\n<\/p>\n
This article was produced for ProPublica\u2019s Local Reporting Network in partnership with the North Dakota Monitor. Sign up for Dispatches to get our stories in your inbox every week.<\/p>\n
\n These highlights were written by the reporters and editors who worked on this story. \n <\/p>\n For more than half a century, Diana Skarphol\u2019s family received a check every month from the company that drilled the first successful oil well in North Dakota on their land in 1951.<\/p>\n The checks, from the company that became Hess Corp., were straightforward. Her family, which owns the oil and gas underground, received a percentage of the revenue generated from the company\u2019s sale of the minerals, called a royalty.<\/p>\n But in April 2015, when she opened that month\u2019s check and looked at the accompanying statement detailing her share, she noticed for the first time that a significant portion of the payment had been deducted. About 35% of what she thought she was owed was gone, and she didn\u2019t know why.<\/p>\n She was so taken aback that she called her husband, Bob Skarphol, a state lawmaker on the verge of retirement, as he drove from the capitol in Bismarck to their home in Tioga, a small community in the oil-rich Bakken in the western part of the state.<\/p>\n \u201cWhy are there minuses?\u201d Diana Skarphol recalls asking. \u201cRather than being added in, things were being subtracted. I was puzzled and confused.\u201d<\/p>\n The couple remembers that call because it was the start of a frustrating, decade-long search for answers from the company and of a string of unanswered pleas for help from the state, which has not taken action to help royalty recipients even as other states have. Over the past decade, Hess has withheld about 31%, or $137,635, of the Skarphols\u2019 royalty income to cover the company\u2019s costs to move oil and gas from the well site to market, records show.<\/p>\n Oil and gas companies owed the state\u2019s private mineral owners, like the Skarphols, an estimated $4.6 billion in 2023 before deductions, according to North Dakota State University research. But those deductions \u2014 which can vary greatly \u2014 are deeply contentious in the state: The companies claim certain costs should be shared with royalty owners, while owners say that in most circumstances, the deductions shouldn\u2019t be permitted at all. The state itself doesn\u2019t regulate what can be deducted and there is no official accounting of how much of that money is withheld.<\/p>\n The North Dakota Monitor and ProPublica spoke with 18 mineral owners, interviewed experts and lawmakers, and reviewed court records and royalty statements to understand the extent of deductions. A dozen owners provided records of companies withholding 20% or more of their oil and gas royalties. Some monthly statements showed deductions as high as 50%. Similarly, at least one energy company and one independent researcher have found the deductions to be around 20% in recent years.<\/p>\n The industry\u2019s chief lobbyist said percentages that high are atypical. Ron Ness, president of the North Dakota Petroleum Council, said it would be \u201cimpossible\u201d to calculate an average deduction but suggested it couldn\u2019t be more than 7% to 10% based on the cost of transporting oil out of state. If deductions were in that range, North Dakota royalty owners collectively would have lost between $322 million and $460 million in 2023.<\/p>\n The Skarphols\u2019 leases with Hess were signed during a time when oil and gas was often sold at or near well sites. The leases didn\u2019t say anything about deductions. <\/p>\n \u201cIt\u2019s a matter of fairness,\u201d Diana Skarphol said. \u201cWe didn\u2019t get any say in it. They just up and changed it. You feel like you\u2019re being cheated. It\u2019s not right.\u201d<\/p>\n Bob and Diana Skarphol have kept records of payments for their mineral rights going back decades.<\/span><\/p>\n While the language in the leases has not changed, the industry has. Most companies now choose to move the commodities away from the well site before selling them, incurring additional transportation and processing costs. They pass on a share of those costs to the royalty owners, which the North Dakota Supreme Court has ruled is legal.