New ND tax-sharing law may spur Bakken oil production

A new tax-sharing agreement in North Dakota may help encourage more oil and gas production on the state's Fort Berthold Indian Reservation.

North Dakota Governor Doug Burgum (R) signed legislation late last week that changes the way the state and native American tribes on the Fort Berthold Reservation share oil tax revenue.

The new legislation is designed to resolve disputes that started in 2015 over the apportionment of oil tax revenue in one of the most prolific areas of the Bakken formation. Under the new law the current equal tax revenue split — in which the state and tribes get equal shares of all production and extraction tax revenue on the reservation — will change so that the tribe will receive 80pc of the tax revenue from new wells on tribal trust lands and the state will receive the remainder. On privately held lands that are leased, so-called "fee" lands, 80pc of the revenue will go to the state and 20pc to the tribe.

Fort Berthold is roughly 980,000 acres, with 423,000 acres comprising tribal trust lands or lands owned by tribal members. The other acres are a combination of privately held fee lands, federally owned lands and homestead lands.

The reservation is home to the MHA Nation, or Three Affiliated Tribes, which are made of the Mandan, Hidatsa and Arikara tribes. Disputes between the MHA Nation and state officials began in 2015 when lawmakers reduced the tax on overall production from 11.5pc to 10pc without buy-in from tribal authorities. The dispute gave rise to industry concerns that some production might end up with a double tax.

Finalizing the agreement will help the state compete with production in other states and help the tribe address infrastructure needs, Burgum said on 28 March.

The new tax scheme, which has bipartisan and tribal support, should remove one obstacle to further developing new crude and gas production on Fort Berthold. Producers can now better evaluate the cost of business in an area with oil-rich geology.

"North Dakota's Bakken and Three Forks formations are in immense competition for capital investments with oil plays in other areas of the nation, so it is critical to have a stable and consistent business climate in place," said Ron Ness, president of the North Dakota Petroleum Council. "Senate Bill 2312 helps create that stable environment."

But other obstacles remain for those formations' competitiveness, namely the rise in associated gas production on the reservation and a subsequent increase in gas flaring.

The North Dakota Industrial Commission closely monitors gas flaring in the state and sets statewide targets for how much gas producers should capture, or not flare. This sets the North Dakota regulatory environment apart from other shale formations in the country.

The commission prescribes production curtailments to producers that miss the targets. But in producers in November began voluntarily curtailing their own production to mitigate flaring.

The commission's oil and gas division has said new activity on Fort Berthold has contributed a disproportionate amount to statewide flaring amid a lack of sufficient pipeline takeaway capacity. Lengthy negotiation processes for establishing right-of-way agreements, which involves the Bureau of Indian Affairs, have prevented pipeline expansions to connect production with larger interstate pipelines. Producers end up flaring more gas into the atmosphere as a result.

The commission is currently in talks with the other agencies, including the Bureau of Indian Affairs, to streamline the governance of gas capture on the reservation.

Related News