Upping taxes will stifle oil producition

Jeff Kummer

Watford City

The Democrat legislation to increase oil taxes impacts more than the out-of-state companies they tout. Their move negatively affects North Dakota royalty owners and their families.

Royalty owners are most often landowners that have passed down their mineral interests for generations. In some situations, the monthly royalty income received is significant but in the majority of cases the income isn’t substantial. The National Association of Royalty Owners has found that the typical mineral owner is a woman sixty or older receiving a little more than $600 per month.

What you may not know is how mineral owners are essentially joint-venture partners with the oil and gas operator. They are paid a commission on the total production and associated revenue coming from the wells drilled on their minerals. A legislative bill to raise oil and gas taxes directly increases taxes on the royalty owner, resulting in a lower monthly royalty payment.

Higher taxes will also have an impact on future development. The economics of the Bakken/Three Forks are not uniform throughout the Williston Basin. Over the past few years, most development has been in the core Bakken acreage, centered in northeast McKenzie County, where the development proves profitable. Yet this development is limited and when costs go up from higher taxes, the less-economic fringe of the Bakken will not be developed. That means those royalty owners will not see their minerals developed and the state will lose 100 percent of the taxes it would have received in oil and gas taxes.

Nationally, the production tax rate on oil and gas averages 6.5 percent according to RegionTrack. With its current 10 percent production and severance rate, North Dakota already ranks among the highest oil and gas tax rates in the country and proposed legislation almost guarantees that we become the highest tax state. The higher rate will reduce development, investment, and jobs in the industry, and in turn, will negatively impact all mineral owners with some never seeing their asset developed.