An American Indian tribe whose reservation accounts for a fifth of North Dakota's oil production has imposed a higher tax rate for drillers, a move the governor and the state tax commissioner believes is improper and industry officials fear may slash production.
The Three Affiliated Tribes this month notified the more than 30 companies drilling on the Fort Berthold Reservation that it is seeking the tax rate that tribal Chairman Mark Fox says it needs to pay for additional law enforcement, road repairs and other consequences of oil development on the reservation. It's home to the Mandan, Hidatsa and Arikara tribes.
Tax Commissioner Ryan Rauschenberger responded with a letter to the companies saying the state has nothing to do with the increase, which he said is "inconsistent with current state law."
Gov. Doug Burgum also called the move "inconsistent" with a tax accord between the state and the tribes. He said the dispute creates regulatory uncertainty that has the potential t "quell or squash investment" in the state.
Burgum is schedule to meet with legislative and tribal leaders Thursday at the Capitol to discuss the matter, along with others that face tribes across the state under a newly formed Tribal Taxation Issues Committee.
The Three Affiliated Tribes and the state have long been at odds over shared tax revenue from drilling on the oil-rich reservation in western North Dakota. It accounts for about 20 percent of the state's 1 million barrel-per-day oil production.
The agreement between the tribes and the state was authorized by the 2007 Legislature after oil companies said it would help promote reservation investment by setting up stable tax rates and rules. Before the agreement, only one well was drilled on the reservation, state and tribal data show. That's grown to more than 1,600 wells since the agreement was signed.
Tax Department data show that since the agreement was adopted, the state has collected more than $1 billion in oil revenue, with the tribe getting $934 million. The state's share of oil taxes from reservation land is divided among counties, cities, school districts and several state funds and programs.
Two years ago, the Legislature passed a measure that abolishes some price-based incentives in exchange for lowering the overall tax rate from 11.5 percent to 10 percent, including from wells on the reservation.
Fox said it never agreed to the change and the tribe still wants its share, which is half of the 1.5 percent rate that was forgiven by lawmakers. He estimated the sum to be about $17 million.
"Our expectation is for them to pay what is due under the mutual tax agreement with the state," Fox told The Associated Press.
North Dakota Petroleum Council President Ron Ness said an increased tax rate on the reservation creates uncertainty, increases costs and discourages investment — all of which hampers drilling.
"We certainly do not want dual taxation," Ness said.
Denver-based Whiting Petroleum Corp., which historically has been North Dakota's top oil producer, announced this month that it is selling all its holdings within the reservation for $500 million, and will use the profits from the deal to repay bank debt.
Neither Ness nor the company would comment on whether the tribe's desire to collect more taxes had anything to do with the sale.
Fox, who is an attorney and a former Marine, said the tribes would work with companies on the additional tax collections.
"We just want to get paid what is owed the tribe," Fox said.
He doesn't expect companies to leave the reservation, which is considered one of the hottest drilling spots in North Dakota's oil patch.
"If they leave, that's going to be their choice," Fox said. "If they do, the oil is still in the ground."