This text was produced for ProPublica’s Native Reporting Community in partnership with the North Dakota Monitor. Join Dispatches to get our tales in your inbox each week.
Reporting Highlights
Revenue Loss: North Dakota’s mineral house owners say firms are unfairly taking a big share of their royalty revenue.
State Inaction: Mineral house owners really feel betrayed by their public officers, who’ve declined to step in to assist whilst different states take motion.
Turning to the Courts: Oil and gasoline firms say that disputes with personal mineral house owners must be determined by the courts, not state lawmakers.
These highlights had been written by the reporters and editors who labored on this story.
For greater than half a century, Diana Skarphol’s household acquired a verify each month from the corporate that drilled the primary profitable oil nicely in North Dakota on their land in 1951.
The checks, from the corporate that grew to become Hess Corp., had been simple. Her household, which owns the oil and gasoline underground, acquired a proportion of the income generated from the corporate’s sale of the minerals, referred to as a royalty.
However in April 2015, when she opened that month’s verify and appeared on the accompanying assertion detailing her share, she seen for the primary time that a good portion of the cost had been deducted. About 35% of what she thought she was owed was gone, and she or he didn’t know why.
She was so shocked that she referred to as her husband, Bob Skarphol, a state lawmaker on the verge of retirement, as he drove from the capitol in Bismarck to their dwelling in Tioga, a small neighborhood within the oil-rich Bakken within the western a part of the state.
“Why are there minuses?” Diana Skarphol remembers asking. “Slightly than being added in, issues had been being subtracted. I used to be puzzled and confused.”
The couple remembers that decision as a result of it was the beginning of a irritating, decade-long seek for solutions from the corporate and of a string of unanswered pleas for assist from the state, which has not taken motion to assist royalty recipients whilst different states have. Over the previous decade, Hess has withheld about 31%, or $137,635, of the Skarphols’ royalty revenue to cowl the corporate’s prices to maneuver oil and gasoline from the nicely website to market, information present.
Oil and gasoline firms owed the state’s personal mineral house owners, just like the Skarphols, an estimated $4.6 billion in 2023 earlier than deductions, in line with North Dakota State College analysis. However these deductions — which might range drastically — are deeply contentious within the state: The businesses declare sure prices must be shared with royalty house owners, whereas house owners say that in most circumstances, the deductions shouldn’t be permitted in any respect. The state itself doesn’t regulate what could be deducted and there’s no official accounting of how a lot of that cash is withheld.
The North Dakota Monitor and ProPublica spoke with 18 mineral house owners, interviewed specialists and lawmakers, and reviewed court docket information and royalty statements to know the extent of deductions. A dozen house owners supplied information of firms withholding 20% or extra of their oil and gasoline royalties. Some month-to-month statements confirmed deductions as excessive as 50%. Equally, at the very least one vitality firm and one impartial researcher have discovered the deductions to be round 20% lately.
The trade’s chief lobbyist mentioned percentages that top are atypical. Ron Ness, president of the North Dakota Petroleum Council, mentioned it might be “inconceivable” to calculate a mean deduction however instructed it couldn’t be greater than 7% to 10% primarily based on the price of transporting oil out of state. If deductions had been in that vary, North Dakota royalty house owners collectively would have misplaced between $322 million and $460 million in 2023.
The Skarphols’ leases with Hess had been signed throughout a time when oil and gasoline was usually offered at or close to nicely websites. The leases didn’t say something about deductions.
“It’s a matter of equity,” Diana Skarphol mentioned. “We didn’t get any say in it. They only up and altered it. You are feeling such as you’re being cheated. It’s not proper.”
Bob and Diana Skarphol have saved information of funds for his or her mineral rights going again many years.
Whereas the language within the leases has not modified, the trade has. Most firms now select to maneuver the commodities away from the nicely website earlier than promoting them, incurring extra transportation and processing prices. They move on a share of these prices to the royalty house owners, which the North Dakota Supreme Court docket has dominated is authorized.
In contrast, North Dakota officers have taken steps to safeguard state-owned royalties. Since 1979, all state leases with oil and gasoline firms prohibit deductions. When state trustees seen deductions had been being taken anyway, they fought again and have spent years negotiating settlements to recoup these lacking royalties.
However the majority of the oil and gasoline in North Dakota is privately owned by about 300,000 people, in line with the trade. And North Dakota policymakers haven’t taken motion that may shield personal minerals, an investigation by the North Dakota Monitor and ProPublica has discovered.
