American Oil and Gas Reporter - June 2017 - 30

State Legislative Reports

NDPC Celebrates Legislative Success
By Dan Larson
Special Correspondent

BISMARCK, N.D.-The 2017 biennial
session of the North Dakota Legislature
saw belt tightening because of lower revenue from Bakken oil production, but significant victories for the oil and gas industry
on several important policy fronts, reports
the head of the state trade association.
"It was an historic session for the
industry," declares Ron Ness, president
of the North Dakota Petroleum Council.
"The protests over the Dakota Access
Pipeline were a distraction in January,
but that was resolved quickly. After
that, (lawmakers) got right down to
business.
"The tight budget made this a very
tough session for everybody, but in the
end we had eight pieces of significant
legislation passed," he reports. "These
were major policy issues, and we won
bipartisan support. I would give this session an A plus, without question."
The top issue for NDPC was revising
the state's spill reporting threshold, Ness
says. Any spill of one barrel or more has
been reportable, he points out, calling it
the lowest threshold in the country.
HB 1151, known as the Spill Bill,
passed the Senate 31-14 and the House
83-8 in early April, and was signed by
Governor Doug Burgum three days later.
Effective Aug. 1, it raises the spill reporting threshold to 10 barrels for spills
on a well or facility for wells drilled
since Sept. 1, 2001. It also directs the
Department of Mineral Resources to add
any notice of violation for fire, blowout,
spill or leak to an operator's well file
and make it available to the public.
Passage of the bill will reduce the appearance of sloppy operations and relieve
the workload for state inspectors, Ness
says. "Right off the bat, we will see twothirds fewer spill reports, and with the

way pads are constructed now, a small
spill like that really is a nonevent."

High Water Mark
Running a close second in terms of
priority this session was SB 2134, referred
to as the Lake Bed Minerals Bill. NDPC
reports this legislation directs the DMR
when determining mineral ownership to
refer to an original U.S. Army Corps of
Engineers' survey of the high water mark
along the Missouri River before construction of the Garrison Dam created
Lake Sakakawea.
The bill was written to allow for a
"margin of error or dispute on some
parcels between (the Army Corps) survey
and the survey done by the state more recently," the council says.
"This will return minerals to the rightful
owners," Ness explains. "It sets forth a
very clear process for determining mineral
ownership, and will spur development
because operators won't have to get involved in title disputes. Ultimately, it
will release hundreds of millions of dollars
in suspense that were never going to get
paid."
Although the logjam is broken now,
it still will take 18 months to two years
to sort through mineral ownership claims,
Ness estimates.
"This was a huge piece of legislation.
We see this as one of the most important
bills ever to pass through our legislature,"
he says.
Among other NDPC priorities this
session were bills to lower the state's
unitization threshold to 55 from 60 percent
(HB 1257); provide immunity to companies that self-report environmental or
safety violations (HB 1336); create a
new, cabinet-level agency called the Department of Environmental Quality (SB
2327); and allow state-issued permits to
pre-empt local government land use restrictions (SB 2286).

TABLE 1
North Dakota Natural Gas and Oil Tax Rates
The natural gas production tax is based on a price index that changes every year on
July 1. Through June 30, 2017, gas production is taxed at $0.0601 an Mcf
Oil is subject to a production tax of 5.0 percent of the gross value and an extraction
tax of 5.0 percent. The OET for oil produced outside the Bakken and Three Forks
formations is 2.0 percent, while qualiﬁed stripper wells are not subject to the OET.
If the oil extraction tax trigger price of $90 a barrel is exceeded for three consecutive
months, the OET increases to 6.0 percent. The OET returns to 5.0 percent if oil falls
below $90 a barrel for three consecutive months.
30 THE AMERICAN OIL & GAS REPORTER

All four passed and were signed by
the governor, Ness reports.

Protest Spillover
Early in the legislative session, while
protests continued over the Dakota Access
Pipeline, legislators approved a pair of
bills that provided police with additional
means to contain protests that turned unlawful, according to published reports.
State Legislative Council records indicate HB 1304 makes it a misdemeanor
to wear a mask while committing a crime.
A second bill, HB 1426, raises rioting to
a Class B felony and makes providing
firearms to rioters a Class C felony.
After the initial rush, the session got
down to business as legislators faced the
daunting task of trimming spending and
patching holes, Ness says.

Taxes
Although the legislature did not make
any changes to the state's severance taxes
this session, "big oil tax cuts" were a
common theme for Democrats concerned
over a reduced budget.
In a letter to the state's largest newspaper published May 3, Senate Minority
Leader Joan Heckaman, D-New Rockford,
and House Minority Leader Corey Mock,
D-Grand Forks, argued the reduction in
the state's oil extraction tax to 5.0 percent
from 6.5 percent that was passed by the
legislature in 2015 "drastically reduced
revenues."
That 2015 late-session bill resulted in
$235 million less revenue over 14 months,
or an average $16.8 million monthly, reported
InForum columnist Mike McFeeley.
And yet, despite the reduced rate, removing the OET price trigger, which
also was approved in 2015, resulted in
an additional $600 million in revenues,
replied blogger and radio host Rob Port.
The reduced OET rate and removing the
price trigger are part of the same tax
policy, he added.
At the time it was passed, Ness characterized the tax revision as a compromise
that struck "a good balance for the state
and industry" (AOGR, May 2015, pg. 34).
By agreeing to eliminate a price trigger
that would have cut the OET to less than
2.0 percent when prices fell below $55 a
barrel for five consecutive months, legislators gained approval for the lower rate.
The bill also included a "reverse trigger"
that pushes the OET rate back to 6.0
percent if prices move above $90 a barrel
for three consecutive months (Table 1).

American Oil and Gas Reporter - June 2017

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