North Dakota Rules On Flaring, Exemptions

A reader was kind enough to send the North Dakota code on rules regarding flaring after someone asked about it over at the discussion group.

Disclaimer: I am always gun-shy when it comes to cutting and pasting legalese on the blog. This is not a source document. I have not checked the following against the source document. There may be errors. There may be additional statutes that I am not aware of that affect the information below. This is only one small part of North Dakota code/statutes. If anyone sees errors, please let me know. Comments are heavily moderated on the blog in order to keep the discussion moving ahead. 

At the very end, below the asterisk divider, there are three non-statute statements from the reader who sent this in (with an introductory clause from me preceding the third statement).

The North Dakota statute regarding flaring - NDCC 38-08-06.4 states as follows:

1. As permitted under rules of the industrial commission, gas produced with crude oil from an oil well may be flared during a one-year period from the date of first production from the well. 

2. After the time period in subsection 1 (see below), flaring of gas from the well must cease and the well must be:

a. Capped;

b. Connected to a gas gathering line;

c. Equipped with an electrical generator that consumes at least seventy-five percent of the gas from the well;

d. Equipped with a system that intakes at least seventy-five percent of the gas and natural gas liquids volume from the well for beneficial consumption by means of compression to liquid for use as fuel, transport to a processing facility, production of petrochemicals or fertilizer, conversion to liquid fuels, separating and collecting over fifty percent of the propane and heavier hydrocarbons; or

e. Equipped with other value-added processes as approved by the industrial commission which reduce the volume or intensity of the flare by more than sixty percent.

3. An electrical generator and its attachment units to produce electricity from gas and a collection system described in subdivision d of subsection 2 must be considered to be personal property for all purposes. 

4. For a well operated in violation of this section, the producer shall pay royalties to royalty owners upon the value of the flared gas and shall also pay gross production tax on the flared gas at the rate imposed under section 57-51-02.2. 

5. The industrial commission may enforce this section and, for each well operator found to be in violation of this section, may determine the value of flared gas for purposes of payment of royalties under this section and its determination is final. 

6. A producer may obtain an exemption from this section from the industrial commission upon application that shows to the satisfaction of the industrial commission that connection of the well to a natural gas gathering line is economically infeasible at the time of the application or in the foreseeable future or that a market for the gas is not available and that equipping the well with an electrical generator to produce electricity from gas or employing a collection system described in subdivision d of subsection 2 (see below) is economically infeasible.

The statute gives the commission the jurisdiction to regulate flaring within one year as it sees fit ("as permitted under the rules of the [NDIC]").  For gas flared after a year, the commission is given jurisdiction to grant exemptions if the operator can show that it is economically infeasible to connect to a gathering system.

For the "within a year portion of the flaring," the commission has field-by-field rules allowing flaring.  Here is an example of the most common field rule regarding flaring:

All wells in the [Field Name]-Bakken Pool shall be allowed to produce at a maximum efficient rate for a period of 60 days commencing on the first day oil is produced through well-head equipment into tanks from the ultimate producing interval after casing has been run; after that, oil production from such wells is not to exceed an average of 200 barrels per day for a period of 60 days, after that, oil production from such wells is not to exceed an average of 150 barrels per day for a period of 60 days, thereafter, oil production from such wells is not to exceed an average of 100 barrels of oil per day; if and when such wells are connected to a gas gathering and processing facility the foregoing restrictions are removed, and the wells are allowed to produce at a maximum efficient rate. The Director is authorized to issue an administrative order allowing unrestricted production at a maximum efficient rate for a period not to exceed 120 days, commencing on the first day oil is produced through well-head equipment into tanks from the ultimate producing interval after casing has been run, if the necessity therefor can be demonstrated to his satisfaction. 

It is written a little bit backwards, but the rule allows the operator to flare all the gas it wants for 60 days (producing oil at a maximum efficient rate), but then - if not connected to gathering - for the next 60 days must restrict the flaring to any gas produced along with oil up to an average of 200 barrels a day, and so on.   

At the end of the one year period, an operator can only flare gas if they have an exemption - granted by the commission pursuant to a different set of rules. That rule is ND ADC 443-02-03-60.2:

43-02-03-60.2. FLARING EXEMPTION. 

The connection of a well to a natural gas gathering line is "economically infeasible" under North Dakota Century Code section 38-08-06.4, if the direct costs of connecting the well to the line and the direct costs of operating the facilities connecting the well to the line during the life of the well, are greater than the amount of money the operator is likely to receive for the gas, less production taxes and royalties, should the well be connected. 

In making this calculation, the applicant may add ten percent to the amount of the cost of connecting the well and of operating the connection facilities used to determine whether a connection is economically infeasible. This ten percent may be added in consideration of the cost of money and other overhead costs that are not figured in the direct costs of connecting the well and operating the connecting facilities. 

An applicant for an exemption under North Dakota Century Code section 38-08-06.4 must, at the minimum, present evidence covering the following areas: 

1. Basis for the gas price used to determine whether it is economically infeasible to connect the well to a natural gas gathering line; 

2. Cost of connecting the well to the line and operating the facilities connecting the well to the line; 

3. Current daily rate of the amount of gas flared; and 

4. The amount of gas reserves and the amount of gas available for sale.

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In relation to the number of wells currently flaring after one year, very few flaring exemptions exist, according to the reader.  

There are two common misconceptions in the media about operations:  1) that operators are paying royalty on gas that is flared outside the one year period, and 2) that operators are choking back wells to comply with the field rules.  The first is untrue and the operators have admitted as much, and the second is mostly untrue as shown just by the monthly production reports.

The writer asserts what I have suspected: the NDIC historically grants "every" single request for under-a-year flaring as well as over-a-year flaring.