“There’s a double normal,” mentioned Rep. Keith Kempenich, a Republican from Bowman, a neighborhood within the oil area. He has co-sponsored a number of items of unsuccessful laws aimed toward serving to personal house owners.
Lawmakers have rejected efforts to rein in deductions and to make it simpler for royalty house owners to know what prices are being deducted and why. And oil and gasoline regulators have claimed they haven’t any jurisdiction to assist.
“It’s ridiculous,” mentioned Bob Skarphol, who has led the advocacy efforts by personal mineral house owners. “The trade has an unimaginable quantity of affect in North Dakota.”
The state, which owns about 6% of the minerals in North Dakota, has benefits that personal mineral house owners don’t have. It has the sources to audit firms that pay royalties and to litigate disputes. State regulation additionally requires that firms present digital copies of royalty and manufacturing knowledge to regulators, however personal royalty house owners are assured entry provided that they journey to the corporate’s workplace, which might be out of state.
And in contrast to the state, personal mineral house owners hardly ever have the leverage to barter a lease that prohibits deductions, and leases don’t expire until oil manufacturing lapses.
In responses to questions from the North Dakota Monitor and ProPublica, officers from three firms that function in North Dakota — Hess Corp., Slawson Exploration Co. and Zavanna Vitality — mentioned they comply with the language within the leases. The truth is, most leases, just like the Skarphols’, don’t explicitly point out deductions. The businesses additionally mentioned that whereas there are extra bills to promoting the oil and gasoline farther away from the nicely website, doing so additionally results in a greater value for each the businesses and the house owners.
The businesses, in addition to the group that advocates for the trade, blamed a number of the charges charged to personal house owners on pricey state laws enacted a decade in the past.
“Principally it received actually, actually costly and actually, actually difficult. And I believe it put the economics of gasoline in a complete completely different place,” mentioned Ness of the North Dakota Petroleum Council, which represents greater than 550 oil and gasoline firms within the state. “Pure and easy, the world modified.”
“Saddled With Bills”
Diana Skarphol was lower than a yr outdated when her mom’s household, the Iversons, first leased the rights to any oil discovered underneath their land to Amerada Petroleum, which later merged with Hess, in 1949. The Iverson household had immigrated from Norway on the flip of the century. They’d farmed the land for many years, survived the mud bowl of the arduous ’30s and had been nonetheless feeling the results of the Nice Despair.
The invention of oil in 1951, setting off the state’s first oil growth, modified the whole lot. Oil executives and staff flooded the small neighborhood. Diana Skarphol mentioned her kinfolk welcomed them and invited them over for espresso.
The Clarence Iverson Effectively #1 on April 4, 1951, its first night time of operation. The nicely was the primary in North Dakota to provide oil. Clarence Iverson was a relative of Diana Skarphol.
Credit score:
William Shemorry, courtesy of State Historic Society of North Dakota. SHSND 10958-0059-00001
It was a change in fortune for the Iversons and plenty of different households. “They weren’t very wealthy farmers. They had been simply getting by. And this supplemented their revenue,” she mentioned. The leases promised a 12.5% royalty on the oil’s market worth the day it left the nicely website, “freed from price.” That signifies that the mineral proprietor isn’t chargeable for prices to drill or function a nicely or different manufacturing bills.
That’s why households just like the Skarphols say they had been perplexed when the deductions started.
The Skarphols preserve many years of month-to-month royalty checks, to allow them to monitor when Hess started deducting cash. A column titled “different deductions” first appeared in 1998 however remained clean till April 2007, when the corporate started to deduct lower than 2% of their royalty, an quantity they mentioned was too small to note on the time.
North Dakota’s oil and gasoline trade was on the verge of momentous change. The shale oil growth, triggered by new applied sciences, had arrived. Crude oil was fetching $100 a barrel by 2008, and the “drill, child, drill” spirit took maintain earlier than the phrase was ever uttered within the White Home.
However the oil was leaving the floor intermingled with huge portions of moist pure gasoline, which the businesses usually disposed of by burning it. The sight of small flames, referred to as flares, grew to become ubiquitous within the Bakken.
