North Dakota Program Falls Short of Promised Oversight of Oil Companies — ProPublica

One morning in February 2023, a small group of mineral house owners arrived on the North Dakota Capitol on a mission. That they had traveled from throughout the state and different elements of the nation to elucidate to lawmakers how the highly effective oil and gasoline firms had been chipping away at their revenue.

It’s not straightforward to recruit folks to testify throughout the winter months of the legislative session. Ranchers are busy with the calving season. Snowbirds have relocated to hotter climates. It’s a greater than three-hour drive for these residing within the Bakken oil discipline.

However those that made it to Bismarck lined up at a podium to share particulars of their very own experiences and the broader considerations affecting the estimated 300,000 individuals who obtain cash from the trade in change for the proper to their underground minerals. For practically a decade, they’d grappled with firms withholding important parts of their royalty funds with out explaining how they decided how a lot to deduct, as the North Dakota Monitor and ProPublica reported last week.

Now they have been on the Capitol for a particular purpose: They wanted legislators to require firms to supply extra data so house owners may discern in the event that they have been being paid accurately, and to impose penalties if firms did not comply.

Shane Leverenz, who manages revenue his prolonged household receives from quite a few oil wells, learn aloud e mail responses from firms for instance the dearth of cooperation mineral house owners face after they request data. “We’re not obligated to mail every proprietor a calculation as to how their curiosity was calculated,” one firm wrote.

“There is no such thing as a transparency,” Leverenz advised the legislators. Leverenz, whose great-grandfather homesteaded in North Dakota and had his property deed signed by President Theodore Roosevelt, has helped set up royalty house owners on this difficulty in recent times. Leverenz grew up in Epping, a city of fewer than 100 folks within the northwest a part of the state, and traveled to North Dakota from Texas, the place he now lives, to testify.

After enter from Leverenz and others, lawmakers determined to create a new state program that they hoped would deal with conflicts between royalty house owners and corporations. Specifically, mineral house owners had mounting considerations over postproduction deductions, the cash firms withhold to cowl the prices of processing and transporting minerals after they’re extracted and earlier than they’re bought. Corporations say they’re allowed to cross on a share of these prices, whereas royalty house owners say they shouldn’t bear that duty as a result of usually lease agreements don’t point out these bills.

The state’s “postproduction royalty oversight program” had the help of the trade, however it was far lower than what Leverenz and different house owners wished. Within the two years since its creation, this system has not lived as much as its title and has not alleviated house owners’ considerations over deductions or transparency, an investigation by the North Dakota Monitor and ProPublica discovered. This system has resolved 69 circumstances up to now, and none have concerned postproduction deductions, in keeping with paperwork obtained below a public data request. A case can characterize a criticism or query from a royalty proprietor.

“The legislative intent was purported to be addressing the problem of the postproduction prices that they have been hitting folks with,” mentioned Rep. Don Longmuir, a Republican from Stanley, within the northwest nook of the state.

The newsrooms’ investigation discovered that this system has targeted on different points. It has as an alternative helped house owners resolve complaints about firms withholding funds completely and failing to pay curiosity on late royalty funds, data present. Some mineral house owners mentioned in interviews that they don’t belief state officers to assist them get details about the deductions and subsequently haven’t tried to make use of this system.

Leverenz mentioned this system, additionally known as the ombudsman program, has not achieved what he and different royalty house owners have been advised it will. He has taken six complaints to the ombudsman; three have been resolved however three stay open, together with two for greater than a 12 months. The unresolved complaints don’t contain deductions, he mentioned, and give attention to different points together with his household’s royalty funds.

“The ombudsman is operating into the identical factor that I’ve, the place there’s simply no response from the oil firms or they stalled,” Leverenz mentioned. “There’s been no ahead momentum.”

Ron Webb, who coordinates this system inside the state’s Division of Agriculture, mentioned it has helped facilitate communication between mineral house owners and corporations. He mentioned this system is voluntary and doesn’t have authority to compel firms to vary how they calculate funds and even to supply data. “Oil firms usually are not required to work with us,” Webb mentioned.

This system now not promotes itself as with the ability to oversee considerations about royalty deductions despite the fact that that was a part of the legislative intent. On the division’s web site and in a brochure, the phrase “postproduction” has been dropped from this system’s title despite the fact that it’s within the title of the regulation that created it.

The division’s authorized counsel, Dutch Bialke, mentioned the title of the regulation is irrelevant to how this system operates.

“The title is completely legally non-binding and has no authorized impact,” he wrote in an e mail, citing North Dakota regulation.

“Nothing Is Clear”

Ever since Neil Christensen and his sisters observed in 2016 that Hess Corp. was withholding practically 25% of their royalty revenue — up from lower than 1% simply two years earlier — his household has tried to get solutions from the corporate.

