Many North Dakotans are receiving smaller checks from oil companies pumping on their land

NINA MOINI: More than 300,000 of our neighbors in North Dakota own land and minerals used for oil production. That means they receive royalties from the oil that companies pump from their land. Many families have been receiving those royalties for generations, since the oil boom started in the region in the early 1950s. But new reporting finds that those royalties have shifted drastically over the last 10 years or so. While oil companies are pumping just as much oil as ever, landowners are seeing smaller and smaller paychecks.

ProPublica and North Dakota Monitor journalist Jacob Orledge investigated why and recently published a series of articles on his findings. He joins me now to explain more. Thanks for being here, Jacob.

JACOB ORLEDGE: Thanks for having me on.

NINA MOINI: So our neighbors in North Dakota, many of us know how rich that land is in oil and how important it's been to the oil industry. But could you help us to understand the specific region that you were reporting on and maybe who some of these landowners are? I didn't know about these relationships.

JACOB ORLEDGE: Absolutely. So most of the oil and gas in North Dakota is found in the western half of the state, what we call the Bakken. This includes around 300,000 people who own the mineral rights in the state. And not all of those 300,000 people live in the state. Industry estimates suggest around a third of those live in North Dakota. And the other 2/3 are people around the country who inherited those mineral rights from previous generations when they get split up after inheritance.

And another thing to keep in mind is not all of these are actually landowners necessarily. They're typically called mineral owners, as a distinction, because the person who owns the land does not necessarily own the minerals underneath. Sometimes those get split up during the inheritance process. Sometimes they get sold off by a family if they wanted to get an immediate influx of money and things of that nature. So they're not always the same.

NINA MOINI: Oh, that's so interesting. So I would imagine, in the past, this was a pretty big way for survival, perhaps, for families. How big of a role do these paychecks play in their lives?

JACOB ORLEDGE: It can vary a great deal, mineral owner to mineral owner. For a lot of them, it supplements their retirement. It allows them to pass on more money to their kids and their grandkids. And then at the other end of the scale, it can really create generational wealth in these communities.

And what determines that is how many mineral acres a person owns. So if somebody's grandparent or great-grandparent homesteaded the land back around the turn of the 20th century and the early 1900s, they might have had, let's say, 1,000 acres, for the sake of an example. Now, once you divide those over the course of generations, once those 1,000 acres are divided amongst three kids, and then each of those three kids have five kids, and so on and so forth, a lot of the current generation only own 100 mineral acres, a few dozen mineral acres. I spoke to one who only had 15 mineral acres.

And these result in relatively small mineral checks that are not making them rich. They're not making them super wealthy. And they're not enabling them to fund the kind of litigation that it takes to fight oil and gas companies when there's a dispute. They might get $1,000 or a few hundred dollars a month.

NINA MOINI: That's interesting. So I know you mentioned you featured some of these families and some of these individuals. What are the oil companies say about why there are smaller paychecks that they've been sending out recent years?

JACOB ORLEDGE: Well, oil and gas companies, who take these deductions, typically attribute the cost to what's called the postproduction costs necessary to move the oil and gas from the wellhead to the market. And royalty owners feel this is unfair, generally, because there-- they believe they're promised a, quote unquote, "cost-free royalty," a percentage of the income the oil and gas companies get for the sale of the crude oil and natural gas. That has been determined in the courts to mean cost-- or free of the cost of production. So drilling a well, exploring for oil, operating an oil well, none of that is shared by the royalty owner.

But when the oil and gas companies incur what are called postproduction costs, so the costs incurred after the oil and gas leave the ground-- so gathering it from the wells to central locations, processing the natural gas to separate it into various components like methane and butane and propane and then moving those products out of North Dakota to the place where it's finally sold-- those are postproduction costs. And oil and gas companies say, and North Dakota courts have agreed, that under most leases, those costs can be shared between the company and the royalty.

NINA MOINI: OK. And so you're talking about stuff going on in the courts. Tell us a little bit, if you would, about how the state has gotten involved or how they're able to get involved?

JACOB ORLEDGE: Well, the states got involved in two different ways. On one hand, you've got approximately 6% of the minerals in North Dakota are owned by the state itself. And the state is not-- is by and large not affected by this issue as much, because in 1979, the state began requiring the use of a lease that specifically prohibit these deductions. Those protections do not extend to private mineral owners, unless the mineral owners also negotiated lease guaranteeing that prohibition. But most royalty owners either aren't aware enough to push for that in the negotiations, or they just don't have enough leverage.

But the other way the state is involved is beginning in 2019, and then again in 2021 and 2023, groups of mineral owners went to the state legislature and asked for help. They made a variety of requests for the state legislature to study the issue, to put in law that any lease that does not specifically allow deductions automatically prohibits the deductions. And then again, in 2023, when they asked for more transparency, for state law to guarantee greater access to information so that they can verify that they're being paid correctly by these companies.

None of those-- the study happened two years after mineral owners asked for it. But the state law changes in '21 and '23 did not happen. What the state did instead was they created what they call a postproduction royalty oversight program. That was supposed to act as a middleman between the mineral owners and the companies, and try and resolve some of these disputes without resorting to litigation. That program has had mixed success in general, but it has not helped at all with the postproduction deductions themselves.

NINA MOINI: So fascinating. And so you've done this three-part series digging into all of this. It sounds like these conflicts are still really top of mind for a lot of people. So what would be next in your reporting? What other questions are you looking to explore?

JACOB ORLEDGE: That is a big question. And we're still trying to figure out what I'm going to be looking at next. There's a variety of different angles that we really did not have a chance to get into, ranging from how individual companies, how specific companies treat mineral owners, because this three-part series looked the industry as a whole, all the way to how the federal government treats it, because they have their own system for federally owned minerals--

NINA MOINI: Sure.

JACOB ORLEDGE: --to all kinds of different angles.

NINA MOINI: Sure. You're so funny. You're like, I just finished this story. I sound like your editor. What's next? [LAUGHS]

JACOB ORLEDGE: We're working on it. I'm really excited to--

NINA MOINI: Yeah, you're like, I'm going to take a day.

JACOB ORLEDGE: --dig into it again.

NINA MOINI: All right, Jacob, we really appreciate you stopping by Minnesota Now and sharing your reporting with us. Take care.

JACOB ORLEDGE: Absolutely. Thank you for having me on.

NINA MOINI: That was Jacob Orledge, a reporter at North Dakota Monitor through ProPublica's local reporting network.