Flaring appeared ugly, polluted the air and wasted a pure useful resource that might be offered. State officers enacted laws in 2014 that required firms to curtail the flaring. The trade, in flip, mentioned it has spent an estimated $25 billion to date to construct the mandatory infrastructure to gather the gasoline, course of it and export it by pipelines.
Flares burn off pure gasoline at a manufacturing website in Williams County, North Dakota, in June 2025.
Corporations move on to house owners a share of these infrastructure prices, in addition to the bills related to processing and transporting oil and gasoline, generally to far-flung markets. Whether or not house owners must share in these prices is the guts of the talk.
The trade justifies the shared prices by citing a North Dakota Supreme Court docket ruling that empowered firms to deduct bills. That 2009 ruling, which addressed a slim situation associated to pure gasoline, concluded that the worth of the gasoline for royalty functions must be calculated “on the nicely,” the place it leaves the bottom.
That laid the groundwork for postproduction deductions. The ruling meant that when calculating royalties, firms may begin with the sale value after which deduct the prices incurred after the minerals had been extracted — what has been referred to as the postproduction section — to find out how the sources would have been valued on the nicely. However to royalty house owners whose leases promise a royalty “freed from price,” the truth that firms incur bills earlier than promoting the oil and gasoline isn’t their downside.
“Mineral house owners are being saddled with bills,” mentioned Neil Christensen, the agent for his three sisters who inherited mineral rights in McKenzie County that they lease to Hess. These bills, he instructed, ought to “cut back stockholder dividends, not cut back mineral proprietor revenue.”
Non-public Royalties in North Dakota, Estimated within the Billions
Royalties fluctuate primarily based on the worth of oil and the quantity produced. The figures are previous to deductions.
Credit score:
Supply: North Dakota State College analysis
There’s some huge cash at stake. North Dakota Sen. Brad Bekkedahl, a Republican who routinely sponsors payments advocating for the pursuits of each the trade and royalty house owners, estimates that firms deduct “at the very least a whole bunch of thousands and thousands of {dollars}” yearly. He says firms ought to use their revenues to cowl the postproduction prices — as they did earlier than the newest oil growth.
An government with XTO Vitality advised lawmakers in 2021 that the oil and gasoline firm deducts on common $30 million yearly, or about 21% of the royalties owed to personal leaseholders in North Dakota. Mary Ellen Denomy, a forensic accountant who has audited royalty statements throughout the nation and for at the very least 30 North Dakotans within the final decade, mentioned that about 22% of royalties are deducted on common — which might have amounted to $1 billion in 2023. These figures are according to royalty statements that mineral house owners shared with the North Dakota Monitor and ProPublica.
It’s tough to confirm what particular prices every firm deducts as a result of firms don’t element these, both for royalty house owners or for the state, as a substitute offering solely broad classes on the statements that accompany their checks.
Hess mentioned it’s a “widespread trade observe” to move on some infrastructure prices, such because the $1.5 billion the corporate spent on pipelines, the growth of a gasoline processing plant and development of different amenities within the early 2010s. Hillary Durgin Harmon, a Hess spokesperson, mentioned these investments assist financial progress by growing oil and gasoline manufacturing and transporting it to extra markets, benefiting royalty house owners and the state general.
Zavanna Vitality additionally attributed the elevated deductions to infrastructure bills, together with the price of getting landowners’ permission to put in pipelines within the state, in line with the corporate’s normal counsel.
“I’ve seen the prices related to acquiring pipeline easements in some components of North Dakota improve as a lot as 3000% during the last 10 years,” Zavanna’s Gillian Wilkin mentioned. “These elevated prices can considerably affect the worth that should be paid to get oil and gasoline to downstream markets.”
Todd Slawson, chairman of the North Dakota Petroleum Council, defended house owners sharing the prices to maneuver and improve oil and gasoline after leaving the nicely website. Such “post-marketability” prices, he mentioned, profit the house owners, too.
“The target of the operator can also be to acquire the perfect costs for all events,” mentioned Slawson, who owns Slawson Exploration Co., one other vitality firm. “We’re all on this collectively, so everybody needs the perfect value.”
He referred to as royalty house owners just like the Skarphols, who inherited leases, “very fortunate and lucky.” “What a terrific nation we reside in the place minerals could be privately owned — I have no idea of one other nation the place that happens, however there most likely are some,” he mentioned. In most nations, oil and gasoline are largely owned by the federal government.
