‘Big Muddy’: North Dakota approaches deadline in high-stakes MHA oil tax lawsuit

At stake is the distribution of the spoils from wells in the Lake Sakakawea vicinity. Nearly 20 years of hydraulic fracturing in the Bakken Formation, centered on the Fort Berthold Reservation, has made the state the third-largest oil producer in the country. North Dakota derives 50 percent of its tax base from the oilfield. The reservation waterfront counties of Dunn, McKenzie and Mountrail are the most productive contributors to that tax base.

The Three Affiliated Tribes sued the U.S. Department of the Interior in 2020 to “collect, deposit and invest, or pay over all funds owing to the MHA Nation.” Additionally, the tribes allege state oil and gas leases have racked up $200 million in damages for unauthorized extraction under the riverbed via horizontal drilling.

Last year North Dakota successfully intervened in the lawsuit to protect its access to the resource revenues, of which it takes the lion’s share. “If the District Court were to award plaintiff revenues from such mineral production, North Dakota would not receive those revenues,” the state argued.

That led the tribes to ask the judge for a final decision on the mineral rights.

Although the Interior Department is the defendant, it has aligned itself with the tribes’ effort to obtain a ruling on these rights. U.S. District Court Judge Amy Berman Jackson gave the department and tribes until January to counter the state’s arguments for intervening. The Interior Department response says that “the United States clearly intended to reserve and retain title to the riverbed when it set aside the Fort Berthold Indian Reservation for the benefit of the … Mandan, Hidatsa and Arikara Nation.”

Berman Jackson gave North Dakota until next Tuesday to dispute the tribes’ alleged facts.

Attorneys for the state, tribal and federal governments declined to answer Buffalo’s Fire questions about the case.

North Dakota faces off

To prove the tribes’ Missouri River bottom rights ownership, the Mandan, Hidatsa and Arikara Nation plaintiffs document a 200-year history of defending against federal and state encroachment.

The Interior Department and the MHA Nation agree that the U.S. government has recognized the tribal rights to the Missouri River and surrounding lands since their first major treaties in 1825. They further point out that North Dakota’s own constitution disclaimed all rights and titles to “Indian lands” when the state joined the Union in 1889.

A large swath of the tribe’s lands went under water after the passage of the 1949 Takings Act, when Congress authorized catastrophic flooding of the reservation from the Garrison Dam. The public works project inundated more than 152,000 acres and deprived the tribes of mineral rights there.

The resulting Lake Sakakawea has the second-largest surface area of any reservoir in the United States, after the Oahe Reservoir downstream. The lake and its shorelines take up more than one-quarter of the Three Affiliated Tribes’ 988,000-acre territory.

As the waters rose upstream from the dam, more than 90% of tribal members were forced to abandon their homes and their thriving agricultural communities. In 1984, after the discovery that the reservation sits atop one of the country’s largest oilfields, Congress passed the Fort Berthold Reservation Mineral Restoration Act. It declared that “mineral rights in specified lands are held in trust by the United States for the Three Affiliated Tribes of the Fort Berthold Reservation.” It also declared that “revenues from such mineral interests which accrue to the United States after enactment of this Act are held in trust for the Three Affiliated Tribes of the Fort Berthold Reservation.”

An estimated 250 billion barrels of oil lie beneath the Sakakawea reservoir, according to the lawsuit.

Oil Boom Creates Tax Battle

North Dakota has gleaned more than $32 billion from oil extraction and production taxes since 2008, according to the petroleum industry’s 2024 biennial study. That’s an average of $2 billion a year, which constitutes 50% of the state’s entire tax base.

In 2024, the state allocated less than $190 million of its oil and gas tax revenue to the Three Affiliated Tribes, according to the North Dakota Legislative Council.

Federal law allows the State of North Dakota to tax energy development on the Fort Berthold Reservation. In addition, the tribal government has imposed its own set of mineral production taxes since 2005. The two jurisdictions have executed revenue-sharing agreements over the years.

In 2019, then-Gov. Doug Burgum signed a state law ratifying a compact for the tribal government to receive 80% of production and extraction tax revenue from new oil and gas wells on tribal trust lands; the state takes 20%. On private land, the accord calls for 80% to the state and 20% to tribes.

Such compacts have siphoned away more than $1 billion from the reservation, MHA Nation Chairman Mark N. Fox testified in Congress. “Dual taxation is the death knell for economic growth,” he said.