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North Dakota, tribe reach accord on reservation oil taxes

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By Dale Wetzel -- Associated Press

BISMARCK, N.D. (AP) - Oil industry officials predict a new tax and regulatory accord between North Dakota and the Three Affiliated Tribes will spur exploration of oil-producing rock beneath the tribe's reservation.

The agreement limits oil tax rates on reservation land, and spells out how the state and tribal governments will share oil revenues. It specifies that North Dakota's Department of Mineral Resources will regulate reservation production.

Besides its share of oil taxes, the Three Affiliated Tribes will receive $100,000 in fees for every new oil well drilled on reservation trust land.

The agreement, which was authorized by the North Dakota Legislature last year, takes effect July 1 and may last up to two years. It may be extended for any period by agreement of the governor and the tribe's business council.

''I think this will help stimulate more oil production on the reservation,'' Gov. John Hoeven said. ''These are major investments they're making, and this will help [oil companies] go on the reservation and make those investments.''

Oil industry spokesmen said the agreement gives companies a set of tax rates and regulatory assumptions they may rely on in deciding whether to drill.

Ron Ness, president of the North Dakota Petroleum Council, said uncertainty about taxes and complex tribal rules have discouraged new drilling on the Fort Berthold Indian Reservation for more than 20 years.

''Oil companies want regulatory certainty, and they're very sensitive to taxation,'' Ness said. ''At least under this situation, they know what the ground rules are. Previously, there was little or no activity there because of the uncertainty.''

The Three Affiliated Tribes' business council endorsed the agreement May 29. Hoeven said a signing ceremony was held at the tribe's headquarters in New Town June 10.

The tribe's chairman, Marcus Wells Jr., said the tribe plans to use its oil revenues to finance improvements to its health care system, law enforcement and road network.

''Through this present agreement, both the tribe and state are able to work together to provide more stability in the taxation of oil and gas in western North Dakota,'' Wells said in a statement. He could not be reached immediately for comment.

The Fort Berthold reservation in western North Dakota lies atop part of the Bakken shale rock formation, parts of which have demonstrated great promise recently for oil production.

The U.S. Geological Survey recently estimated that up to 4.3 billion barrels of oil are recoverable from the Bakken shale beneath North Dakota and eastern Montana, using current drilling technology.

North Dakota has a top state tax rate of 11.5 percent on oil production, although newly drilled and low-producing wells often pay less. The agreement sets an 11.5 percent tax on oil pumped from tribal trust land, which is held in trust by the federal government to benefit the Three Affiliated Tribes and its members.

The tribe and North Dakota state government will split oil revenues from trust lands evenly, the agreement says. At present, both the state and tribe tax production from trust lands have a combined rate of 17 percent.

Under the agreement, oil production from privately owned ''fee lands'' on the reservation will be taxed at 5 percent for a minimum of five years, after which the rate could rise to 11.5 percent.

The state will take an 80 percent share of fee land revenues, with the tribe getting 20 percent. Currently, the tribe is barred from taxing oil production on fee land.

Most of North Dakota's oil tax collections go into the state's general fund or a separate fund for surplus revenues. Oil-producing counties, along with state trust funds that benefit schools and water projects, also receive a slice.

Tax Commissioner Cory Fong said the agreement does not change oil tax allocations to local governments or the state trust funds.

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