This article was produced for ProPublica’s Local Reporting Network in partnership with the North Dakota Monitor. Sign up for Dispatches to get our stories in your inbox every week.
For more than half a century, Diana Skarphol’s family received a check every month from the company that drilled the first successful oil well in North Dakota on their land in 1951.
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’s sale of the minerals, called a royalty.
But in April 2015, when she opened that month’s 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’t know why.
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.
“Why are there minuses?” Diana Skarphol recalls asking. “Rather than being added in, things were being subtracted. I was puzzled and confused.”
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’ royalty income to cover the company’s costs to move oil and gas from the well site to market, records show.
Oil and gas companies owed the state’s 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 — which can vary greatly — 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’t be permitted at all. The state itself doesn’t regulate what can be deducted and there is no official accounting of how much of that money is withheld.
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.
The industry’s chief lobbyist said percentages that high are atypical. Ron Ness, president of the North Dakota Petroleum Council, said it would be “impossible” to calculate an average deduction but suggested it couldn’t 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.
The Skarphols’ leases with Hess were signed during a time when oil and gas was often sold at or near well sites. The leases didn’t say anything about deductions.
“It’s a matter of fairness,” Diana Skarphol said. “We didn’t get any say in it. They just up and changed it. You feel like you’re being cheated. It’s not right.”
Bob and Diana Skarphol have kept records of payments for their mineral rights going back decades.
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.
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.
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.
“There’s a double standard,” 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.
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.
“It’s ridiculous,” said Bob Skarphol, who has led the advocacy efforts by private mineral owners. “The industry has an incredible amount of influence in North Dakota.”
The state, which owns about 6% of the minerals in North Dakota, has advantages that private mineral owners don’t 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’s office, which could be out of state.
And unlike the state, private mineral owners rarely have the leverage to negotiate a lease that prohibits deductions, and leases don’t expire unless oil production lapses.
In responses to questions from the North Dakota Monitor and ProPublica, officials from three companies that operate in North Dakota — Hess Corp., Slawson Exploration Co. and Zavanna Energy — said they follow the language in the leases. In fact, most leases, like the Skarphols’, don’t 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.
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.
“Basically it got really, really expensive and really, really challenging. And I think it put the economics of gas in a whole different position,” said Ness of the North Dakota Petroleum Council, which represents more than 550 oil and gas companies in the state. “Pure and simple, the world changed.”
“Saddled With Expenses”
Diana Skarphol was less than a year old when her mother’s 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’d farmed the land for decades, survived the dust bowl of the hard ’30s and were still feeling the effects of the Great Depression.
The discovery of oil in 1951, setting off the state’s 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.
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.
(William Shemorry, courtesy of State Historical Society of North Dakota. SHSND 10958-0059-00001)
It was a change in fortune for the Iversons and many other families. “They weren’t very rich farmers. They were just getting by. And this supplemented their income,” she said. The leases promised a 12.5% royalty on the oil’s market value the day it left the well site, “free of cost.” That means that the mineral owner is not responsible for costs to drill or operate a well or other production expenses.
That’s why families like the Skarphols say they were perplexed when the deductions began.
The Skarphols keep decades of monthly royalty checks, so they can track when Hess began deducting money. A column titled “other deductions” 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.
North Dakota’s 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 “drill, baby, drill” spirit took hold before the phrase was ever uttered in the White House.
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.
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.
Flares burn off natural gas at a production site in Williams County, North Dakota, in June 2025.
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.
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 “at the well,” where it leaves the ground.
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 — what has been called the postproduction phase — to determine how the resources would have been valued at the well. But to royalty owners whose leases promise a royalty “free of cost,” the fact that companies incur expenses before selling the oil and gas is not their problem.
“Mineral owners are being saddled with expenses,” 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 “reduce stockholder dividends, not reduce mineral owner income.”
Private Royalties in North Dakota, Estimated in the Billions
Royalties fluctuate based on the price of oil and the amount produced. The figures are prior to deductions.
(Source: North Dakota State University research)
There’s 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 “at least hundreds of millions of dollars” every year. He says companies should use their revenues to cover the postproduction costs — as they did before the most recent oil boom.
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 — 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.
It’s difficult to verify what specific costs each company deducts because companies don’t detail those, either for royalty owners or for the state, instead providing only broad categories on the statements that accompany their checks.
Hess said it is a “common industry practice” 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.
Zavanna Energy also attributed the increased deductions to infrastructure expenses, including the cost of getting landowners’ permission to install pipelines in the state, according to the company’s general counsel.
