BISMARCK — The North Dakota Board of University and School Lands voted unanimously Wednesday, Sept. 9, to delay the accumulation of penalties and high interest payments on old gas royalty bills.
Oil and gas companies operating in the state will now have until the end of April before penalties and steep interest rates begin applying to their overdue royalty bills. The board originally voted earlier this year to defer the accrual of significant penalties and interest until the end of September.
Land Commissioner Jodi Smith told Forum News Service in July that 34 firms owe tens of millions of dollars to the state for public school funding after taking improper deductions from their gas royalty bills. Smith noted Wednesday that 12 companies have told the state Department of Trust Lands they will try to pay by the end of the month.
Forum News Service also reported last month that a dozen companies owe millions in old oil royalties, but Wednesday's decision does not affect interest and penalties on those payments.
The issue of repaying old royalties is tied up in two drawn-out lawsuits, and many in the oil industry believe they should not have to pay back what the department is demanding — and certainly not before the courts rule on the matter.
Smith views the "out-of-compliance" companies as reneging on their contracts for extracting state-owned minerals. The department says the companies must pay back the improperly deducted amounts retroactively from when their oil wells first began producing in the state.
Gov. Doug Burgum, who sits on the board with four other statewide elected officials, said Wednesday that pushing back the date when penalties and interest on the payments increase gives some breathing room to companies in dire straits. North Dakota's oil industry has suffered major blows since March, with the coronavirus pandemic slashing demand for the product, a Saudi-Russian price war flooding the market with oil and a federal judge's ruling bringing doubt that the controversial Dakota Access Pipeline will continue operating.
"We know that the people who are responsible for having built the industry in our state... are under enormous financial stress," Burgum said.
Burgum also noted that industry experts believe conditions for the field may have even gotten worse since the board first delayed the penalties last April.
North Dakota Petroleum Council President Ron Ness applauded the board's move, saying it will provide some economic flexibility to companies that are strapped for cash. Ness, whose organization represents more than 650 oil and gas-related companies, said the state and industry are both looking to get production and employment levels back on track, so the delay is a "common sense" decision.
However, Smith said the companies still have a strong incentive to pay the old royalties even with the delay because some interest continues to build up on their tabs. Each company's current interest rate is different depending on how long it has taken improper deductions, but for all the firms, the rate is lower than the 12% annual interest and 4% penalties that would have begun accumulating had the board opted against a delay.