Get back in your lane: North Dakota Supreme Court limits NDIC’s adjudicatory authority over saltwater gathering disputes

In a rare rebuke of the North Dakota Industrial Commission (“NDIC”), the Supreme Court held that saltwater gathering is a post-production cost — and that the NDIC lacks authority to adjudicate disputes over such costs between private parties.

I. Background, NDIC order & district court

The central issue in Equinor Energy, LP v. N.D. Indus. Comm’n¹ was whether Equinor Energy, LP (“Equinor”) deducted reasonable saltwater gathering and disposal costs from payments made to Versa Energy, LLC (“Versa”). Between 2011 and 2021, Equinor operated multiple wells across several counties in North Dakota. In 2013, Versa acquired a non-operated working interest in these wells.²

Equinor contracted with its affiliate, Equinor Pipeline, LLC (“EPL”) for the transport of produced water through EPL’s pipeline gathering system. The fair-market rate for EPL’s gathering services was determined based on bids from third-party trucking companies for saltwater transport and disposal. In 2021, Versa took issue with the methodology for calculating these fair-market rates. It argued that the rates charged by Equinor were artificially inflated and not reflective of Equinor’s “reasonable actual cost” of operations under N.D.C.C. § 38-08-08(2). Versa then petitioned the NDIC to determine the proper value of EPL’s gathering costs under N.D. Cent. Code § 38-08-08(2). Following a hearing, the NDIC held that Equinor’s calculations were improper, with the correct cost for saltwater gathering services being $0.35 per barrel. Equinor appealed to the district court who affirmed the NDIC’s order.³

Equinor next appealed to the North Dakota Supreme Court, alleging that: (1) the NDIC did not have jurisdiction to adjudicate a private contract for saltwater gathering costs; and (2) the NDIC erred in concluding that the costs Equinor assessed Versa for saltwater gathering services were improper. The NDIC argued that its “cradle to grave jurisdiction over produced water” includes the authority to adjudicate saltwater gathering costs. This is because, as argued by both the NDIC and Versa, saltwater gathering costs are operational costs for “drilling and operating a well” under N.D. Cent. Code § 38-08-08(2) and are thus subject to the NDIC’s authority.⁴

II. Legal framework & NDIC authority

Regulatory authority refers to an agency’s power to issue rules and enforce compliance, while adjudicatory authority refers to the power to resolve disputes between parties. N.D. Cent. Code § 38-08-04 gives the NDIC “extremely broad and comprehensive authority” to regulate oil and gas activities in North Dakota, including the right to regulate the disposal of saltwater.⁵ Because of the high degree of specialized and technical knowledge it takes to regulate oil and gas production, North Dakota courts generally give the NDIC an even greater degree of deference than they give other administrative agencies.⁶ In order to overturn an NDIC decision, a court must find that it was arbitrary, capricious, unreasonable, or outside the scope of agency authority — a high threshold.

N.D. Cent. Code § 38-08-08(2) states that the NDIC’s pooling orders must provide for the drilling and operation of a well on the spacing unit, and for the payment of the reasonable actual cost thereof. In the event of any dispute as to such costs, the NDIC is given statutory authority to determine the proper charges.

Although the NDIC has broad regulatory power, courts have long held that administrative agencies cannot adjudicate private contractual rights unless expressly authorized by statute. Thus, even “cradle to grave jurisdiction” does not give the NDIC authority to adjudicate private agreements that determine and allocate costs.⁷

III. The Supreme Court decision

Based on the above, the Supreme Court first held that the NDIC does not have authority to adjudicate a dispute regarding saltwater gathering costs under N.D. Cent. Code § 38-08-04. This is because jurisdiction to resolve disputes between private parties regarding these costs exceeds its statutory authority to regulate produced water.⁸

The court then turned to whether the NDIC has authority to adjudicate such disputes under N.D. Cent. Code § 38-08-08(2). The crux of whether the NDIC has authority is whether or not saltwater gathering is a cost of “drilling and operation.” The threshold issue is thus what costs fall within the scope of “operation” costs under North Dakota law — an issue of first impression before the Supreme Court. What is clear, per the court, is that “operation” costs encompass production costs but not post-production costs.⁹

