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Compromise reached in oil, gas royalty dispute; lawmakers advance bill

Compromise reached in oil, gas royalty dispute; lawmakers advance bill

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Natural gas is flared in April 2018 at an oil well site north of Ross.

A legislative committee on Wednesday endorsed a compromise between the oil industry and state officials ironing out how the state can go about collecting unpaid oil and gas royalties.

The dispute over deductions from royalties for state-owned minerals has lingered for more than a year as the Board of University and School Lands has sought to retroactively collect hundreds of millions of dollars from dozens of companies. The effort follows a North Dakota Supreme Court decision in 2019 favoring the state in a lawsuit filed by an oil company that the state claimed was underpaying royalties.

Oil industry representatives felt the maximum rate the state can charge for interest and penalties, 30%, is too punitive and backed legislation last month to reduce the rate to just over 7%.

The North Dakota Petroleum Council and state Land Commissioner Jodi Smith have since met a handful of times and worked out a compromise that would cap the rate at 15% per year. That breaks down to 9% in interest, plus 6% in penalties if a company that is late on royalty payments fails to respond or refuses to pay.

"We came to a good resolution in the end," said Brady Pelton, government affairs manager for the Petroleum Council.

The House Finance and Taxation Committee voted 9-5 to amend the legislation and recommend it to the full House for further consideration.

The amendment contains one provision upon which the two sides did not agree. The Petroleum Council asked for a six-year limit on how far back the state can collect unpaid royalties, which the tax committee OK’d.

“We believe the Legislature clearly has the authority to enact a specific statute of limitations period applicable to the Department of Trust Lands in its dealings” with oil companies, Pelton said.

The Land Board does not want a limit as it collects money from dozens of companies in the wake of the Supreme Court ruling, though it’s open to one going forward, Smith said.

The board felt that putting a limit on how far back it can collect the royalties could conflict with the North Dakota Constitution, which says the state cannot give credit or make donations to corporations, Smith said.

“Their interpretation of that is that this would essentially be a gift if we do not abide by the full look-back period,” she said.

Smith estimated the state would forgo $110 million if it could not collect money from deductions taken out of royalties more than six years ago. The deductions stem from costs associated with collecting oil and gas and transporting it further down the processing chain.

Money collected from the development of state-owned minerals benefits public education and other institutions. The minerals are managed by the Land Board, which governs the Department of Trust Lands.

The six-year limit prompted Rep. Vicky Steiner, R-Dickinson, to vote against the bill, though she said she was all right with the new interest and penalty rates.

“I just have a little bit of heartburn with only going back to 2015 and leaving a lot of money on the table,” she said.

Others felt imposing a time limit makes sense.

“If you’re going to make a claim, make it,” said Rep. Ben Koppelman, R-West Fargo. “If people aren’t aware they’ve been harmed, they shouldn’t have an unlimited amount of time to go back.”

Reach Amy R. Sisk at 701-250-8252 or amy.sisk@bismarcktribune.com.

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