Retroactive statute of limitations disputed in oil and gas royalties bill

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To operate on state lands, about 100 oil and gas companies pay the state’s Department of Trust Lands. Most are up to date with payments, according to Land Commissioner Jodi Smith.

“We have less than 30 that we would consider out of compliance with the state,” Smith said.

Those out of compliance owe interest plus a penalty rate, up to 30 percent, dating back some 40 years when oil production first started in the state.

Lawmakers passed a bill this legislative session to cut that rate in half to 15 percent. It also sets a retroactive statute of limitations to seven years, meaning the land board can collect payments only as far back as 2013.

North Dakota’s Petroleum Council says that change is a big benefit to the industry.

“It puts clear parameters around the time in which the state can claim disputed royalties. Having that finality and definitiveness on that time frame is important to operators,” North Dakota Petroleum Council Government Affairs Director Brady Pelton said.

But Smith says limiting the time frame the state can collect royalties would lead to a huge loss in revenue over time.

“By only going back seven years, that leaves about $70 million uncollected from previous years loyalties, and as you compound that interest, the number balloons in the future,” Smith said.

About 90 percent of that money goes toward the Common Schools Trust Fund, which supports North Dakota students.

“In this next biennium, it’s going to be about 15 percent of the cost of every child to go to school. We fund, by far, the greatest percentage of the cost of every kid to go to school in the nation,” Smith said.

Smith says limiting royalty payment collection conflicts with the state constitution, and could be challenged by the land board.

“The board has offers to take into consideration next week that then they will need to have a conversation about that retroactive application,” Smith said.

But the retroactive application is welcomed by the state’s petroleum council, which represents more than 650 companies in the oil and gas industry.

“It’s our belief and industry’s belief that the legislature has the clear authority to establish statutes of limitations. It has statutes of limitations for everything from the State Tax Commissioner going back and claiming unpaid taxes, fees by various state agencies. We see this as nothing different,” Pelton said.

Pelton says the deadline creates clarity and resolves a longstanding issue.

“Having that certainty provided by House Bill 1080 is going to go a long way in driving resolution of the unpaid and disputed state royalty issue,” Pelton said.

Land board members will discuss the retroactive application of the bill when the group meets Tuesday. Those on the board include the governor, secretary of state, attorney general, state treasurer and superintendent of public instruction.

Smith says they may not make a decision on the bill at next week’s meeting, but likely will by June.

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