Production costs are those expenses that are incurred in bringing oil or gas to the surface. Post-production costs, on the other hand, are the expenses incurred in bringing the product to market, and include processing, compression, dehydration, transportation, and other costs necessary to prepare raw oil and gas for sale. The court looked to the law of several other states to interpret whether “operation” costs within the meaning of Section 38-08-08(2) are synonymous with “production” costs. It then held that the “cost” of “operation of a well on a spacing unit” within the meaning of Section 38-08-08(2) includes production costs but excludes post-production costs. The court next turned to whether saltwater gathering is properly categorized as a production cost (governed by NDIC regulation), or a post-production cost (governed by private agreement).¹⁰

While the issue was one of first impression regarding Commission jurisdiction, the Court observed that saltwater gathering has previously been treated as a post-production cost in the context of royalty litigation.¹¹ The court thus concluded that saltwater gathering is a post-production cost outside of NDIC jurisdiction, and that this definition is consistent with North Dakota law distinguishing between production and post-production costs in royalty calculations as well as the “terminology of the oil and gas industry generally.”¹² The court also based its decision on an oil and gas treatise explaining that water removal is part of “treating” the raw product brought to the surface.¹³

The Supreme Court therefore held that saltwater gathering costs are post-production costs outside the Section 38-08-08(2)’s definition of “drilling and operation of a well on the spacing unit.” It follows that the NDIC lacked authority to adjudicate this dispute under both Section 38-08-04 and Section 38-08-08(2).

IV. Conclusion & takeaway

This case is a reminder that saltwater gathering and disposal are post-production costs because these costs are incurred after oil and gas have been extracted from a well. The central issue is about NDIC jurisdiction to determine and allocate the appropriateness of these costs as between parties. It therefore does change the fact that whether or not these costs are chargeable against a royalty owner remains dependent on the specific language of the oil and gas lease.

The case also illustrates the types of disputes that may arise when the rights of operators and non-operators are defined by the default pooling statute and not by a private agreement such as an operating agreement. The Court’s ruling suggests that Versa’s remedy, if any, lies in a civil action — not before the NDIC.

Equinor Energy, LP v. N.D. Indus. Comm’n is ultimately a case regarding whether administrative agencies can adjudicate certain types of disputes. It reinforces a foundational principle of administrative law: broad regulatory power does not imply the power to adjudicate private disputes. In North Dakota, this limitation now clearly includes disputes over saltwater gathering and disposal costs. Going forward, operators and non-operators should ensure their agreements expressly allocate responsibility for post-production costs, including saltwater gathering, to avoid uncertainty and jurisdictional challenges.

1. 2025 N.D. 126, 2025 N.D. LEXIS 123 (note that all pin cites are to Lexis page numbers).
2. Id. at 2.
3. Id. at 2-3.
4. Id.
5. Id. at 4; N.D. CENT. CODE § 38-08-04(1)(b)(5).
6. See, e.g., N.D. CENT. CODE § 38-08-14(3) (“[o]rders of the commission must be sustained by the district court if the commission has regularly pursued its authority and its findings and conclusions are sustained by the law and by substantial and credible evidence.”); Liberty Petro. Corp. v. N.D. Indus. Comm’n, 11 N.W.3d 851 (N.D. 2024) (upholding the NDIC’s approval of a unit plan that allowed risk penalties to be recovered from unit production as opposed to limiting recovery to the specific non-consent well); Dominek v. Equinor Energy, L.P., 2023 U.S. Dist. LEXIS 94929 (D.N.D. May 31, 2023) (concluding the court lacks subject matter jurisdiction to adjudicate on overlapping pooling royalty allocation dispute because plaintiffs’ claims fall within the Industrial Commission’s jurisdiction and plaintiffs failed to exhaust their administrative remedies under the Exhaustion Doctrine).
7. 2025 N.D. LEXIS 123 at 5-6.
8. Id. at 7.
9. Id. at 8.
10. Id. at 9-10.
11. See, e.g., Kittleson v. Grynberg Petroleum Co., 876 N.W.2d 443 (N.D. 2016) (treating the cost of dehydration as a post-production cost).
12. 2025 N.D. LEXIS 123 at 13.
13. 3A W.L. Summers, The Law of Oil and Gas § 33:5 (3d ed. 2022) (“Crude oil as it comes from the well may contain water and other foreign substances, making it unfit for delivery to a pipeline. Where this is true, the question is raised as to whether the lessee is under a duty to treat the oil for the purpose of removing the water and sediment at its own expense. Some leases provide that the lessor shall bear a proportionate share of the cost of treatment of the oil to make it marketable, and where this is true the lessee is, of course, under no duty to perform this service free of cost to the lessor.”).