<\/p>\n By contrast, North Dakota officials have taken steps to safeguard state-owned royalties. Since 1979, all state leases with oil and gas companies prohibit deductions. When state trustees noticed deductions were being taken anyway, they fought back and have spent years negotiating settlements to recoup those missing royalties.<\/p>\n But the majority of the oil and gas in North Dakota is privately owned by about 300,000 individuals, according to the industry. And North Dakota policymakers have not taken action that would protect private minerals, an investigation by the North Dakota Monitor and ProPublica has found.<\/p>\n \u201cThere\u2019s a double standard,\u201d said Rep. Keith Kempenich, a Republican from Bowman, a community in the oil field. He has co-sponsored several pieces of unsuccessful legislation aimed at helping private owners.<\/p>\n Lawmakers have rejected efforts to rein in deductions and to make it easier for royalty owners to understand what costs are being deducted and why. And oil and gas regulators have claimed they have no jurisdiction to help.<\/p>\n \u201cIt\u2019s ridiculous,\u201d said Bob Skarphol, who has led the advocacy efforts by private mineral owners. \u201cThe industry has an incredible amount of influence in North Dakota.\u201d<\/p>\n The state, which owns about 6% of the minerals in North Dakota, has advantages that private mineral owners don\u2019t have. It has the resources to audit companies that pay royalties and to litigate disputes. State law also requires that companies provide electronic copies of royalty and production data to regulators, but private royalty owners are guaranteed access only if they travel to the company\u2019s office, which could be out of state.<\/p>\n And unlike the state, private mineral owners rarely have the leverage to negotiate a lease that prohibits deductions, and leases don\u2019t expire unless oil production lapses.<\/p>\n In responses to questions from the North Dakota Monitor and ProPublica, officials from three companies that operate in North Dakota \u2014 Hess Corp., Slawson Exploration Co. and Zavanna Energy \u2014 said they follow the language in the leases. In fact, most leases, like the Skarphols\u2019, don\u2019t explicitly mention deductions. The companies also said that while there are additional expenses to selling the oil and gas farther away from the well site, doing so also leads to a better price for both the companies and the owners.<\/p>\n The companies, as well as the organization that advocates for the industry, blamed some of the fees charged to private owners on costly state regulations enacted a decade ago.<\/p>\n \u201cBasically it got really, really expensive and really, really challenging. And I think it put the economics of gas in a whole different position,\u201d said Ness of the North Dakota Petroleum Council, which represents more than 550 oil and gas companies in the state. \u201cPure and simple, the world changed.\u201d<\/p>\n Diana Skarphol was less than a year old when her mother\u2019s family, the Iversons, first leased the rights to any oil found under their land to Amerada Petroleum, which later merged with Hess, in 1949. The Iverson family had immigrated from Norway at the turn of the century. They\u2019d farmed the land for decades, survived the dust bowl of the hard \u201930s and were still feeling the effects of the Great Depression.<\/p>\n The discovery of oil in 1951, setting off the state\u2019s first oil boom, changed everything. Oil executives and workers flooded the small community. Diana Skarphol said her relatives welcomed them and invited them over for coffee.<\/p>\n The Clarence Iverson Well #1 on April 4, 1951, its first night of operation. The well was the first in North Dakota to produce oil. Clarence Iverson was a relative of Diana Skarphol.<\/span><\/p>\n It was a change in fortune for the Iversons and many other families. \u201cThey weren\u2019t very rich farmers. They were just getting by. And this supplemented their income,\u201d she said. The leases promised a 12.5% royalty on the oil\u2019s market value the day it left the well site, \u201cfree of cost.\u201d That means that the mineral owner is not responsible for costs to drill or operate a well or other production expenses.<\/p>\n That\u2019s why families like the Skarphols say they were perplexed when the deductions began.<\/p>\n The Skarphols keep decades of monthly royalty checks, so they can track when Hess began deducting money. A column titled \u201cother deductions\u201d first appeared in 1998 but remained blank until April 2007, when the company began to deduct less than 2% of their royalty, an amount they said was too small to notice at the time.