Land Board seeks 'plausible solution' on unpaid royalty controversy

A pumpjack in western North Dakota extracts oil from deep underground on Feb. 1.

Members of the Board of University and School Lands say they want to work with the oil industry and lawmakers to reach a compromise on a bill that would limit their ability to charge interest and penalties for late royalty payments.

Land Commissioner Jodi Smith said she felt those involved in the dispute could reach “a plausible solution that everybody is comfortable with.” The five-member Land Board chaired by Gov. Doug Burgum did not take a stance on House Bill 1080 when it met Tuesday, instead directing Smith to work on the issue with the North Dakota Petroleum Council and legislators.

The bill, sponsored by Rep. Jason Dockter, R-Bismarck, would cut the maximum interest and penalty rate the state can charge for late royalty payments for the development of state-owned minerals from 30% to what in effect would be 7.25%. The lower rate consists of a base interest rate set by the Bank of North Dakota, which sits at 3.25% but can fluctuate, plus 4%.

The petroleum council supported the bill at a hearing before the House Finance and Taxation Committee last week, calling the potential for oil and gas companies to be charged 30% for late payments “unnecessarily punitive.”

The royalty issue came to a head a year ago when the state, after securing a victory in a lawsuit before the North Dakota Supreme Court, sought to retroactively collect unpaid royalties from dozens of oil and gas companies. The money stems from deductions removed from royalty checks for expenses associated with transporting oil and gas further down the processing chain.

Smith has estimated the state is owed hundreds of millions of dollars. Royalties collected by the Department of Trust Lands benefit education and other public institutions.

The oil industry put up a fight when the state sought to collect the money, and the Land Board has twice extended the deadline for when companies must pay, citing the downturn in the oil industry brought on by the coronavirus pandemic. The state is charging a 7.25% interest rate — the minimum it can under existing state law — through April 30.

Secretary of State Al Jaeger on Tuesday addressed the oil industry’s criticism of the Land Board, saying the board’s decisions on royalties over the past year were “based on the law as it existed.”

“To say we were going beyond something — we weren’t. We were tied to the law, and our decisions were based on that,” said Jaeger, who is a Land Board member.

State Treasurer Thomas Beadle, who sits on the board and recently assumed office after serving in the state House of Representatives, encouraged a collaborative approach to avoid any future issues with oil and gas companies.

“I think it would be wise to make a good-faith effort to work with the Legislature on this one and try to get a clean resolution going forward so that we at least have as clean of a rule set and guidelines as we can get,” he said.

Smith said she anticipates the House Finance and Taxation Committee will revisit the bill next week.

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