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State and tribal leaders do not reach oil tax agreement

BISMARCK -- State officials and leaders of the Three Affiliated Tribes left a two-hour meeting Tuesday without reaching agreement on updates to an oil tax compact that allows them to share revenues.

BISMARCK - State officials and leaders of the Three Affiliated Tribes left a two-hour meeting Tuesday without reaching agreement on updates to an oil tax compact that allows them to share revenues.

Tribal Chairman Mark Fox said after the meeting with Gov. Jack Dalrymple and other state officials that both sides prefer to stay in the compact and agreed to have their staff continue to work on a solution.

But he said the tribes remain firm in their opposition to lowering the 11.5 percent tax rate to 10 percent on Jan. 1 under a bill passed by state lawmakers in April.

"We think it's a tolerable rate, even in this climate of $40-a-barrel oil, and it's going to climb, and we know it's going to climb," he said, adding, "Our position is we have an agreement that was in place before the Legislature took action."

Through the compact, the tribes and state have shared more than $1.5 billion in revenue from taxes on oil extracted from western North Dakota's Fort Berthold Reservation since July 2008.

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The state received a greater share of the revenue until they began splitting it 50-50 starting in July 2013.

Updates are needed to reflect the changes approved by lawmakers, which also eliminated tax exemptions triggered by low crude oil prices and added a trigger that boosts the tax rate to 11 percent if prices exceed $90 a barrel.

State Tax Commissioner Ryan Rauschenberger said he's hopeful the tribes will sign an updated agreement by the end of the month. Either side can rescind the agreement at any time with 30 days' notice.

"For it to be a clean process, the absolute best option is to get it signed by Dec. 31 so oil producers have a clear idea of what they'll be subject to for tax and what the distribution of that tax will be," Rauschenberger said.

Fox said he hopes the two sides can meet again before Jan. 1. If the agreement isn't updated or rescinded, Rauschenberger said his office would start collecting at the 10 percent rate on Jan. 1 because it can't collect beyond the rates set by state law.

A rescinding of the agreement could lead to dual state and tribal taxation that would create uncertainty for the oil industry, Rauschenberger said.

"It could stunt future development and frankly current production could be scaled back considerably," he said.

North Dakota Petroleum Council President Ron Ness noted that through the compact, the tribes receive about $10 million a month - it had been as high as $25 million - and would only be getting about half that if the triggers hadn't been eliminated. Prior to the compact being signed in 2007, it had been 27 years since a well was drilled on the reservation, he said.

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Given current market conditions, if a dual taxation system were imposed, "I think industry would go invest elsewhere," Ness said.

The Fort Berthold Reservation had more than 1,400 oil wells producing about 198,000 barrels a day in October, or about 17 percent of the state's total output of 1.17 million barrels a day.

That was down from about 212,000 barrels daily, or 18 percent of the state's overall production, in October 2014, according to the Department of Mineral Resources.

Nine drilling rigs were active on the reservation in October, down from 28 rigs a year earlier.

Reach Nowatzki at (701) 255-5607 or by email at mnowatzki@forumcomm.com .

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