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ND board approves bigger oil royalty rate

By Dale Wetzel
Associated Press / January 27, 2012
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BISMARCK, N.D.—Oil companies seeking to lease drilling rights on state land in seven western North Dakota counties should pay a larger share of their income to a trust fund that benefits schools, a state board decided Thursday.

The change will take effect during a planned Feb. 7 state Department of Trust Lands auction of drilling rights on more than 800 state tracts, covering more than 70,000 acres.

It will apply to land leased within seven of North Dakota's most prolific oil-producing counties: Billings, Divide, Dunn, Golden Valley, McKenzie, Mountrail and Williams.

Recent leases on private land in the seven counties have almost always carried a higher royalty rate than the state has been charging, said Lance Gaebe, the department's commissioner.

Public comments about raising the royalty "ranged from, `What took you so long?' to, `Don't you dare,'" Gaebe said.

The royalty on an oil lease is a share of the income from oil the well produces. Royalty rates on state lands in the seven counties will now be three-sixteenths of the oil's value. The present rate is one-sixth of its value.

For example, oil worth $100 now pays a royalty of $16.66. Under the new rate, it would pay $18.75, an increase of 12.5 percent.

The state Board of University and School Lands voted unanimously Thursday to endorse the higher royalty rate. Gov. Jack Dalrymple is chairman of the board, which also includes Attorney General Wayne Stenehjem, Treasurer Kelly Schmidt, Secretary of State Al Jaeger and Wayne Sanstead, the state superintendent of public instruction.

Dalrymple said he did not expect the increased rate to dampen enthusiasm for the lease sale.

Oil production in the seven affected counties has been lucrative, he said, and state leases are attractive because they bestow the right to drill for oil on the land for five years. Some private leases only allow three years for development before the land is eligible to be leased again.

"I think it was pretty clear that we need to sort of get in sync with the market out there for leases in certain counties," Dalrymple said. "We tried to be careful to not raise it in ... new areas where drilling is less certain."

The royalty income goes into North Dakota's Common Schools Trust Fund, which had $1.5 billion in assets in its most recent quarterly financial report. The agency oversees 17 trust funds in all, with assets of about $2 billion.

Money from the schools trust is distributed to North Dakota's public schools. They are slated to get $101.6 million in trust money during the next two years.

Gaebe said he could not estimate the amount of added money the trust would obtain from the higher royalty rate.

Separately, the board voted to exclude some environmentally sensitive tracts of land from the Feb. 7 lease sale after hearing pleas from the state Game and Fish Department and the North Dakota chapter of the Wildlife Society.

Thirteen tracts in Billings and Golden Valley counties are affected by the delay. The Wildlife Society said some of the land could be designated as wilderness.

"While we are supportive of the state's economic development, we do not see the need to rush forward and develop every single acre of mineral assets at this time," said Mike McEnroe, a Wildlife Society spokesman, said in a letter to Gaebe.

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