<\/p>\n North Dakota\u2019s oil and gas industry was on the verge of momentous change. The shale oil boom, triggered by new technologies, had arrived. Crude oil was fetching $100 a barrel by 2008, and the \u201cdrill, baby, drill\u201d spirit took hold before the phrase was ever uttered in the White House.<\/p>\n But the oil was leaving the surface intermingled with vast quantities of wet natural gas, which the companies often disposed of by burning it. The sight of small flames, called flares, became ubiquitous in the Bakken.<\/p>\n Flaring looked unsightly, polluted the air and wasted a natural resource that could be sold. State officials enacted regulations in 2014 that required companies to curtail the flaring. The industry, in turn, said it has spent an estimated $25 billion so far to build the necessary infrastructure to collect the gas, process it and export it through pipelines.<\/p>\n Flares burn off natural gas at a production site in Williams County, North Dakota, in June 2025.<\/span><\/p>\n Companies pass on to owners a share of those infrastructure costs, as well as the expenses associated with processing and transporting oil and gas, sometimes to far-flung markets. Whether owners ought to share in these costs is the heart of the debate.<\/p>\n The industry justifies the shared costs by citing a North Dakota Supreme Court ruling that empowered companies to deduct expenses. That 2009 ruling, which addressed a narrow issue related to natural gas, concluded that the value of the gas for royalty purposes should be calculated \u201cat the well,\u201d where it leaves the ground.<\/p>\n That laid the groundwork for postproduction deductions. The ruling meant that when calculating royalties, companies could start with the sale price and then deduct the costs incurred after the minerals were extracted \u2014 what has been called the postproduction phase \u2014 to determine how the resources would have been valued at the well. But to royalty owners whose leases promise a royalty \u201cfree of cost,\u201d the fact that companies incur expenses before selling the oil and gas is not their problem.<\/p>\n \u201cMineral owners are being saddled with expenses,\u201d said Neil Christensen, the agent for his three sisters who inherited mineral rights in McKenzie County that they lease to Hess. Those expenses, he suggested, should \u201creduce stockholder dividends, not reduce mineral owner income.\u201d<\/p>\n Private Royalties in North Dakota, Estimated in the Billions<\/p>\n Royalties fluctuate based on the price of oil and the amount produced. The figures are prior to deductions.<\/span><\/p>\n There\u2019s a lot of money at stake. North Dakota Sen. Brad Bekkedahl, a Republican who routinely sponsors bills advocating for the interests of both the industry and royalty owners, estimates that companies deduct \u201cat least hundreds of millions of dollars\u201d every year. He says companies should use their revenues to cover the postproduction costs \u2014 as they did before the most recent oil boom.<\/p>\n An executive with XTO Energy told lawmakers in 2021 that the oil and gas company deducts on average $30 million annually, or about 21% of the royalties owed to private leaseholders in North Dakota. Mary Ellen Denomy, a forensic accountant who has audited royalty statements across the country and for at least 30 North Dakotans in the last decade, said that about 22% of royalties are deducted on average \u2014 which would have amounted to $1 billion in 2023. These figures are in line with royalty statements that mineral owners shared with the North Dakota Monitor and ProPublica.<\/p>\n It\u2019s difficult to verify what specific costs each company deducts because companies don\u2019t detail those, either for royalty owners or for the state, instead providing only broad categories on the statements that accompany their checks.<\/p>\n Hess said it is a \u201ccommon industry practice\u201d to pass on some infrastructure costs, such as the $1.5 billion the company spent on pipelines, the expansion of a gas processing plant and construction of other facilities in the early 2010s. Hillary Durgin Harmon, a Hess spokesperson, said those investments support economic growth by increasing oil and gas production and transporting it to more markets, benefiting royalty owners and the state overall.