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Complaint challenges new law on unpaid oil and gas royalties

FARGO (AP) — A complaint filed on behalf of a North Dakota agency challenges a new state law promoted by the energy industry on limiting the collection of oil and gas royalties, a move that could potentially turn into a wrestling match among branches of state government.

The measure that went into effect this week reduces the amount of interest the state can charge companies for unpaid oil and gas royalties, from 30% to 15%. In addition, the law that sailed through the Republican-dominated Legislature does not allow the state to collect unpaid royalties before August 2013.

The brief filed Monday on behalf of the Board of University and School Lands, referred to as the Land Board, argues the legislation violates the U.S. Constitution because it harms the obligation of previously agreed-upon contracts. State Land Commissioner Jodi Smith has said “hundreds of millions” of dollars are owed to the state. The bulk of the royalties go toward supporting public education.

Fargo attorney Joshua Swanson, who recently won a lawsuit for a family over oil and gas mineral rights under a portion of the Missouri River reservoir, said it’s a rare case because it will likely pit one arm of the state, the Land Board, against the Legislature and Republican Gov. Doug Burgum, a member of the Land Board.

Attorney General Wayne Stenehjem, who was defeated by Burgum in the 2016 Republican primary for governor, is both a member and legal representative of the Land Board. Stenehjem filed the motion challenging the constitutionality of the new law.

“The other big issue here,” Swanson said, “is the political repercussions that are at stake in addition to the legal ones.”

The land board is asking a McKenzie County judge to wipe the law off the books. Regardless of that decision, Swanson said, the case is likely headed to the North Dakota Supreme Court, which in 2019 sided with the state Department of Trust Lands, which manages the land board, in a suit filed by an operator after the state determined that companies were taking improper deductions.

Swanson said he believes the state has a compelling argument because of their stance over the constitutionality of the law and the state’s “gifting” clause that prohibits gifts of money or loans to businesses or individuals.

Smith has said that about 30 companies, most of them natural gas firms, owe the state for unpaid royalties.