NEW TOWN, N.D. - A leading official on a Native American reservation where roughly a third of North Dakota's oil is extracted has voiced his strongest threat to date to walk away from a tax-sharing deal with the state, ratcheting up energy industry concerns about dueling levy rates and regulations.
If no new agreement can be reached, EOG Resources Inc, Marathon Oil Co and other oil producers on the Fort Berthold Indian Reservation may have to pay two tax rates to two governments and potentially meet two sets of regulations, a complex system that could lead them to exit from operations on tribal land.
"It's possible that we may not figure out how to best reach an agreement," said Mark Fox, chairman of the Three Affiliated Tribes of the Mandan, Hidatsa and Arikara (MHA) Nation.
That marks the toughest public words yet from Fox, who rarely talks to the media and told state officials earlier this year he was "not comfortable" with the state lowering tax rates for 2016.
The seven-member tribal council led by Fox had asked state legislators to leave the overall tax rate unchanged. It now falls to Governor Jack Dalrymple to forge a new tax-sharing agreement by December. The two sides have met once and additional meetings are planned.
The conflict lays bare the tension between the tribes, which have begun drilling their own oil wells in a push for financial self-sufficiency, and state officials, whose focus is North Dakota's entire oil sector, the second-largest in the nation.
It comes as both sides can least afford a disagreement, after crude oil prices have dropped more than 50 percent in the past year, which has hampered production on and off the reservation.
The state legislature earlier this year lowered the 2016 tax rate for oil producers by 1.5 percentage points to 10 percent and eliminated any potential for a windfall tax break if crude prices plunge further. The goal was to make tax revenue easier to forecast.
The MHA Nation, a kind of quasi-independent sovereign entity, has collected more than $650 million since it forged an oil tax revenue-sharing agreement with the state in 2008.
The uncertain state of negotiations is a concern for oil companies and state officials.
An EOG spokeswoman said the company was closely following negotiations. Marathon Oil declined to comment.
Dalrymple, a Republican who became governor in 2010, said in an interview with Reuters he was optimistic the state and tribes would "continue to have a very solid oil tax agreement."
But he warned that failure to reach agreement with Fox could hold back oil development on the reservation.
"The reason they had virtually no activity on the reservation before (the tax agreement was signed) was because they did not have a clear and transparent tax policy that people could have confidence in," he told Reuters.
Hedging against such an outcome, the MHA Nation has begun drilling wells with its own oil producer, Missouri River Resources ND LLC, with four sunk so far this year.
Drilling their own wells nets the tribes more than 80 percent of a well's profit, while royalties from wells drilled on tribal land by EOG, Marathon Oil and others are set at 12.5 percent.
Missouri River Resources has said it is interested in drilling off-reservation, expanding perhaps even to shale areas in other parts of the United States, bringing it into competition with companies it regulates on its own land.