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North Dakota state capitol building in Bismarck. (Image via Wikimedia Commons)

North Dakota legislative update

The North Dakota Legislature finished up its 64th assembly Wednesday afternoon with notable items accomplished on a long list of bills. While not all the items on the table were resolved, such as funding for the Public Employees Retirement System (PERS), several bills were passed and signed into law. Specific information about each bill in this was obtained from the North Dakota Petroleum Council.

At the top of North Dakota’s list of changes for this legislative session was the oil tax structure. House Bill 1476 was signed on Wednesday by Governor Jack Dalrymple. Before the new changes, North Dakota’s law would have implemented a tax break of more than $5 billion in June. The law changes North Dakota’s oil tax structure so that it lowers the combined rate that crude producers will pay by 1.5 percentage points.

The major change the bill makes to the current system is the elimination of the “large trigger” tax break, which is supposed to encourage production when oil prices remain low. Dalrymple told Reuters, “This will provide a more steady, predictable tax system over time. It’s a trade-off between an unpredictable oil tax regime and one that’s more consistent.”

Here are the key points about HB 1476, the Oil Tax Restructure Bill:

  • HB 1476 was signed Wednesday by Governor Dalrymple.
  • On January 1, 2016, the extraction tax will go to 5 percent.
  • If the average price of a barrel of oil is above $90 for 3 consecutive months, the extraction tax will increase to 6 percent, for a total effective tax rate of 11 percent.
  • HB 1476’s language removes exemption of wells in the Bakken pool from the current law that exempts incremental production from secondary and tertiary wells using CO2 for enhanced recovery.
  • Section 7 calls for a study, due back before the next legislative session, of the state-tribal tax agreement and allocation of revenues. This is due to a request by the Three Affiliated Tribes; the Tribe may implement a pipeline pass-through tax if redistribution of current tax does not occur.

The Legislature passed nine laws, three house bills and five senate bills, dealing with pipelines, easements and reclamation. High points of the new laws include changes in application requirements for new pipelines, an increase in the abandoned oil and gas well plugging and site reclamation fund, funding for cleanup of legacy oil and gas issues and regulation of facilitation between utilities and landowners for pipeline easements and reclamation.

Six bills passed that originated in the House dealing with labor and employment issues, while the Senate had one bill made into law dealing with the same issues. These bills addressed disability benefits, workers’ compensation regulations including penalties for employers who have not secured coverage, workforce shortage grants and paid time off withholding.

Six bills about regulatory and environment issues were signed into law. In response to several incidents involving illegal dumping of radioactive waste disposal from oil and gas operations, HB 1113 was proposed at the request of the Department of Health to coordinate the current rulemaking language on in-state disposal of TENORM. On a similar note, HB 1114 created civil and criminal penalties for improper disposal of waste. One other regulatory bill of note, SB 2343, requires that any order made by the North Dakota Industrial Commission that has a fiscal effect on the state of $20 million or more in a biennium must be approved by the legislative assembly (when in session) or the budget section.

Infrastructure, a hot button issue in 2014 for western North Dakota, was addressed in SB 2103, SB 2167 and SB 2195, all passing earlier in the session. As cities in the western half of the state saw traffic increase exponentially due to oil and gas development, infrastructure issues began to crop up. Roads weren’t wide enough to accommodate large machinery in addition to the inadequacy of old highways and county roads to handle the heavy equipment and loads. The three new bills deal both with areas that produce oil and gas and non-impacted areas. SB 2376 also addresses public infrastructure.

General laws accounted for sixteen bills passed into law. Worth noting are SB 2036 and SB 2037, bills that provide for various sales and use tax exemptions for coal and exemptions for renewable energy sources.  HB 1180 exempts mediation from open records and open meeting requirements, the only issue that faced surface owners. Six bills dealing with taxes and royalties were passed into law. Of these six bills, the Enhanced Recovery Tax Exemption has probably gotten the most interest. This new law creates a tax exemption for materials used in compressing, gathering, collecting, storing, transporting or injecting carbon dioxide for use in enhanced recovery of oil or natural gas and includes a study on the oil extraction tax exemption available for incremental production from a tertiary recovery project that uses carbon dioxide.

HB 1133 also passed, creating an excise tax of $.23/gallon on liquefied natural gas. LNG processing facilities have been cropping up across the country, with Tioga’s plant recently expanding. With natural gas capture a top priority for the state, LNG is likely to become a focus in the state’s energy sector in upcoming years.

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