New North Dakota oil tax law may threaten revenue-sharing accord with Three Affiliated Tribes

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BISMARCK, North Dakota — A North Dakota oil tax revenue sharing agreement with an American Indian reservation that covers nearly a third of the state's oil production may be threatened by a new state law that shaves the overall oil tax rate following the fall in crude prices.

The Legislature last month passed the measure, which also abolishes some price-based incentives. Three Affiliated Tribes officials said they're not happy with the tax cut because more money is needed to pay for oversight, road repairs and other consequences of oil development. Tribal leaders have threatened to pull out of the oil tax revenue-sharing agreement — which has raised nearly $1.5 billion for the state and the tribes to date — because of the tax cut that takes effect in December.

"We still have to crunch a bunch of numbers," Three Affiliated Tribes Chairman Mark Fox told The Associated Press Wednesday. "We still have to figure out if we're better off with the agreement or not."

Fox, an attorney, said the tribes want the oil industry to keep drilling "but at the same time we need enough money to offset the impacts." The health and safety of tribal members on the Fort Berthold Reservation comes before oil development, he said.

The million-acre reservation, occupied by the Mandan, Hidatsa and Arikara tribes in the heart of North Dakota's patch, accounts for about a third of the state's 1.1 million barrels of oil production daily.

Prior to agreement with the state in 2008, only one well had been drilled in the prior 20 years due to complex tribal rules and uncertainty about taxes. Since the regulatory and revenue-sharing agreement was signed, 1,458 wells have been drilled.

The terms of the accord allow either the tribe or state to terminate the agreement with 30 days' notice. And the agreement specifies that North Dakota's Department of Mineral Resources helps oversee reservation production, along with tribal and federal regulators.

Without such an agreement, oil drillers worry about increased tribal taxes and regulations, which could jeopardize drilling and drive the industry off the oil-rich reservation. It's unclear if the state would have any regulatory jurisdiction without an agreement as the tribes are considered a sovereign nation. State regulators referred the question Wednesday to the attorney general's office, which referred it to Gov. Jack Dalrymple's office.

Dalrymple spokesman Jeff Zent said he "would not speculate" whether the state would have any regulatory oversight of tribal drilling if the agreement is void.

"We have a solid track record of working with the tribes and the tribes with us in good faith," Zent said. "We have no reason to believe that won't continue."

"It's critical the state and tribe have a tax agreement," said Ron Ness, president of the North Dakota Petroleum Council. "We're very hopeful the state and tribe will continue the agreement going forward. We'd be very concerned if they pulled out."

Sen. Dwight Cook, R-Mandan, chairman of the Senate Finance and Taxation Committee, said the Legislature did "everything we could" to appease the tribes when crafting the Legislation that will cut the state's oil tax rate from 11.5 percent to 10 percent in exchange for cutting price-triggered exemptions for the industry.

Cook said if the tribes set their own higher taxes, oil companies likely "are going to burn rubber and pull away and nobody is going to get anything."

North Dakota Tax Commissioner Ryan Rauschenberger said a new agreement must be in place by year's end, though no meetings have been set. The state will work to keep the tribes in the accord, rather than having them pull out.

"The Three Affiliated Tribes is a sovereign nation and they have absolutely every right to do that," Rauschenberger said. "But our goal is to have the agreement signed and in place. We do have time to work on this."

Former Three Affiliated Tribes Chairman Marcus Levings and former Gov. John Hoeven signed the agreement in 2008 and agreed to a permanent extension of the accord in 2010. Under that agreement, North Dakota got 80 percent of tax collections from private land on the reservation and 50 percent of the taxes from tribal trust lands held by the federal government to benefit the tribe and individual tribal members.

The Three Affiliated Tribes and its next chairman, Tex Hall, successfully pressed lawmakers two years ago for an equal cut of oil production taxes, saying the extra money was needed to address issues caused by drilling that were unforeseen when the pact was first signed.

Tax Department data show that since the agreement was adopted, the state has collected $789 million in oil revenue, with the tribe getting $659 million. The state's share of oil taxes from reservation land is divided among counties, cities, school districts and a number of state funds and programs.

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