Looking ahead into the 63rd legislative session, in January Petroleum News Bakken sat down with North Dakota state Representative David Drovdal and talked about oil and gas-related legislative issues. The session ended in the early morning hours of May 3, just hours before the mandated adjournment. Drovdal, who lives between Arnegard and Watford City and represents a district heavily impacted by oil and gas development, spoke with Petroleum News Bakken again on May 7 and shared his views on the key oil and gas-related issues the legislature faced and gave his assessment of how the session addressed those issues.
A complicated package
Petroleum News Bakken: House Bill 1358, the bill to provide funding to oil-impacted counties, was passed by the legislature and will provide over $1 billion in funding to those counties. The total amount of funding in the final bill is less than what Representative Skarphol, one of the bill’s sponsors, had in the original bill. What are your thoughts on the final bill, and do you think it’s sufficient to address the needs of the impacted counties over the next biennium?
Drovdal: That of course was a bill that Bob Skarphol put in that all of us western legislators from the oil counties worked on all through last summer and fall. It asked for $1.2 billion, and we ended up getting $1.14 billion, which was just a little under what we asked for. They didn’t break it down like we had originally requested, which isn’t a big problem because our county commissioners certainly know their needs in their local counties better than we do.
It’s the biggest money we’ve ever sent back. But on top of that we sent back a bunch of money to four-lane the highway between Watford City and Williston, which is currently one of the most dangerous in the state. And we also put money in for a bypass around Watford City for Highway 85, and also around Alexander on Highway 85. And then next year there’s money to put a bypass around Watford on Highway 23 to Highway 85 and that’s going to really help Watford City considerably reduce that 10,000 to 12,000 number of vehicles going through town down to a manageable number.
So overall it was about triple what we asked for in the last session. And is it enough? I always get asked that question. The answer is no. It’s not enough because the problems continue to grow and expand, but it’s enough to get us started and try to continue to address those problems that we’re having out there.
First it was roads and now it’s law enforcement and emergency services and schools. Our infrastructure is being stressed to the limit and just about everything’s a problem right now. But I think our local elected officials are doing a great job in trying to catch up on the problem and get a step ahead of it.
The housing situation — it’s slowly coming around. I think hotels are pretty well built up once we get them all open, and that’s going to relieve a lot of the problem. Overall HB 1358 I think was a pretty good bill for western North Dakota.
The complex and controversial package
Petroleum News Bakken: HB 1234 ended up being not only a very complicated bill, but a controversial bill as well. In the end it contained such provisions as changing stripper well status qualifications and requiring stripper well recertification, royalty income tax withholding, incentives for non-Bakken petroleum system development, extending for two years the horizontal well trigger of $55 per barrel to lower the extraction tax by 2 percent, and the 50-50 revenue split with Three Affiliated Tribes. There was an attempt to add an amendment to the bill calling for a 0.5 percent reduction in the production/extraction tax. What did the final bill look like, and what are your thoughts on it as a whole as well as some of the individual components?
Drovdal: Here’s the story on 1234. We did negotiate a tax reduction. You had 17 conference committee meetings on the bill. We did get the half-percent reduction and the reason was that a half-percent reduction was still a $55 million tax increase for the oil industry. Without the half-percent reduction, it was a $170 million tax increase on the oil industry and royalty owners. I didn’t think going into the session with $1.6 billion in additional reserves that we needed to raise taxes on anybody — in fact we lowered it on everybody else.
That bill went to the floor of the house and it got soundly defeated. The Democrats voted against it because it had the half-percent tax reduction in it. The Republicans votes against it because they didn’t like the split with the Native Americans.
They then took most of that bill and put it into HB 1198, which they did pass, but it did not include the trigger freeze on the price of oil, and it also didn’t include the half-percent reduction in the reduction tax.
I did get a lot of emails saying don’t go for the half-percent tax reduction because we need the money in the west for infrastructure needs. When they passed that bill without the half-percent extraction tax reduction, there was not one dime of that $170 million that went to any county or city in western North Dakota.
Petroleum News Bakken: Wasn’t HB 1198 originally related to income tax withholding for oil and gas royalties?
Drovdal: Right, it was one of those, and it just got to be a “hog house” because of everything that was put in it.
Petroleum News Bakken: In general, how do you feel about 1198 given that it didn’t change the $55 per barrel trigger and didn’t include an extraction tax reduction in it?
Drovdal: Well I think that 1234 was a better bill, but 1198 took care of a number of things we were concerned about, and so it was a step in the right direction. It would have been better if it was 1234, but it’s better than nothing.
We eliminated some incentives that were no longer needed. Everybody’s paying the same tax on oil, so we have a fairness issue in there. It did raise a lot more money which I personally don’t think the state needed. It had the 50-50 split on the Reservation, which we had on trust land before and now it moves it over to fee land where it was 80/20 before. And Native Americans and Three Affiliated Tribes certainly have infrastructure needs.
But the question is that if they (the legislature) were willing to give a 50-50 split on that tax to the Three Affiliated Tribes for their infrastructure needs, then why aren’t they giving a 50-50 split to the oil counties for the same infrastructure needs.
Petroleum News Bakken: The counties don’t get a 50-50 split?
Drovdal: Overall the counties get about 14 percent of the total extraction and production tax, while the Native Americans get a 50-50 split. So there is a giant discrepancy there, and I think next session there’s going to be some questions as to why.
Landowner issues
Petroleum News Bakken: A number of bills were introduced in the session that addressed landowner issues and rights regarding oil and gas development such as increased setback distances and dispute mediation. How do you think landowners fared?
Drovdal: I don’t think they fared very well at all. The setback bill we passed really didn’t do much at all. We had 500 feet from any occupied building, and all this says is it has to be 500 feet from the wellhead and all the equipment has to be on the other side of the wellhead — really not much of a change. Most of the other bills got killed. It’s very difficult to get a landowner’s bill through the session. I’ve tried for 12 years.
Petroleum News Bakken: Why is it so difficult?
Drovdal: One thing is the lobbyists are there and the landowners are not. That’s probably the biggest issue. The landowners, of course, are working, and they don’t know when the hearings are, so we don’t hear from them like we should or like we would like to.
The session overall
Petroleum News Bakken: What is your assessment of the session overall as it dealt with oil and gas-related issues?
Drovdal: I think overall, considering the pressure everybody was under, I think we had a good session. We took care of a lot of needs with the money we had from the oil industry. And we put a lot of money into infrastructure, not only in the oil and gas counties; we put a lot of money into infrastructure throughout the state. We helped every township in the state with some money.
Agriculture is our number one industry but oil is certainly the one that is driving the economy right now, and I think we addressed a lot of issues that we needed to. We put a lot of money into roads — state highways — which we haven’t been able to do in the past. We always had to rely on the federal government.
I think we did a lot of positive things. You can always find things you can nitpick about, but I’m very happy where we ended up. I think we helped education, both higher ed and K through 12, and hopefully we helped the taxpayers.
We sent a gigantic income tax relief to individuals, corporations and financial institutions. And we did give a lot of money to hopefully reduce property taxes. The income tax reduction was $250 million and the property tax was up to $750 million. So that’s $1 billion we sent back to the taxpayers. Those are pretty good numbers for a small state like North Dakota.
