BISMARCK — The North Dakota Supreme Court has ruled in favor of the state in a dispute involving deductions taken from natural gas royalties.

The decision, issued Thursday, July 11, stems from a lawsuit Newfield Exploration filed against the state after the Department of Trust Lands conducted an audit in 2016 that claimed the company was underpaying royalties to the agency, The Bismarck Tribune reported.

The deductions are for “post-production costs,” which include steps such as gathering and removing impurities from the gas to get it ready for sale further down the processing chain.

The ruling is not a blanket ban prohibiting oil and gas companies from deducting for post-production costs; it’s specific to the state’s leases with Newfield.

The Department of Trust Lands will now work with the state attorney general’s office to determine how far back Newfield and other affected operators will need to retroactively pay the state, Smith said.

North Dakota Petroleum Council President Ron Ness said in a statement that his group, while not involved in the case, was disappointed in the decision. The Supreme Court’s ruling reversed a previous one from a Northwest Judicial District judge.

The Department of Trust Lands has a royalty interest in 111 of Newfield’s wells. The company sells the gas it extracts to Oneok.