American Oil and Gas Reporter - May 2015 - 34

North Dakota Passes Tax Compromise

BISMARCK, N.D.-In the waning days
of the 2015 session, legislation to address
the "large trigger" tax exemption and reduce the state's oil extraction tax (OET)
was approved by the North Dakota Legislature and signed by Governor Jack
Dalrymple, the North Dakota Petroleum
Council reports.
Introduced April 17 as a delayed bill,
HB 1476 initially would have eliminated
the price-triggered tax exemption that
could become effective June 1 while lowering the OET rate to 5.0 from 6.5 percent.
Under current law, that trigger eliminates
the OET for the first two years of production until oil prices have averaged
more than $55.09 for five consecutive
months (AOGR February 2015, pg. 34).
The original bill passed the House
57-32 on April 20. An amended version
was approved by the Senate along a 3215 party line vote April 23. The House
passed the Senate version 66-26 the next
day and Governor Dalrymple signed it
April 29, NDPC confirms.
"It is a significant change," says NDPC
President Ron Ness. "This law was put
in place 35 years ago, and has been
chipped at and chipped at over the years,
but this is the first time the corpus has
been changed. It sets a stable, predictable
(tax) rate and gets us away from living
and dying by a tax that swings wildly
with the price.
"It is a compromise," concedes Ness.
"But it's a good balance for the state and
the industry. Waiting around on the trigger
price to decide whether you should drill
or complete a well is not good for a play
such as the Bakken."
In its brisk transit through the legislature, Ness says, HB 1476 was amended
to a 5.0 percent extraction tax and a "reverse trigger" was added that raises the
tax to 6.0 percent if prices average more
than $90 a barrel for 90 consecutive days.
However, the trigger is removed from
North Dakota tax policy on Dec. 31, and
the OET goes to 5.0 percent thereafter.
The bill also removes an OET exemption given incremental production
from Bakken wells utilizing carbon-dioxide-injection enhanced recovery, and
limits the exemption to five years for
wells in non-Bakken pools on CO2 EOR.
However, Ness notes the CO2 exemption
still was subject to change in the session's
waning hours.
Reaching A Compromise
Objections to the original bill were
raised by Senate Democrats and the chairman of the Three Affiliated Tribes. The

34 THE AMERICAN OIL & GAS REPORTER

state and tribe stand to lose up to $5
billion in revenue over the next decade
under a tax rate that is 23 percent lower
than currently levied, according an analysis
presented by Democrats and reported by
the state's news media.
For the next biennium, lost revenue is
projected at nearly $300 million if the
extraction tax is lowered to 5.0 percent,
according to testimony by Senate Minority
Leader Mac Schneider, D-Grand Forks.
Later, as production and prices rise, the
state could lose between $4 billion and
$5 billion by 2025, he said.
Mark Fox, chairman of the Three Affiliated Tribes, also testified against the
original bill at a Senate hearing. According
to published reports, he said the tribe
was opposed to the bill because "it will
result in a significant loss of tax revenue
in the long term."
If it had passed in its original form, the
tribe would have considered withdrawing
from the revenue-sharing agreement it
reached with the state in the last session,
Fox testified. The chairman later indicated
he would not actively oppose the amended
version of the bill, saying it was "better
than doing nothing and letting the big
trigger hit," according to Senate Majority
Leader Rich Wardner, R-Dickinson.
Under the agreement signed in June
2013, the state agreed to evenly split tax
revenues with the tribe in exchange for a
tribal agreement not to impose additional
taxes and fees on production within the
reservation. Previously, tax revenue was
divided 70 percent to the state and 30
percent to the tribe.
Additional amendments to HB 1476
revise the authority given to the governor
to negotiate tax agreements with the tribe,
permit the tribe to implement a tax sharing
agreement on bulk sales of dyed and
undyed special fuels, and call for a legislative study of the tribal tax agreement,
including provisions covering distribution
of property taxes on pipelines, NDPC
summarizes.
Other Legislation
Earlier in April, a bill aimed at increasing oversight of gas and fluid gathering lines was approved after language
specifying leak-detection technology was
removed, NDPC reports. One of several
bills directed at gathering lines that were
introduced this session, HB 1358 was
approved and signed by Governor Dalrymple on April 20.
According to an NDPC summary, the
final version of the bill strikes language
that would have required gathering lines

include flowmeters, overpressure protection devices or other technology approved
by the North Dakota Industrial Commission. Instead, the bill requires operators
to file plans with the state and have lines
tested within six months of startup. It
also authorizes $1.5 million for a study
of gathering line leak detection and prevention technology by the Energy and
Environment Research Center, including
the need for flowmeters and overpressure
protection.
In one other development, a compromise on the state's formula for distributing
tax revenues that sends a larger share to
oil and gas producing areas in western
North Dakota was approved and sent to
the governor April 20.
Under current rules, NDPC explains,
75 percent of oil and gas revenue goes to
the state and 25 percent to local governments. Originally, HB 1176 would have
changed the formula to 60 percent to the
state and 40 percent to cities, towns and
local governments impacted by development.
The association says the final version
of the bill sets the distribution formula at
70 percent for the state and 30 percent to
local governments. According to a fiscal
note attached to HB 1176, local governments will receive $630.8 million in the
current biennium, nearly $133.0 million
more than under the current law.
Ì

PEDEVCO Discovers Oil
With First Loomis Well

DANVILLE, CA.-Pacific Energy Development Corp. (PEDEVCO) announces
its Loomis 2-6H horizontal well in Weld
County, Co., has tested at an initial production rate of 540 barrels of oil a day
and 300 Mcf of natural gas a day from
the Niobrara B Bench target zone. The
Loomis 2-6H is the first of three horizontal
wells the company has completed from a
single pad.
The well reaches a total measured
depth of 11,335 feet, with a 6,290 foot
total vertical depth and 4,694 foot lateral,
and 25 hydraulic fracturing stages through
the Niobrara B Bench.
"We are very pleased with the initial
production rate from our first of three
Loomis wells, as it not only validates
our improved completion techniques and
value of this acreage, but also more than
doubles our daily net production," comments PEDEVCO Chairman and Chief
Executive Officer Frank C. Ingriselli. Ì

American Oil and Gas Reporter - May 2015

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