Though North Dakota Petroleum Council President Ron Ness anticipated another “brutal” legislative session to match the one in 2013, the oil price collapse and subsequent rig drop within the state made it a session more dominated by circumstances.
“It was more of a reality check in terms of, well, maybe they (industry) are not here no matter what,” he told Petroleum News Bakken. “Maybe we have to have some checks in our spending. Maybe it was a realization that we still need to maintain that pro-business climate for industry.”
As desks cleared and legislators headed home at the end of April, they left behind “substantial” policy changes and investments, according to Ness. From gathering pipeline regulation to infrastructure spending, he said there was no “feel-good” legislation, but that the session was more about finding solid solutions.
Reasonable rules
A significant piece of legislation that emerged was House Bill 1358 which details new regulatory requirements for gathering pipelines. It requires leak detection systems, submission of construction designs and greater inspections. Ness said the industry typically opposes more rules governing their operations, but in this case, the legislation made sense.
“At the end of the day, it came out with a pretty reasonable, science-based approach to address problems and identify the root cause of why we’re experiencing leaks and putting it into perspective instead of a knee-jerk reactionary approach,” Ness said.
The legislation also invests in pilot projects and studies by the University of North Dakota’s Energy and Environmental Research Center regarding reclamation issues and pipeline standards. Ness said the NDPC developed a saltwater remediation task force in July 2014 and its members are “fired up” about being involved in the pilot programs as there are some new processes they are excited to try. He said a representative of Statoil will present new technology at the upcoming NDPC annual meeting in September that utilizes a flushing agent process on saltwater spills.
“It’s kind of like cleaning up wine on carpet,” Ness explained. “If you allow it to sit there it begins to soak into plant matter, but if you strip the surface vegetation off and flush it with an agent, that breaks it down a little better. It’s in lieu of the old ‘scoop it and fill.’ It’s pretty spectacular, actually.”
He’s also happy with what he calls “proactive legislation” from Senate Bill 2271 that provides an ombudsman through the state’s Department of Agriculture to assist with right-of-way concerns. He said the policy is already taking shape as the first ombudsman was already working with landowners by May 20. The Legislature also made a proactive move with House Bill 1432 which created a federal environmental law impact review committee to examine any new federal laws ― including endangered species lists ― to define impacts on the energy industry and whether to intervene.
Revenue distribution
House bill 1377, referred to as the “bucket bill,” determined how oil and gas production tax revenue would be distributed. A key change was to give political subdivisions additional dollars within the biennium if revenue exceeds $10 million in the strategic investment and infrastructure fund. The bill included a Legislative Management study of truck permitting systems and fees and a moratorium which prevents county commissioners and other local authorities from imposing additional fees for using county roads other than those established by the North Dakota Association of Oil and Gas Producing Counties’ uniform county truck permit program.
“It makes sure fees are reasonable and more uniform in terms of spring road construction,” Ness said. “Particularly with significant road closures ― it looks at those things which were a big heartburn issue for industry.”
The oil extraction tax bill (House Bill 1476) was introduced late in the session, leaving stakeholders scrambling to find common ground. Concerns are still high regarding potential action by the Three Affiliated Tribes which was not in favor of the bill. The tribes could pull out of or revise the agreement it has with the state which provides a percentage of tax revenue. Ness said legislators worked hard to appease the tribes, so he hopes the issue will be put to rest and oil development on the Fort Berthold Indian Reservation will not be at risk. The industry was “not thrilled” with the bill either, Ness said, as it removed the tax incentives and implemented a flat 5 percent extraction tax. If oil prices rise to $90 a barrel, the tax rises to 6 percent. Despite the industry’s failed efforts to raise the trigger price, Ness said the overall tax change helps with long-term planning.
“It is a much better, understandable, predictable tax structure,” he said. “In uncertain times it may not be as advantageous to us, but the predictability factor of it has a tremendous value.”
No infrastructure strategist
Ness was disappointed when a bill that would have provided an Infrastructure Authority Director for the state failed. The Infrastructure Authority would have coordinated various infrastructure projects such as road, hospital and airport construction to ensure similar standards are in place statewide so that, for instance, when a Dunn County road is built to a specific weight standard that a connecting Stark County road is equivalent.
“It’s always been an industry position that we need to think big and think of handling this traffic long-term instead of just fixing potholes,” Ness said.
Legislators voiced their concerns that the position was redundant with entities like the state’s Department of Transportation, but Ness disagrees. He would like to see someone who has an overarching view of all infrastructure not just roads or water.
“There is no one daily looking at it all,” Ness said. “Take it back to what the Pipeline Authority’s done by having a focal point for everything related to that. We’ve always had the best information on that, and it’s continual,” he added. “Now, we fund these (infrastructure) studies, they get presented to an interim committee, and if there’s not somebody that’s following through, what good have they done us?”
Tax exemptions
The Legislature didn’t pass many sales tax exemption bills but it did give a nod to Senate Bill 2035 which provides the tax break for developers of chemical or fertilizer plants derived from natural gas, natural gas liquids, or crude oil components as part of a value-added energy incentive. The bill also gives the North Dakota Industrial Commission up to $100,000 for a natural gas production study.
Though a sales tax exemption on materials used for collecting, storing and injecting carbon dioxide for use in enhanced oil recovery (Senate Bill 2318) passed, the concept was revisited in House Bill 1476 and now limits the tax exemption to wells drilled and completed outside the Bakken/Three Forks formation. The House failed to pass Senate Bill 2034 which would have given sales tax exemptions for gathering pipeline construction materials. And House Bill 1390, which allows pilot projects for recycling waste, particularly drill cuttings, passed but the final version did not include an extraction tax reduction for operators who recycle. Ness said he likes the drill cuttings bill because it allows pilot recycling projects to operate and new state regulatory rules will be based on those pilots.
Additional funding
Legislation to increase funding to the abandoned oil and gas well plugging and site reclamation fund from $5 million to $10 million per year and move the cap from $75 million to $100 million made its way through both chambers. House Bill 1032 was signed into law to include a bump in funding, but only to $7.5 million, although it did allow the cap at $100 million. Senate Bill 2033, a bill to provide supplemental funding to oil and gas counties if oil tax revenues exceeded the legislative forecast by 20 percent in the first six months, didn’t even make it out of the Senate after a 10-3 do-not-pass committee vote.
