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ND oil, gas royalty owners concerned about deductions from checks

BISMARCK -- Oil and gas royalty owners are seeing more deductions from their checks but companies aren't adequately explaining why, a former North Dakota state representative said.

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Director of Mineral Resources Lynn Helms, from left, Agriculture Commissioner Doug Goehring, Gov. Jack Dalrymple and Attorney General Wayne Stenehjem meet Thursday, Dec. 8, 2016, in Bismarck. AMY DALRYMPLE / FORUM NEWS SERVICE

BISMARCK - Oil and gas royalty owners are seeing more deductions from their checks but companies aren't adequately explaining why, a former North Dakota state representative said.

Bob Skarphol, a Republican from Tioga who recently retired from the Legislature, is asking the North Dakota Industrial Commission to protect royalty owners by requiring companies to clearly explain deductions and adjustments on royalty statements.

"They're so convoluted and complex that the average person can't understand them," Skarphol said.

The Industrial Commission, which discussed Skarphol's request during a meeting Thursday, Dec. 8, is taking steps to strengthen state requirements regarding royalty statements and could pursue civil or criminal penalties against companies that don't comply.

Lynn Helms, director of the Department of Mineral Resources, said his office has received more complaints lately due to the collapse in natural gas prices, which has stressed the economics of recovering and processing natural gas liquids.

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Most companies switched to fee-based contracts and in many cases the fees exceed the value of the gas, Helms said.

"Royalty owners have been getting royalty statements with very large deductions in them," Helms said.

North Dakota Century Code says royalty statements must clearly identify the amount of oil or gas sold and the amount and purpose of each deduction made.

A state administrative rule has a slightly different approach, requiring companies to provide an explanation of the deductions if the royalty owner submits a certified letter requesting an explanation.

Skarphol said he has helped constituents write letters seeking an explanation and received no response.

"When you try to call them and ask about it, you get rebuffed," Skarphol said. "If you don't know the right questions to ask, you get skillfully distracted."

Helms said his office has recently asked companies to submit their latest royalty statements to see if they meet the requirements, and those that have been submitted "vary from wonderful to horrifying."

Staff plan to work with companies to get them into compliance, Helms said. If the companies still don't comply, the Industrial Commission would consider issuing a civil complaint or a criminal complaint. Violating the Century Code would be a Class B misdemeanor.

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Helms said he anticipates someone will introduce a bill addressing the issue of deductions from royalty payments during the 2017 legislative session.

Gov. Jack Dalrymple, who led his final meeting as chairman of the Industrial Commission before he retires, said it's challenging for individual royalty owners to dispute deductions imposed by the companies.

"They're relying on the fact that the vast majority of royalty owners are not going to come after them," Dalrymple said. "Somehow, we have to think about how to strengthen the position of the royalty owner in the whole picture to begin with. That would no doubt take some legislation."

The Industrial Commission also directed Helms to proceed during the next rule-making process a change to the administrative rule regarding royalty statements so it's consistent with the Century Code.

If royalty owners have questions about whether the statements they receive meet state requirements, Helms suggested they call his office, which is at (701) 328-8020.

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