<\/p>\n Zavanna Energy also attributed the increased deductions to infrastructure expenses, including the cost of getting landowners\u2019 permission to install pipelines in the state, according to the company\u2019s general counsel.<\/p>\n \u201cI\u2019ve seen the costs associated with obtaining pipeline easements in some parts of North Dakota increase as much as 3000% over the last 10 years,\u201d Zavanna\u2019s Gillian Wilkin said. \u201cThose increased costs can substantially influence the price that must be paid to get oil and gas to downstream markets.\u201d<\/p>\n Todd Slawson, chairman of the North Dakota Petroleum Council, defended owners sharing the costs to move and enhance oil and gas after leaving the well site. Such \u201cpost-marketability\u201d costs, he said, benefit the owners, too.<\/p>\n \u201cThe objective of the operator is also to obtain the best prices for all parties,\u201d said Slawson, who owns Slawson Exploration Co., another energy company. \u201cWe are all in this together, so everyone wants the best price.\u201d<\/p>\n He called royalty owners like the Skarphols, who inherited leases, \u201cvery lucky and fortunate.\u201d \u201cWhat a great country we live in where minerals can be privately owned \u2014 I do not know of another country where that occurs, but there probably are some,\u201d he said. In most countries, oil and gas are largely owned by the government.<\/p>\n Bob and Diana Skarphol didn\u2019t feel fortunate when Hess began taking unexpected deductions in 2015. Nor did Brian Anderson, who also inherited a lease with Hess that his father signed in 1949. Donald Anderson was then a 21-year-old farmer who worked in a coal mine on his property to support his younger siblings.<\/p>\n The family started getting royalties soon after. But since the company began taking deductions a decade ago, Brian Anderson said his family has lost more than $600,000.<\/p>\n \u201cThe fact that they just arbitrarily started taking it just sticks in my craw so bad,\u201d said Anderson, who at one time worked for Hess. \u201cYou don\u2019t take anything for 60 years, and then all of a sudden you, abracadabra, can do it?\u201d<\/p>\n Brian Anderson inherited an oil and gas lease from his father. He began noticing deductions on his royalty statements a decade ago.<\/span><\/p>\n Anderson\u2019s property in Tioga in the 1950s in an old photograph hanging in his dining room, first image; his family home still stands on that land. Second image: An oil well on his property in June.<\/span><\/p>\n By the fall of 2018, Skarphol had talked to enough other mineral owners to realize that deductions had begun appearing on many of their royalty statements \u2014 and they weren\u2019t stopping.<\/p>\n Skarphol called a meeting at City Hall in Williston on a brisk October evening to discuss what they could do about it. Dozens of mineral owners filled every seat and stood shoulder to shoulder in the back of the room.<\/p>\n Janice Arnson, who along with her seven siblings inherited mineral rights from their mother, stood up and declared that deductions were \u201cout of control.\u201d One particular lease, signed by her mother in 2009, began paying royalties a few years later when Hess drilled a well. The deductions were minuscule at first and then skyrocketed to 23% of Arnson\u2019s royalty check in February 2015. \u201cWe just want to be paid our fair share,\u201d she said at the meeting.<\/p>\n \u201cI want the Legislature to take this seriously,\u201d said Linda Meyer, a mineral owner in Williams County.<\/p>\n Skarphol, who called the meeting, responded. \u201cDo we want to get angry enough to do something about it?\u201d Skarphol asked the crowd. \u201cI do.\u201d<\/p>\n That night, the mineral owners formed the Williston Basin Royalty Owners Association.<\/p>\n Bob Skarphol shows a group of mineral royalty owners the breakdown of a royalty statement. At that October 2018 meeting, Skarphol and other mineral owners founded the Williston Basin Royalty Owners Association.<\/span><\/p>\n The group started with a request at the beginning of the 2019 legislative session for the state to study the issue and consider potential solutions. Lawmakers approved the request, but the committee that selects which studies should be completed discarded the proposal.