He traveled to Minot, North Dakota, some years in the past to fulfill with Hess representatives at their manufacturing workplaces. He additionally known as the corporate’s accounting workplace and its royalty proprietor hotline, however he mentioned their explanations didn’t make sense.

“It doesn’t appear as if the corporate has a big curiosity in explaining themselves,” Christensen mentioned. Spreadsheets saved by his household present withholdings have been as a lot as 42% in recent times. “The transparency difficulty is a giant drawback with oil operators and mineral house owners.”

The royalty statements will be a whole lot of pages lengthy however present solely a normal description of the explanations for the deductions, leaving house owners unable to confirm the businesses’ prices and whether or not they’re being paid a justifiable share. Christensen’s household and others mentioned they’ve had funds diminished for bills the businesses incurred years earlier.

“Nothing is obvious,” mentioned his sister Naomi Staruch, who has spent most of her profession working in finance for banks and church buildings in Minnesota. “I might get so pissed off actually wanting onerous on the statements.”

Diana and Bob Skarphol, who’ve advocated for years on behalf of royalty house owners, mentioned complicated and overwhelming royalty statements are a standard concern. The couple acquired one assertion final 12 months that included 39 pages of calculations for a single effectively — together with reductions to previous royalties going again 9 years. The Skarphols acquired $1.15 that month from the manufacturing of the effectively.

Merrill Piepkorn, a Democratic former state senator from Fargo who was the prime sponsor of the transparency laws, mentioned oil firms’ ways are “obfuscation by transparency.”

“You get a lot data, there’s no approach to discover what you’re on the lookout for,” mentioned Piepkorn, who unsuccessfully ran for governor in 2024.

Todd Slawson, chair of the North Dakota Petroleum Council, mentioned royalty statements are advanced partially as a result of state regulators inside the final decade started requiring firms to incorporate extra classes of data. Hess mentioned it maintains a web-based portal the place royalty house owners can entry their royalty data and operates a name heart that mineral house owners can contact with questions.

North Dakota doesn’t regulate the prices that firms can cross on to particular person house owners, although the state and federal governments regulate deductions on government-owned land. The state audits the royalties paid on state-owned minerals to make sure the quantities are right and, since 1979, the state’s leases don’t permit deductions. However non-public mineral house owners don’t have that very same entry and infrequently find out about deductions by evaluating their statements with each other.

“It’s type of all rigged in opposition to the person royalty proprietor,” Leverenz mentioned.

State officers have advised mineral house owners that they will’t become involved in non-public disputes and that litigation is the house owners’ finest recourse. However litigation isn’t financially possible for many households, in keeping with lawyer Josh Swanson, who represents mineral house owners.

“It simply exceeds six figures, and that’s cost-prohibitive for most folk,” Swanson mentioned. “A part of the playbook for lots of operators is making this stuff as cost-prohibitive as they will.”

Swanson was the lawyer Janice Arnson and her household employed to attempt to get solutions from Hess. Hess had been deducting between 15% and 36% of their royalty revenue every month since 2015, in keeping with a spreadsheet maintained by Arnson. That they had no luck getting an evidence from the corporate till they employed Swanson in 2017. When Hess responded, an organization lawyer mentioned in a letter that the deductions have been “correct and permissible” below the phrases of the lease. Whereas Swanson disagreed, the household declined to pursue litigation as a result of “it was going to be an costly go well with.”

“We have been one small, little household,” mentioned Arnson. “We simply didn’t have the sources in opposition to Hess to combat.”

(Hess didn’t contest or touch upon Arnson’s or Christensen’s claims.)

Some royalty house owners have turned to the Northwest Landowners Affiliation, a nonprofit advocacy group, for assist. Troy Coons, the group’s chair, mentioned he has fielded a number of calls every week from royalty house owners who’re offended that state leaders haven’t helped them with the deductions. “It’s an enormous concern for folks,” mentioned Coons, whose group has sued the state on behalf of property house owners on a distinct difficulty. “We’re not purported to be bearing the burden of bills.”

Lawmakers initially had bipartisan help in 2023 for a bill that might have assured mineral house owners entry to digital spreadsheets detailing their funds and would have required firms to supply extra data on how they calculate a royalty proprietor’s share of the revenue from every effectively. It additionally would have directed courts to require firms to reimburse royalty house owners for attorneys’ charges in the event that they efficiently sued for the data.

However that invoice was discarded in favor of legislation creating the royalty oversight program.

The Legislature “took our invoice and so they stripped it of every part, and so they shoved the ombudsman program into it,” Leverenz mentioned. They created this system “with the guarantees that, you recognize, that is going to be the reply to all the problems which were introduced up through the years with the royalty house owners.”

