This article was produced for ProPublica’s Local Reporting Network in partnership with the North Dakota Monitor. Sign up for Dispatches to get our stories in your inbox every week.
For years, North Dakota’s mineral owners have said state officials have ignored their pleas for help as companies deduct money from their share of income from oil and gas production.
Now, some state lawmakers agree they need to take action. Responding to a recent North Dakota Monitor and ProPublica investigation, more than a half-dozen said a committee should study the issue and propose solutions before the next legislative session in 2027. Others suggested changes to state law, including one proposal to prohibit deductions unless a lease specifically allows them and another that would require companies and royalty owners to renegotiate their contracts every few decades.
The Legislature meets every other year. North Dakota lawmakers rejected proposals to protect private mineral owners in 2021 and 2023, and did not address the issue during this year’s session.
“It will definitely come up in 2027,” said Sen. Chuck Walen, a Republican from New Town. “I don’t know what the outcome will be, but it will definitely be coming up.”
North Dakota officials have taken steps to safeguard state-owned royalties. Since 1979, all state leases with oil and gas companies prohibit deductions. But that protection does not extend to leases that are negotiated by North Dakota’s estimated 300,000 private mineral owners.
“I definitely think something has to be done, especially since the state has protected itself,” said Rep. Patrick Hatlestad, a Republican from Williston. “I think it needs to do something similar for its citizens.”
Some lawmakers also have suggested they may need to make changes to the state’s postproduction royalty oversight program, created in 2023 to address minerals owners’ mounting frustration about postproduction deductions — the money companies withhold to cover the costs of processing and transporting minerals after they are extracted and before they are sold. That program has not alleviated concerns over postproduction deductions and, as of August, had not resolved any cases about that issue, the news organizations found.
Why It Matters
Mineral owners have the rights to oil and gas found underground. They can lease those rights to companies in exchange for a cut of the revenue when oil is produced, called a royalty.
But while the leases have remained the same for decades, the industry has changed. Oil and gas are now sold farther from the well, and companies incur more transportation and other costs to get the products to the point of sale. The companies pass on a portion of those costs to mineral owners, which North Dakota courts have determined is usually legal unless a lease says otherwise.
Most leases signed decades ago don’t explicitly mention postproduction deductions, and leases don’t expire unless oil production lapses.
Deductions began surging in North Dakota about a decade ago. About 20% of royalties are deducted, on average, according to two estimates as well as interviews with royalty owners. That would have amounted to about $1 billion in 2023.
Estimates provided by the North Dakota Petroleum Council suggest companies withhold at least hundreds of millions of dollars in North Dakota every year.
Why Some Lawmakers Are Pushing for Change
Several lawmakers, including Republican Rep. Don Longmuir, said that because the state’s legislative season is a relatively short 80 days, it’s important to have an interim legislative committee conduct a study and propose a solution ahead of the 2027 session.
“We can’t wait until the session starts,” said Longmuir, of Stanley, in the oil-producing region of the state. “That’s something that you know really needs to happen before session starts, so that maybe they can come up with something.”
Assigning a new study to an interim committee would require a directive from Senate Majority Leader David Hogue, chair of the Legislative Management Committee. Hogue, a Republican from Minot, said he “would consider it” and will likely make a decision in the next month or two.
“I really need to do more self-education right now,” Hogue said. The recent series has raised “awareness that there is an issue out there,” he said.
Sen. Dale Patten, who has served as chair of the Senate Energy and Natural Resources Committee and would likely have influence over any legislation, said he is open to a formal legislative study but said it should be initiated only with input from the full Legislature.
“I would be comfortable with taking a look at it and see if there’s a way to resolve it,” said Patten, a Republican from Watford City.
Some lawmakers are already thinking about ways to address the issue in the next session.
One lawmaker said he may introduce legislation that would limit the length of leases to 30 years. Republican Sen. Jeff Magrum, who represents Hazelton and has supported landowners on other issues, said he hopes limiting leases will give future generations of mineral owners the opportunity to renegotiate contracts and incentivize companies to be more mindful of how they treat North Dakotans.
“I don’t think that’s right for someone that’s not even born yet to have to honor a contract that I signed today. It’s just not fair to them,” Magrum said. “Look at how times have changed. Everything’s changed and they’re stuck in the contract that was written in the 1950s.”
Magrum has introduced 13 bills related to property rights issues in the past two legislative sessions. All but one failed.
Rep. David Richter, a Republican from Williston, said he thinks it would be difficult for the Legislature to modify existing leases in that way, but it could limit the length of future leases.
“Going forward, I think that might be an option worth taking a really hard look at,” Richter said. “But that doesn’t do anything to alleviate the situation of the leases that are already in place.”
For those existing leases, Richter said it is often “unclear” whether deductions are permitted, and some lawmakers said they should pass a state law to address the issue.
Richter said he prefers that companies and mineral owners renegotiate the contracts to specify whether deductions are permitted. But if that doesn’t happen, he said he is open to legislation that would “clarify” how leases that don’t mention deductions should be interpreted by the courts.
Senate Minority Leader Kathy Hogan, a Democrat from Fargo, said lawmakers should pass a law stating that companies can’t take postproduction deductions unless leases explicitly allow them to do so. Sen. Brad Bekkedahl, a Republican from Williston who supports oil development but who also has tried to help mineral owners, proposed such a measure in 2021.
“We could write legislation clarifying this easily,” Hogan said. “But we’ve never been able to get it done.”
Industry, State Officials Respond
Ron Ness, president of the North Dakota Petroleum Council, an organization that lobbies on behalf of more than 550 oil and gas companies, said many of the proposals would be a “substantial infringement” on mineral owners’ property rights.
“We believe direct state involvement/interference in the contractual agreements of hundreds of thousands of private mineral leases is the wrong approach,” Ness wrote in an email. “Suggested actions like this would have a detrimental impact on mineral development in North Dakota.”
Gov. Kelly Armstrong, a Republican who worked for his family’s privately owned oil company earlier in his career, did not respond to a request for comment for this article.
But during an Aug. 18 appearance on a KFGO radio program, the governor said he was open to making tweaks to the royalty oversight program. The program was created by legislators in 2023 and was envisioned as a way to mediate disputes about deductions between mineral owners and companies, but that hasn’t happened.
“If this one isn’t working, we should find out why not and figure out if we can tweak it and make it better,” Armstrong said.
Some lawmakers said they don’t see a need to take any action.
Sen. Kent Weston, a Republican from Sarles, said he’s discussed the issue with colleagues in the Legislature and North Dakota Petroleum Council staff in recent weeks. He said the status quo is “fair” and necessary to ensure the oil and gas industry continues to invest in the state.
House Majority Leader Mike Lefor and Rep. Todd Porter, the longtime chair of the committee overseeing the energy industry in the House, could not be reached for comment.
Great Job by Jacob Orledge, North Dakota Monitor & the Team @ ProPublica Source link for sharing this story.
