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North Dakota seeks payment for unpaid gas royalties

BISMARCK (AP) — A North Dakota agency is seeking millions of dollars in payments for unpaid natural gas royalties from companies operating in the state’s oil patch, following a state Supreme Court ruling.
The Department of Trust Lands told operators in a letter this week that they must pay money they had deducted from royalties owed to the agency for developing state-owned minerals, the Bismarck Tribune reported.
The move follows meetings with the Board of University and School Lands, which manages state-owned land and minerals for the benefit of public education. The money benefits higher education institutions and K-12 schools through trusts under the land board’s control.
In its letter, the agency lays out the interest and penalty rates that companies can expect, which range from paying no penalties and minimal interest if completed within 90 days to paying a 12% penalty and 18% interest.
“We really want to incentivize those players who are out of compliance to get into compliance with the state,” Land Commissioner Jodi Smith said.
The royalties dispute is centered around post-production costs, which are expenses associated with gas preparation before it is sold.
“I would say they’re absolutely disgusted and flabbergasted and extremely angry,” Ron Ness, president of the North Dakota Petroleum Council, said of the companies required to make payments. The council represents the state’s oil and gas industry.
The department estimates that it is owed tens of millions of dollars, but the amount the department hopes to collect is unavailable and depends on penalties and interest, Smith said.
The North Dakota Supreme Court sided with the state in a lawsuit filed by operator Newfield Exploration after the state determined that companies were taking improper deductions. The court’s July ruling said that calculating royalties based on an amount reduced to account for post-production costs went against the leases involved in the Newfield case.
Forty of the 80 gas royalties payers that have signed leases with the state have been underpaying royalties and operate under contracts with similar language to Newfield’s.