ND Legislators Plan Study Of Gas Royalty Deductions

BISMARCK A dispute between the North Dakota Department of Trust Lands and the oil industry over gas royalty payments will become part of a legislative management study under a bill lawmakers approved Wednesday, April 26.

The department says some oil companies owe the state money after taking improper deductions on natural gas royalties, a discrepancy discovered in recent audits.

The oil industry has a different interpretation of leases for state-owned minerals and claims the department is changing a decades-old policy.

Legislators decided to study the issue during the 2017-18 interim, along with other issues related to determining the value of oil and gas and the reporting of deductions on royalty statements.

But at the same time, legislators adopted “legislative intent” language in Senate Bill 2013 that was introduced at the request of the North Dakota Petroleum Council and Continental Resources, one of the companies under audit by the department. The language directs the state land commissioner not to change the policy on gas royalties.

Rep. Marvin Nelson, D-Rolla, said the department is enforcing contracts it has in place and is not changing a policy. Nelson urged legislators to reject the legislative intent language and first study the issue.

“I think we’re really putting the cart ahead of the horse to say here’s our intent but now we’re going to study it,” Nelson said.

Nelson said the issue involves millions of dollars that are owed to the state, but Land Commissioner Lance Gaebe said the audit is still ongoing and his department does not have an estimate of the potential impact.

Oil production sites are pictured in McKenzie County, N.D., on Thursday, July 28, 2016. Eric Hylden / Forum News Service

Rep. Jeff Delzer, R-Underwood, downplayed the weight of the legislative intent language and said the wording is there so the issue is studied.

“I don’t know that it’s our intent to actually say which way it goes until after the study is completed,” said Delzer, a member of the bill’s conference committee.

The bill passed with a 58-32 vote in the House after passing 42-5 in the Senate.

Senate Majority Leader Rich Wardner, R-Dickinson, said there’s also a debate going on among private royalty owners who complain they are getting “the short end of the stick” on gas royalty payments.

But the oil industry needs to invest in capturing, transporting and processing the natural gas that is produced along with Bakken crude oil to avoid flaring, Wardner said.

“We do need to study that and we do need to get this figured out out there so it is fair to all concerned,” Wardner said.

The Board of University and School Lands is scheduled to discuss the issue on Thursday, April 27.