This article was created for Propublica’s local reporting network in collaboration with the North Dakota Monitor. Sign up for Dispatch to get stories in your inbox every week.
North Dakota mineral owners have said for many years that state officials have ignored pleas for assistance to subtract money from their share of revenue from oil and gas production.
Now, some state lawmakers agree that they need to take action. In response to the recent North Dakota Monitor and Propovica investigation, over half a dozen said the committee should investigate the issue and propose solutions before the next legislative meeting in 2027.
The assembly will be held 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’s definitely going to be coming in 2027,” said Sen. Chuck Warren, a Republican from Newtown. “I don’t know what the outcome will be, but it will definitely be here.”
North Dakota officials are taking steps to protect state royalties. Since 1979, all state leases with oil and gas companies have banned deductions. However, that protection does not extend to leases negotiated by an estimated 300,000 private mineral owners in North Dakota.
Rep. Patrick Huttlestad, a Republican from Williston, said: “I think we need to do the same for the people.”
Some lawmakers also suggest that changes may be needed to be made to the state’s post-production royalty monitoring program, created in 2023. This withholds tax to keep the costs of mineral processing and transporting, and to adopt before it is sold, in order to address frustration about post-production deductions. The program did not alleviate concerns about post-production deductions and as of August it had not resolved lawsuits on the issue, the news organization found.
Why is it important?
The owner of the mineral has the rights to oil and gas discovered underground. They can lease those rights to businesses in exchange for a reduction in revenue when oil, known as royalty, is produced.
But leasing remained the same for decades, but the industry has changed. Oil and gas are currently sold far from wells, and businesses incur more transportation and other costs to guide their products to their selling point. The company passes some of these costs to the mineral owner. This was a North Dakota court that usually found was legal unless the Lease said otherwise.
Most leases signed decades ago do not explicitly mention post-production deductions, and leases will not expire unless oil production expires.
About 10 years ago, deductions began to surge in North Dakota. According to an interview with the owner of the royalty, two estimates and interviews show that around 20% of royalties are deducted on average. That would have reached about $1 billion in 2023.
Estimates provided by the North Dakota Petroleum Council suggest that businesses withhold at least hundreds of millions of dollars in North Dakota each year.
Why some lawmakers are asking for change
Several lawmakers, including Republican Rep. Don Longmuir, said it was important to conduct an interim legislative committee’s investigation and propose solutions ahead of the 2027 session, as the state’s legislative season is relatively short, 80 days.
“We can’t wait until the session begins,” said Longmuir, Stanley, the state’s oil-producing region. “It’s about knowing that it really needs to happen before the session starts.
Assigning new research to the interim committee requires an order from Senate Majority Leader David Hoag, chair of the Legislative Trustees. Hogue, a Republican from Minott, said he would “consider that,” and said he would likely make a decision in the next month or two.
“Now I really need to do more self-education,” Hogue said. The recent series “recognizes there is a problem,” he said.
Sen. Dale Patten, who chairs the Senate Energy and Natural Resources Committee and perhaps likely to affect legislation, said that while it is open to formal legislative research, it should only begin with full Congressional opinion.
“I’m happy to see that and see if there’s a way to solve it,” said Patten, a Republican from Watford.
Some lawmakers are already thinking about how to address the issue in the next session.
One lawmaker said there could be a law that would limit the length of leases to 30 years. Sen. Jeff Magram, who represents Hazelton and supports landowners on other issues, said he hopes that limiting the lease will give future generations of mineral owners an opportunity to renegotiate contracts and take more of a mindset about how businesses will treat North Dakotan.
“I don’t think it’s right for people who haven’t even come up with the fact that they have to respect the contract I signed today. That’s not fair to them,” Magram said. “Look at how times have changed. Everything has changed and we’re caught up in a contract 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 that while he believes it would be difficult for Congress to change existing leases like that, it could limit the length of future leases.
“I think it might be an option that really is worth a look at in the future,” Richter said. “But it does nothing to mitigate the lease situation that’s already in place.”
Regarding these existing leases, Richter said it is often “unknown” whether the deduction is permitted, and some lawmakers said state law should be passed to address the issue.
Richter said he prefers businesses and mineral owners to renegotiate contracts to specify whether deductions are permitted. However, if that doesn’t happen, he said that leases that do not mention the deduction are open to laws that “clearly” should be interpreted by the court.
Kathy Hogan, a Democrat in Fargo, said a law should be passed that states that businesses cannot receive a post-production deduction unless lawmakers expressly allow it. Sen. Brad Beckedal, a Republican from Williston, who supports oil development and tried to help mineral owners, proposed such a measure in 2021.
“I was able to write a law that would make this clearer,” Hogan said. “But we couldn’t do that.”
Industry, state authorities respond
Ronnes, president of the North Dakota Oil Council, which lobbies on behalf of more than 550 oil and gas companies, said many of the proposals would be “substantial infringement” over the property rights of mineral owners.
“We believe that direct state involvement/interference in contractual contracts for hundreds of thousands of private mineral leases is the wrong approach,” Ness wrote in an email. “Such proposed actions will have detrimental effects on mineral development in North Dakota.”
Gov. Kelly Armstrong, a Republican who worked for his family’s privately owned oil company early in his career, did not respond to requests for comment on this article.
However, when he appeared on the KFGO radio show on August 18th, the governor said he was open to tweaking the loyalty surveillance program. The program was created by lawmakers in 2023 and was envisaged as a way to mediate deduction disputes between mineral owners and businesses, but that did not happen.
Some states limit the oil industry from earning revenue from mineral owners. It’s not North Dakota.
“If this isn’t working, you need to find out why and figure out if you can tweak it and improve it,” Armstrong said.
Some lawmakers said they don’t think there’s a need to take action.
Sen. Kent Weston, a Republican from Salls, said he has discussed the issue with his congressional colleagues and North Dakota Oil Council staff over the past few weeks. He said the status quo is “fair” and is necessary to ensure that the oil and gas industry continues to invest in the state.
House majority leaders Mike Refor and House member Todd Porter are longtime chairs of the House energy industry committee and were not available for comment.
