow the NDIC to serve as judge in private commercial disputes, and (2) salt-water gathering belongs to the post-production cost category, outside the “operation” costs the Commission may re-allocate under § 38-08-08(2).

In practical terms, the ruling narrows the NDIC’s adjudicatory reach, delineates cost categories with greater precision, and re-routes many midstream-fee fights to civil courts. For lawyers and industry actors alike, the decision provides a clearer map of the post-wellhead legal landscape—confirming that, at least in North Dakota, the Commission’s authority stops at the point where the hydrocarbons (and associated water) leave the wellhead and begin their journey to market.