Land Board again pushes back gas royalty payment deadline

The Bear Creek natural gas processing plant near Killdeer is pictured in September 2016.

The North Dakota Board of University and School Lands voted Wednesday to further push back the deadline dozens of oil patch companies face to pay the state for deductions taken from natural gas royalties.

If a company wants to avoid penalties and owe just minimal interest, they must now pay by April 30, 2021. The money originally was due this past spring until the Land Board voted to delay the deadline until Sept. 30 amid the oil downturn brought on during the coronavirus pandemic.

Following a North Dakota Supreme Court ruling last year favorable to the state, officials estimated the state is owed tens of millions of dollars from companies that applied deductions for royalties stemming from mineral development on state-owned land. Royalty money collected by the state benefits education and public institutions.

Gov. Doug Burgum suggested delaying the payment deadline again at the last Land Board meeting in August amid ongoing challenges facing the oil industry as low demand keeps oil prices down. Some oil producers are undergoing bankruptcy proceedings, and they face uncertainty over the Dakota Access Pipeline, he said Wednesday.

A federal judge ordered the pipeline to stop operating this summer and although a higher court overruled that decision, litigation is ongoing. There also is uncertainty surrounding potential changes to the quality of natural gas accepted onto the Northern Border Pipeline, a major exporter for Bakken gas, Burgum said.

“Things are perhaps not better; they may be worse than they were last spring,” he said.

The Land Board voted unanimously to extend the deadline again following Wednesday’s discussion, which took place in part during a closed session as the matter involves litigation.

Following the Supreme Court decision, Land Commissioner Jodi Smith said about 40 companies owed the state money for deductions they took to compensate for “post-production costs,” which refer to the expense of gathering and removing impurities from gas to get it ready for sale further down the processing chain.

Eight companies have since come into compliance, and 23 have requested royalty data to assist in calculating the money they owe the state, she said Wednesday.

The dispute over royalties has been contentious this year between the Land Board and the oil industry.

The North Dakota Petroleum Council, an industry trade group, had been pushing for an additional payment delay. Director of Government Affairs Brady Pelton called it a “very good, commonsense decision” in an interview Wednesday.

“We think this keeps North Dakota competitive as we attempt to keep oil activity in North Dakota, once the price of oil rises and demand comes back,” he said.

State officials, as well as representatives of the state’s oil industry, are worried about oil companies shifting attention away from the Bakken during the downturn to shale plays such as the Permian Basin in Texas and New Mexico. The Permian is close to major pipeline systems, refiners and export terminals, and thus oil there is generally worth a few dollars per barrel more than Bakken crude.

The oil industry had also been fighting the state’s effort to collect on royalty deductions because litigation over the matter is still pending despite the ruling from the Supreme Court. The court sent part of the case back to the Northwest District Court for further interpretation. A trial is scheduled for October 2021.

The Land Board did not determine a schedule Wednesday for penalties that companies would acquire if they fail to meet the April deadline. That is expected to be the topic of a future board meeting, Smith said.

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