The trade group representing North Dakota’s oil industry is asking lawmakers to ease the amount of interest and penalties the state can charge companies for unpaid oil and gas royalties.
The request from the North Dakota Petroleum Council comes in the form of House Bill 1080, one of the first pieces of legislation to be heard at the Capitol after the Legislature convened this week. It arrived in front of lawmakers after a legal battle over unpaid royalties and a year of controversy surrounding the Board of University and School Lands’ effort to collect the money from dozens of oil and gas producers.
The state can charge interest and penalties on unpaid royalties at a maximum rate of 30%, Petroleum Council President Ron Ness testified before the House Finance and Taxation Committee during a hearing Wednesday. He called such a level “unnecessarily punitive.”
The petroleum council has fought the Land Board’s effort to collect unpaid royalties over the past year following a state Supreme Court ruling in July 2019. The five-member board chaired by Gov. Doug Burgum has directed the Department of Trust Lands on how to go about collecting the money, and it’s given companies a deadline of April 30 to pay. The board has twice delayed the deadline after pushback from oil and gas companies amid the industry downturn brought on by the coronavirus pandemic.
The Land Board is charging a lesser amount of interest and waived any penalties if companies meet the April deadline.
Oil and gas companies owe hundreds of millions of dollars in deductions taken out of royalties on state-owned minerals, Land Commissioner Jodi Smith told the committee. The deductions account for costs related to oil transportation, as well as gathering and removing impurities from gas to get it ready for sale further down the processing chain. Royalty money collected by the state benefits education and public institutions.
The bill, sponsored by Rep. Jason Dockter, R-Bismarck, aims to reduce the maximum amount of interest and penalties the state can charge for late royalties. The measure would reduce the level to a base interest rate set by the Bank of North Dakota plus 4%, which is equal to the minimal amount of interest the Land Board is charging through April. The base rate is now 3.25% but can fluctuate.
Ness characterized the maximum rate of 30% as "a significant hammer" for oil and gas companies. He indicated that the oil industry faces more fights in the future as Democrats assume greater power in Washington, D.C., and are likely to enact tougher legislation and rules for the fossil fuel industry. President-elect Joe Biden, a Democrat, is about to take office, and Democrats will assume control of the Senate.
“I think we are a target and we need to get some of these issues behind us so we can focus on the big challenges,” Ness said.
The bill also would extend the deadline for when companies must pay royalties, Smith told the Tribune.
Smith did not take a stance on the bill at Wednesday’s hearing, saying she wanted to get input from members of the Land Board at its meeting next Tuesday. She said she plans to visit with the committee again once she has received guidance from the board.
The committee did not vote on the bill Wednesday.
Reach Amy R. Sisk at 701-250-8252 or firstname.lastname@example.org.