May 10, 2013 / 4:16 PM / in 5 years

COLUMN-Taxman eyes North Dakota's gusher of oil money: Kemp

(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

LONDON, May 10 (Reuters) - North Dakota’s oil boom is creating fabulous wealth for a small number of families lucky enough to own mineral rights in the four counties sitting above the most productive part of the Bakken shale.

The extent of the cash gusher is revealed in statistics on adjusted gross income and tax returns published by the U.S. Internal Revenue Service (IRS).

For the 16,500 federal income tax returns filed by individuals from the four counties at the epicentre of the Bakken (Dunn, McKenzie, Mountrail and Williams), average adjusted gross income increased by more than 60 percent between 2004 and 2009, according to IRS.

In 2004, the average adjusted income in these sparsely populated rural communities was just under $41,000 - putting them behind the rest of the state ($45,000) and well behind Texas ($48,000) and California ($57,000).

By 2009, however, averaged adjusted income in the four-county area had leapt to $66,000, far ahead of the rest of North Dakota ($54,000), Texas ($52,000) and California ($58,000). Adjusted income was almost 20 percent above the national average.

In 2009, McKenzie ranked 103rd, Williams 113th and Mountrail 170th out of 3,143 counties in the United States by average adjusted income, according to the IRS.

Only the states of Connecticut, Maryland, Massachusetts and New Jersey, as well as the District of Columbia, had higher average adjusted incomes than the four Bakken counties.

Wages and salaries have grown rapidly in all four jurisdictions, reflecting the booming local job market. But income from the other components of adjusted gross income, which the IRS does not report separately but which includes payments for oil leases, has grown almost twice as fast.

Owners of mineral rights typically receive a cash bonus upon signing an oil lease, delay rental payments while waiting for the first well to be drilled, and then a share in the oil and gas revenues from each producing well in the form of royalties.

The IRS has not yet released detailed data on county-level tax returns for the 2010, 2011 and 2012 tax years. But when it does, it will reveal an even more dramatic impact on local incomes.

Four-county oil production quadrupled from 54 million barrels in 2009 to 203 million in 2012, and the price per barrel rose 50 percent, so royalty payments could be up to six times higher.

Never one to forget the adage about “rendering unto Caesar”, the tax collectors from the IRS cannot be far behind. (editing by Jane Baird)

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