Supreme Court Ruling Likely to Trigger Litigation for North Dakota Oil Companies

Decision voids Industrial Commission order on royalty payments, leaving door open for new disputes

Published on Mar. 2, 2026

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A recent North Dakota Supreme Court decision could have significant implications for thousands of oil wells, the mineral owners who receive royalties from them, and the oil industry in the state. The court voided an order from the state's Industrial Commission that determined how royalties should be paid for a particular well in McKenzie County, ruling the commission must use a different process. The decision is seen as a victory for mineral owners who allege they have been underpaid by oil companies, but it also leaves uncertainty about the next steps and is likely to prompt a new wave of lawsuits.

Why it matters

The Supreme Court's ruling validates the Industrial Commission's authority to make decisions on royalty payments, but requires the agency to follow a different process. This could have major financial implications for both oil companies and mineral owners, as an estimated 85% of operators in North Dakota use the same royalty allocation method as the one challenged in this case. The decision also highlights the complex issues around oil and gas development in the state, where section line wells and overlapping spacing units have created disputes over who should receive royalties.

The details

The case centered around a well drilled by Petro-Hunt, a Texas-based oil company, along a section line in McKenzie County. The Industrial Commission had established a new geographic boundary, or spacing unit, for this well that overlapped with existing units. This led to a disagreement between Petro-Hunt and the Garaas family, who argued the company was improperly cutting their royalty payments in half by sharing revenue with mineral owners outside the new spacing unit. The Supreme Court rejected Petro-Hunt's distribution method but confirmed the commission has the authority to make such decisions, just through a different process.

  • In 2019, the Industrial Commission established a new geographic boundary for the Petro-Hunt well.
  • The well began producing oil in 2020.
  • In early 2024, the Industrial Commission unanimously approved an order confirming Petro-Hunt's royalty payment method.
  • On February 5, 2026, the North Dakota Supreme Court voided the Industrial Commission's 2024 order.

The players

Petro-Hunt

A Texas-based oil company that drilled the well at the center of the dispute and used a royalty allocation method challenged by the Garaas family.

Garaas family

A family that owns mineral rights trusts and filed the lawsuit appealing the Industrial Commission's order, arguing Petro-Hunt was improperly cutting their royalty payments.

North Dakota Industrial Commission

The state agency responsible for oil and gas regulation in North Dakota, which initially approved Petro-Hunt's royalty payment method but was ordered by the Supreme Court to use a different process.

Jonathan Garaas

The Fargo attorney who filed the lawsuit on behalf of the Garaas family's mineral rights trusts.

Derrick Braaten

A Bismarck attorney who represents mineral owner clients on both sides of the royalty payment issue and expects the Supreme Court's decision to prompt further litigation.

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What they’re saying

“The Supreme Court got this one right. Apparently 85% of the oil companies got it wrong, and they're going to have to start paying monies to the mineral owners who were cheated out of their proceeds and try and claw back monies that were wrongfully paid to people.”

— Jonathan Garaas, Attorney (North Dakota Monitor)

“It depends on what happens next, but I think that the fallout from this is going to be a lot of litigation.”

— Derrick Braaten, Attorney (North Dakota Monitor)

What’s next

The Industrial Commission could choose to file a new application to modify the 2019 order that established the geographic area associated with the Petro-Hunt well, which would require notifying all affected mineral owners. This could invite significant public interest and lead to further disputes over royalty payments.

The takeaway

This Supreme Court ruling highlights the complex and contentious issues surrounding oil and gas development in North Dakota, where disputes over royalty payments and the allocation of production from section line wells have become increasingly common. The decision is likely to trigger a new wave of litigation as oil companies and mineral owners seek to protect their financial interests.