Sen. Brad Bekkedahl, a Republican from Williston, initially backed each payments. The senator mentioned he hoped the invoice creating the ombudsman program could be amended within the legislative course of to present it extra authority to advocate on behalf of mineral house owners. That didn’t occur.

“That may have been, I believe, extra helpful to royalty house owners,” mentioned Bekkedahl, who finally voted in opposition to it.

“Barking Up a Tree”

In pitching this system to lawmakers in 2023, Doug Goehring, the state’s agriculture commissioner, mentioned the purpose was to “attempt to develop some decision” for royalty house owners with questions on their funds, together with considerations over deductions.

The invoice required a report back to legislators. Goehring advised lawmakers he would share with them “full and full data regarding the circumstances” dealt with by this system and the problems confronted by mineral house owners so as to inform future laws. “We’ll actually present you situations, conditions, and among the challenges and difficulties we’ve handled,” Goehring, a Republican, testified in 2023. “And even some recommendations about the way you right a few of this transferring ahead.”

The outcome has fallen in need of what Goehring pledged in testimony, the information organizations discovered. Goehring now says it’s not this system’s job to seek out decision for royalty house owners who query the deductions. “We don’t have a leg to face on to try to advocate or attempt to extort cash out of the corporate,” Goehring mentioned. He mentioned an exception is that if deductions are particularly prohibited in leases, however most agreements, particularly these signed a long time in the past, are silent on the problem of deductions.

As an alternative of an in depth report, Goehring delivered a one-page summary to legislators in September that broadly categorized the problems dealt with by this system. Legislators accepted the report with out dialogue. Goehring mentioned a extra detailed report was not mandatory. “They don’t wish to know that,” he mentioned. “We typically don’t write experiences in that method. We give them the essential data.”

Of the 147 circumstances filed with this system, about half stay unresolved, together with greater than two dozen which were pending since 2023. Goehring mentioned among the circumstances stay open on the request of royalty house owners.

Two of the pending circumstances contain postproduction deductions, together with one which has been open since September 2023, in keeping with Bialke, the Agriculture Division’s authorized counsel.

The circumstances are assigned to 2 vitality firms that function ombudsmen, Diamond Assets and Aurora Vitality Options, which contact the businesses on behalf of the mineral house owners. Neither of the businesses responded to questions from the North Dakota Monitor and ProPublica.

The information organizations paid $425 to acquire data associated to the circumstances that had been resolved as of late June. In these circumstances, the ombudsmen have answered royalty house owners’ questions and obtained solutions for them when firms had not been responsive. In some circumstances, they mediated options that resulted in royalty house owners receiving funds they have been owed, data present.

In a single case, an ombudsman spent practically 10 months going forwards and backwards with an organization till the royalty proprietor acquired paid. In different circumstances, ombudsmen helped royalty house owners perceive technical points associated to taxes and the probate course of after inheriting minerals. The division redacted firm names from the paperwork launched, with Bialke citing state regulation.

“It has been extraordinarily useful for pissed off royalty house owners who can not get their questions answered,” mentioned Slawson of the North Dakota Petroleum Council, who additionally owns an vitality firm. “Having deductions all of the sudden present up on income checks and questions not being answered or not defined effectively can result in suspicions of wrongdoing.”

Kenneth Schmidt, who owns minerals close to Ray in Williams County, contacted this system after struggling to persuade an organization that it owed curiosity on late royalty funds as mandated by state regulation. It took a number of months, he mentioned, however the firm paid him.

“I used to be very happy with this system,” mentioned Schmidt. “As an alternative of going to an lawyer and I’ll pay $400 an hour, they did it at no cost, however by the state.”

Goehring mentioned this system has been profitable, citing suggestions from the trade in addition to the truth that no payments associated to royalty deductions have been launched throughout this 12 months’s legislative session, the primary time in practically a decade.

“If there’s no payments which can be developing, then is not that a sign? It’s type of like in case you don’t have a cough, then perhaps you don’t have a chilly,” he mentioned.

Whereas this system has resolved disputes like Schmidt’s, that are extra cut-and-dried, it isn’t effectively outfitted to deal with extra advanced disagreements, Goehring mentioned. That isn’t a shock to one of many lawmakers who labored on the invoice.

“I don’t doubt that in some circumstances, facilitating that communication most likely helped, however I don’t suppose it offers all of the solutions to the royalty house owners that they’re on the lookout for,” Bekkedahl mentioned.

Numerous royalty house owners advised the information organizations they merely don’t belief this system to assist. “I didn’t really feel the ombudsman program had any tooth in it in any way to do something,” mentioned Brian Anderson, who has not filed a criticism despite the fact that he desires firms to extra absolutely clarify their deductions. “They’ll placate you; they’re not going to do something about it.”

Curtis Trulson, a royalty proprietor in Mountrail County, agreed: Going to this system, he mentioned, is simply “barking up a tree.”