Bob and Diana Skarphol didn’t really feel lucky when Hess started taking sudden deductions in 2015. Nor did Brian Anderson, who additionally inherited a lease with Hess that his father signed in 1949. Donald Anderson was then a 21-year-old farmer who labored in a coal mine on his property to assist his youthful siblings.
The household began getting royalties quickly after. However for the reason that firm started taking deductions a decade in the past, Brian Anderson mentioned his household has misplaced greater than $600,000.
“The truth that they only arbitrarily began taking it simply sticks in my craw so dangerous,” mentioned Anderson, who at one time labored for Hess. “You don’t take something for 60 years, after which hastily you, abracadabra, can do it?”
Brian Anderson inherited an oil and gasoline lease from his father. He started noticing deductions on his royalty statements a decade in the past.
Anderson’s property in Tioga within the Fifties in an outdated {photograph} hanging in his eating room, first picture; his household dwelling nonetheless stands on that land. Second picture: An oil nicely on his property in June.
By the autumn of 2018, Skarphol had talked to sufficient different mineral house owners to understand that deductions had begun showing on lots of their royalty statements — they usually weren’t stopping.
Skarphol referred to as a gathering at Metropolis Corridor in Williston on a brisk October night to debate what they might do about it. Dozens of mineral house owners crammed each seat and stood shoulder to shoulder at the back of the room.
Janice Arnson, who alongside together with her seven siblings inherited mineral rights from their mom, stood up and declared that deductions had been “uncontrolled.” One specific lease, signed by her mom in 2009, started paying royalties just a few years later when Hess drilled a nicely. The deductions had been minuscule at first after which skyrocketed to 23% of Arnson’s royalty verify in February 2015. “We simply wish to be paid our fair proportion,” she mentioned on the assembly.
“I need the Legislature to take this critically,” mentioned Linda Meyer, a mineral proprietor in Williams County.
Skarphol, who referred to as the assembly, responded. “Can we wish to get offended sufficient to do one thing about it?” Skarphol requested the gang. “I do.”
That night time, the mineral house owners fashioned the Williston Basin Royalty Homeowners Affiliation.
Bob Skarphol reveals a gaggle of mineral royalty house owners the breakdown of a royalty assertion. At that October 2018 assembly, Skarphol and different mineral house owners based the Williston Basin Royalty Homeowners Affiliation.
Credit score:
Jamie Kelly/Williston Herald
“Such a Hopeless Feeling”
The group began with a request initially of the 2019 legislative session for the state to review the problem and take into account potential options. Lawmakers accredited the request, however the committee that selects which research must be accomplished discarded the proposal.
In 2021, royalty house owners labored with legislators to draft a invoice to straight tackle their issues. Amongst different adjustments, the laws would have prohibited deductions until they had been explicitly allowed for in a lease and would have permitted royalty house owners to audit an organization’s information, on the royalty house owners’ expense, to make sure they’re being paid accurately.
Curtis Trulson, a retired farmer, shared issues concerning the deductions with lawmakers throughout that session. He receives royalty funds by leases with a number of firms, and he first began noticing his royalty funds had been diminishing through the begin of the COVID-19 pandemic.
“No person ever referred to as and mentioned, ‘Effectively, we’re going to start out taking these prices and right here’s why.’ It simply began disappearing,” Trulson mentioned. “Nearly each operator is doing the identical factor now. They didn’t all do it to start out with.”
Curtis Trulson on his farmland close to Stanley, North Dakota. He has requested lawmakers to assist mineral house owners.
Trulson emailed particulars of his scenario, and a royalty assertion, to seven senators on the committee contemplating the invoice drafted by the royalty house owners. Some deductions “go completely unexplained!” he advised them. The one legislator who responded was the one Democrat, Merrill Piepkorn.
“I hate to say this as a result of I lean just a little extra on the Republican aspect and I’m extra conservative,” Trulson mentioned. “Different ones didn’t even trouble to reply or say thanks for the data or something.” He added: “The state of North Dakota doesn’t wish to assist us out.”
The laws was changed into a research, which finally really helpful no adjustments to state regulation.
“I had a tough time protecting from screaming,” Anderson mentioned of his frustration through the hearings, which he attended in individual.
The mineral house owners tried for extra modest adjustments in 2023. That yr, they pushed for a invoice that may have required firms to supply royalty statements in spreadsheets. Whereas state regulation requires that firms present them that method for publicly owned minerals, there isn’t any such requirement for personal house owners.