“I’ve seen the costs associated with obtaining pipeline easements in some parts of North Dakota increase as much as 3000% over the last 10 years,” Zavanna’s Gillian Wilkin said. “Those increased costs can substantially influence the price that must be paid to get oil and gas to downstream markets.”
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 “post-marketability” costs, he said, benefit the owners, too.
“The objective of the operator is also to obtain the best prices for all parties,” said Slawson, who owns Slawson Exploration Co., another energy company. “We are all in this together, so everyone wants the best price.”
He called royalty owners like the Skarphols, who inherited leases, “very lucky and fortunate.” “What a great country we live in where minerals can be privately owned — I do not know of another country where that occurs, but there probably are some,” he said. In most countries, oil and gas are largely owned by the government.
Bob and Diana Skarphol didn’t 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.
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.
“The fact that they just arbitrarily started taking it just sticks in my craw so bad,” said Anderson, who at one time worked for Hess. “You don’t take anything for 60 years, and then all of a sudden you, abracadabra, can do it?”
Brian Anderson inherited an oil and gas lease from his father. He began noticing deductions on his royalty statements a decade ago.
Anderson’s 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.
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 — and they weren’t stopping.
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.
Janice Arnson, who along with her seven siblings inherited mineral rights from their mother, stood up and declared that deductions were “out of control.” 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’s royalty check in February 2015. “We just want to be paid our fair share,” she said at the meeting.
“I want the Legislature to take this seriously,” said Linda Meyer, a mineral owner in Williams County.
Skarphol, who called the meeting, responded. “Do we want to get angry enough to do something about it?” Skarphol asked the crowd. “I do.”
That night, the mineral owners formed the Williston Basin Royalty Owners Association.
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.
(Jamie Kelly/Williston Herald)
“Such a Hopeless Feeling”
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.
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’s records, at the royalty owners’ expense, to ensure they are being paid correctly.
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.
“Nobody ever called and said, ‘Well, we’re going to start taking these costs and here’s why.’ It just started disappearing,” Trulson said. “Almost every operator is doing the same thing now. They didn’t all do it to start with.”
Curtis Trulson on his farmland near Stanley, North Dakota. He has asked lawmakers to help mineral owners.
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 “go totally unexplained!” he told them. The only legislator who responded was the one Democrat, Merrill Piepkorn.
“I hate to say this because I lean a little more on the Republican side and I’m more conservative,” Trulson said. “Other ones didn’t even bother to respond or say thanks for the information or anything.” He added: “The state of North Dakota doesn’t want to help us out.”
The legislation was turned into a study, which ultimately recommended no changes to state law.
“I had a hard time keeping from screaming,” Anderson said of his frustration during the hearings, which he attended in person.
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.
That legislation failed, too.
“Every 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,” Christensen said.
Arnson, who worked with Skarphol to bring concerns about this issue to legislators’ attention, said she feels betrayed by her representatives.
“It was such a hopeless feeling,” Arnson said. “Have I lost a lot of faith? Yes I have.”
Janice Arnson on land once owned by her family. Arnson and her siblings inherited mineral rights from their mother in Williams County, North Dakota.
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’s 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.
The industry’s influence “has curtailed any investigation or legislation regarding looking into the validity of the deductions,” Piepkorn said. “Ron Ness is a pretty smooth talker,” he said of the industry’s chief lobbyist. “We just take what he says for gospel.” Ness said his reputation with policymakers as “a trusted and respected voice for the industry” has been “hard earned” over 27 years.
Bekkedahl, chair of the Senate Appropriations Committee that crafts the state budget, said more than half the state’s revenues are tied to oil and gas activity. He called the energy industry’s lobbying efforts on this issue “very aggressive” but said lawmakers need to address concerns about royalty deductions.
“I’ve 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’t have now,” Bekkedahl said.
North Dakota Petroleum Council staff have testified to lawmakers that the state should not get involved in what it describes as private contract disputes.
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.
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 “legitimate state interest.”
“The Legislature has the power to do many things that would potentially modify the operation of existing contracts,” he said.
Gov. Kelly Armstrong, a Republican who is both a royalty owner and a former executive in his family’s 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.
“If you think you have a litigation issue, litigate it,” Armstrong said. “You’re 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.”
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.
(Kyle Martin for North Dakota Monitor)
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.
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, “is not on your side,” she told the plaintiffs in a June hearing.
But where this will end is unclear: The North Dakota Supreme Court has overturned this judge’s rulings on a different case related to deductions. And the Skarphols’ attorney said they will likely appeal. Schmidt also told the plaintiffs they could bring a new lawsuit over a different set of oil wells.
Meanwhile, Bob and Diana Skarphol continue to open the checks each month and calculate their losses. So far this year, Hess has deducted 36%.