ron ness

Ron Ness

Outrage from the oil industry erupted after a letter sent out by the ND state land commissioner demanded payment for past underpaid royalties plus penalties and interest following a closed meeting of the ND Board of University and School Lands.

“This is not the way we conduct business in North Dakota,” said Ron Ness, president of the ND Petroleum Council. “The outrage and frustration I am seeing from the oil and gas industry comes at a time when we are trying to keep economics affordable.” He described the letter from Land Commissioner Jodi Smith as “extremely punitive and harmful”.

Reacting to the criticism, Gov. Doug Burgum, chairman of the board, said the issue will be reconsidered by the board Feb. 27, and he said the letter should not have been sent.

Doug Burgum“The Land Board has a fiduciary responsibility to ensure that royalties owed to the state are collected, but we also have a responsibility to manage the state’s assets in a manner that encourages responsible development and maximizes return on our resources,” the governor said.

He cited the concerns raised by Lynn Helms, director of the ND Dept. of Mineral Resources, who contended the letter sent by Smith was too aggressive and could “be a disincentive in terms of flaring reduction.”

ND governor doug burgum

Doug Burgum

I share Lynn Helms’ concerns that an overly aggressive approach to collecting long-disputed natural gas royalties could ultimately hurt the state’s trust funds if such an approach becomes a disincentive to drill and complete new oil wells,” Burgum said.

The governor said he would have not sent out the letter until several questions were answered and a final resolution was made on the Newfield case.

Sharp criticism of Smith’s letter came from M.J. Armstrong, president of Armstrong Operating, Inc. “Your letter demanding repayment of royalties is unreasonable and at this point, woefully premature,” he said. “Until the department is able to present lessees like Armstrong Operating, Inc. with specific demands tailored to each lessee, compliance with the Department’s demands in the time required will remain impossible for most if not all lessees.”

Another operator, Kevin Black, CEO and president of Creedence Energy Services of Minot, said the board was setting a “dangerous precedent” meeting behind closed doors without public input.

“The lack of transparency and clarity provided by the board in reaching its conclusion, particularly with respect to the uncertainty pertaining to the dates in which the board is claiming royalties have been under paid, flies in stark contrast to the state’s commitment to promoting a pro-business climate,” Black said.