<\/p>\n In 2021, royalty owners worked with legislators to draft a bill to directly address their concerns. Among other changes, the legislation would have prohibited deductions unless they were explicitly allowed for in a lease and would have permitted royalty owners to audit a company\u2019s records, at the royalty owners\u2019 expense, to ensure they are being paid correctly.<\/p>\n Curtis Trulson, a retired farmer, shared concerns about the deductions with lawmakers during that session. He receives royalty payments through leases with multiple companies, and he first started noticing his royalty payments were diminishing during the start of the COVID-19 pandemic.<\/p>\n \u201cNobody ever called and said, \u2018Well, we\u2019re going to start taking these costs and here\u2019s why.\u2019 It just started disappearing,\u201d Trulson said. \u201cAlmost every operator is doing the same thing now. They didn\u2019t all do it to start with.\u201d<\/p>\n Curtis Trulson on his farmland near Stanley, North Dakota. He has asked lawmakers to help mineral owners.<\/span><\/p>\n Trulson emailed details of his situation, and a royalty statement, to seven senators on the committee considering the bill drafted by the royalty owners. Some deductions \u201cgo totally unexplained!\u201d he told them. The only legislator who responded was the one Democrat, Merrill Piepkorn.<\/p>\n \u201cI hate to say this because I lean a little more on the Republican side and I\u2019m more conservative,\u201d Trulson said. \u201cOther ones didn\u2019t even bother to respond or say thanks for the information or anything.\u201d He added: \u201cThe state of North Dakota doesn\u2019t want to help us out.\u201d<\/p>\n The legislation was turned into a study, which ultimately recommended no changes to state law.<\/p>\n \u201cI had a hard time keeping from screaming,\u201d Anderson said of his frustration during the hearings, which he attended in person.<\/p>\n The mineral owners tried for more modest changes in 2023. That year, they pushed for a bill that would have required companies to provide royalty statements in spreadsheets. While state law requires that companies provide them that way for publicly owned minerals, there is no such requirement for private owners.<\/p>\n That legislation failed, too.<\/p>\n \u201cEvery time we make any kind of an attempt it seems like the industry has a whole lot more influence over the Legislature in North Dakota than the people do,\u201d Christensen said.<\/p>\n Arnson, who worked with Skarphol to bring concerns about this issue to legislators\u2019 attention, said she feels betrayed by her representatives. <\/p>\n \u201cIt was such a hopeless feeling,\u201d Arnson said. \u201cHave I lost a lot of faith? Yes I have.\u201d<\/p>\n Janice Arnson on land once owned by her family. Arnson and her siblings inherited mineral rights from their mother in Williams County, North Dakota.<\/span><\/p>\n Legislators from both parties who were involved in the efforts to amend state law told the North Dakota Monitor and ProPublica that repeated legislative measures have failed because of the industry\u2019s impact on the state economy and subsequent influence in state politics. State and local governments took in about $32 billion in oil and gas taxes between 2008 and 2024, according to a study by the Western Dakota Energy Association. That same study found that more than 50% of all local tax collections are tied to oil and gas.<\/p>\n The industry\u2019s influence \u201chas curtailed any investigation or legislation regarding looking into the validity of the deductions,\u201d Piepkorn said. \u201cRon Ness is a pretty smooth talker,\u201d he said of the industry\u2019s chief lobbyist. \u201cWe just take what he says for gospel.\u201d Ness said his reputation with policymakers as \u201ca trusted and respected voice for the industry\u201d has been \u201chard earned\u201d over 27 years.<\/p>\n Bekkedahl, chair of the Senate Appropriations Committee that crafts the state budget, said more than half the state\u2019s revenues are tied to oil and gas activity. He called the energy industry\u2019s lobbying efforts on this issue \u201cvery aggressive\u201d but said lawmakers need to address concerns about royalty deductions.<\/p>\n \u201cI\u2019ve always maintained that we should, as the Legislature, provide some clarity to this issue so that the courts can make the interpretations with clear statutes in place, which they don\u2019t have now,\u201d Bekkedahl said.<\/p>\n North Dakota Petroleum Council staff have testified to lawmakers that the state should not get involved in what it describes as private contract disputes.