That laws failed, too.
“Each time we make any type of an try it looks as if the trade has a complete lot extra affect over the Legislature in North Dakota than the individuals do,” Christensen mentioned.
Arnson, who labored with Skarphol to deliver issues about this situation to legislators’ consideration, mentioned she feels betrayed by her representatives.
“It was such a hopeless feeling,” Arnson mentioned. “Have I misplaced lots of religion? Sure I’ve.”
Janice Arnson on land as soon as owned by her household. Arnson and her siblings inherited mineral rights from their mom in Williams County, North Dakota.
Legislators from each events who had been concerned within the efforts to amend state regulation advised the North Dakota Monitor and ProPublica that repeated legislative measures have failed due to the trade’s influence on the state financial system and subsequent affect in state politics. State and native governments took in about $32 billion in oil and gasoline taxes between 2008 and 2024, in line with a research by the Western Dakota Vitality Affiliation. That very same research discovered that greater than 50% of all native tax collections are tied to grease and gasoline.
The trade’s affect “has curtailed any investigation or laws relating to trying into the validity of the deductions,” Piepkorn mentioned. “Ron Ness is a reasonably easy talker,” he mentioned of the trade’s chief lobbyist. “We simply take what he says for gospel.” Ness mentioned his status with policymakers as “a trusted and revered voice for the trade” has been “hard-earned” over 27 years.
Bekkedahl, chair of the Senate Appropriations Committee that crafts the state funds, mentioned greater than half the state’s revenues are tied to grease and gasoline exercise. He referred to as the vitality trade’s lobbying efforts on this situation “very aggressive” however mentioned lawmakers want to deal with issues about royalty deductions.
“I’ve at all times maintained that we should always, because the Legislature, present some readability to this situation in order that the courts could make the interpretations with clear statutes in place, which they don’t have now,” Bekkedahl mentioned.
North Dakota Petroleum Council employees have testified to lawmakers that the state shouldn’t get entangled in what it describes as personal contract disputes.
However the Legislature has gotten concerned in different contract points championed by the vitality trade, together with this yr when it accredited laws associated to coal leases. The brand new state regulation permits the businesses to extract vital minerals from coal with out having to barter amendments to current leases.
Joseph Schremmer, a College of Oklahoma regulation professor who specializes within the vitality trade, mentioned the Legislature can take motion on different points affecting personal contracts so long as there’s a “authentic state curiosity.”
“The Legislature has the facility to do many issues that may probably modify the operation of current contracts,” he mentioned.
Gov. Kelly Armstrong, a Republican who’s each a royalty proprietor and a former government in his household’s oil firm, declined to remark for this story. He mentioned in an interview final yr that royalty house owners ought to depend on the courts, although litigation is dear and never possible for many.
“Should you assume you will have a litigation situation, litigate it,” Armstrong mentioned. “You’re making an attempt to make use of the state of North Dakota as your personal lawyer. In case you are in a contract dispute, there’s a higher place to settle that.”
North Dakota Petroleum Council President Ron Ness, left, talks to North Dakota Gov. Kelly Armstrong, middle, and North Dakota State College researcher Dean Bangsund throughout an occasion to spotlight the financial influence of the oil and gasoline trade.
Credit score:
Kyle Martin for North Dakota Monitor
Diana Skarphol is doing simply that. She is certainly one of 34 plaintiffs from the prolonged Iverson household who sued Hess in 2021 for $10 billion in damages, arguing that the corporate breached their contracts by taking deductions.
Alaska Ignored Warning Indicators of a Finances Disaster. Now It Doesn’t Have Funding to Repair Crumbling Colleges.
Northwest Judicial District Choose Robin Schmidt dominated in favor of Hess and dismissed the case final week. North Dakota regulation, which the Skarphols and different households have been asking the Legislature to alter for years, “isn’t in your aspect,” she advised the plaintiffs in a June listening to.
However the place it will finish is unclear: The North Dakota Supreme Court docket has overturned this decide’s rulings on a distinct case associated to deductions. And the Skarphols’ legal professional mentioned they are going to probably enchantment. Schmidt additionally advised the plaintiffs they might deliver a brand new lawsuit over a distinct set of oil wells.
In the meantime, Bob and Diana Skarphol proceed to open the checks every month and calculate their losses. To date this yr, Hess has deducted 36%.