<\/p>\n But the Legislature has gotten involved in other contract issues championed by the energy industry, including this year when it approved legislation related to coal leases. The new state law allows the companies to extract critical minerals from coal without having to negotiate amendments to existing leases.<\/p>\n Joseph Schremmer, a University of Oklahoma law professor who specializes in the energy industry, said the Legislature can take action on other issues affecting private contracts as long as there is a \u201clegitimate state interest.\u201d<\/p>\n \u201cThe Legislature has the power to do many things that would potentially modify the operation of existing contracts,\u201d he said.<\/p>\n Gov. Kelly Armstrong, a Republican who is both a royalty owner and a former executive in his family\u2019s oil company, declined to comment for this story. He said in an interview last year that royalty owners should rely on the courts, though litigation is expensive and not feasible for most.<\/p>\n \u201cIf you think you have a litigation issue, litigate it,\u201d Armstrong said. \u201cYou\u2019re trying to use the state of North Dakota as your private lawyer. If you are in a contract dispute, there is a better place to settle that.\u201d<\/p>\n North Dakota Petroleum Council President Ron Ness, left, talks to North Dakota Gov. Kelly Armstrong, center, and North Dakota State University researcher Dean Bangsund during an event to highlight the economic impact of the oil and gas industry.<\/span><\/p>\n Diana Skarphol is doing just that. She is one of 34 plaintiffs from the extended Iverson family who sued Hess in 2021 for $10 billion in damages, arguing that the company breached their contracts by taking deductions.<\/p>\n \n Alaska Ignored Warning Signs of a Budget Crisis. Now It Doesn\u2019t Have Funding to Fix Crumbling Schools.<\/strong>\n <\/p>\n Northwest Judicial District Judge Robin Schmidt ruled in favor of Hess and dismissed the case last week. North Dakota law, which the Skarphols and other families have been asking the Legislature to change for years, \u201cis not on your side,\u201d she told the plaintiffs in a June hearing.<\/p>\n But where this will end is unclear: The North Dakota Supreme Court has overturned this judge\u2019s rulings on a different case related to deductions. And the Skarphols\u2019 attorney said they will likely appeal. Schmidt also told the plaintiffs they could bring a new lawsuit over a different set of oil wells.<\/p>\n Meanwhile, Bob and Diana Skarphol continue to open the checks each month and calculate their losses. So far this year, Hess has deducted 36%.<\/p>\n","protected":false},"excerpt":{"rendered":" This article was produced for ProPublica\u2019s Local Reporting Network in partnership with the North Dakota Monitor. Sign up for Dispatches to get our stories in your inbox every week. Reporting Highlights Income Loss: North Dakota\u2019s mineral owners say companies are unfairly taking a large share of their royalty income. State Inaction: Mineral owners feel betrayed<\/p>\n","protected":false},"author":1,"featured_media":13953,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[55],"tags":[477,693,7612,268,819,247,7611,7610],"class_list":{"0":"post-13952","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-social-issues","8":"tag-companies","9":"tag-millions","10":"tag-mineral","11":"tag-oil","12":"tag-owners","13":"tag-propublica","14":"tag-royalties","15":"tag-withhold"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/13952","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=13952"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/13952\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/13953"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=13952"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=13952"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=13952"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\u201cSaddled With Expenses\u201d<\/h3>\n
\n Credit: <\/span>
\n William Shemorry, courtesy of State Historical Society of North Dakota. SHSND 10958-0059-00001
\n <\/span><\/p>\n
\n Credit: <\/span>
\n Source: North Dakota State University research
\n <\/span><\/p>\n
\n Credit: <\/span>
\n Jamie Kelly\/Williston Herald
\n <\/span><\/p>\n\u201cSuch a Hopeless Feeling\u201d<\/h3>\n
\n Credit: <\/span>
\n Kyle Martin for North Dakota Monitor
\n <\/span><\/p>\n