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Vol. 19, No. 16 Week of April 20, 2014
Providing coverage of Bakken oil and gas

Snuffing flares

North Dakota willing to let oil production take a hit to curb flaring

Maxine Herr

For Petroleum News Bakken

Regulators are hopeful that excessive natural gas flaring will soon be a thing of the past in North Dakota. At a public hearing scheduled for April 22, the Mineral Resources director will listen to comments regarding production curtailment to reduce flaring in order to then draft an order to be voted on at the May Industrial Commission meeting. The order will have the force of law, according to Director Lynn Helms, and he hopes to have it take effect June 1 to coincide with the gas capture plans order.

In March, the commission voted to require a gas capture plan when an operator applies for a spacing unit. Upon application, the operator must show that it shared the gas capture plan with all available gas gathering companies for better construction coordination.

Outdated order doesn’t take massive Bakken into consideration

As the production curtailment order reads today, an operator can flare for 60 days to test the well’s production, then for the next 60 days it must reduce production to 200 barrels per day, and then to 150 barrels for the next 60 days. At that point, it is restricted to 100 barrels per day until the well is connected to a gas gathering system. Further restrictions could come into play if air quality is disrupted or deteriorating. The commission wants to rewrite this order which dates back to the late 1980s when oil development was much smaller and flares could be put out quickly. Today, the Bakken covers 15,000 square miles and high gas production from one well often shuts off the gas coming from another well due to a lack of capacity in the gas pipeline. Helms said if the order were enforced today, it would curtail production by about 80,000 barrels of oil per day.

“We need to look at what kind of curtailment is needed for those (wells) already connected,” Helms said. “The way the rules are now, as long as the well is connected, there are not restrictions. So we’re looking for input on what kinds of restrictions are appropriate for those already connected.”

Approximately half of the wells that are currently flaring in the state are connected to gas pipelines but are flared due to challenges or constraints on existing gathering systems, according to data from the N.D. Pipeline Authority.

Commission desires constructive comments

Helms said the hearing is expected to draw a large crowd, so telephonic testimony will not be allowed, and anyone wanting to speak will need to sign in beginning at 8 a.m. on that day. Comments will be limited to 15 minutes, including question and answer time.

The commission is interested in hearing from operators about economic impacts of production curtailments to their drilling and completions and what cash flow issues would arise from various restriction scenarios. It is also hoping to hear from experts regarding air quality and whether that should be a basis for any restrictions. Helms added that perhaps operators that have a few wells that are flaring at a high rate, yet overall have proven to flare less than 5 percent statewide, should be given leniency.

“The two largest changes will be restrictions on wells connected and then the schedule for those restrictions,” Helms said.

The oil and gas division has been reviewing possible templates for a new order, including one presented to the North Dakota Petroleum Council flaring task force in September in which Helms suggested restrictions should take effect at certain cumulative oil intervals or when a well has paid out or is near payout.

“I threw that out there to get them thinking,” Helms said.

Industry decides to make its own recommendation

Initially, the flaring task force had determined it was not going to issue a recommendation since reaching a consensus would be too difficult due to the various business models for operators and midstream companies. However, the task force reconsidered and held an all-day meeting on April 3 for constructive discussion to answer the questions posed by Helms from an industry perspective.

“I think we will present a unified front from industry which is important,” flaring task force Chairman Eric Dille told Petroleum News Bakken in an email. “The state is really asking companies to act in unison which is not typical of industry. This is probably good on this issue, but it may not work for other issues.”

Dille said the industry does not believe production curtailment is the best way to address the flaring issue because each operator needs to recover drilling, leasing and other costs. Instead, the task force will restate the target capture goals it presented to the commission in January. Dille said the state needs to let the process work and monitor it as gas capture plans will likely achieve those targets.

“If the NDIC must do anything because we are not reaching capture targets, then they should slow down the applications to drill in a way that we can plan for it from a business standpoint,” Dille said. “This will be a big problem for them though, because they have to decide who gets the next permit. Mineral owners and operators will not be happy and capital will likely leave the state for quicker rate of return.”

“There will be a reduction in oil production”

Though a new production restriction order would avoid the hefty 80,000-barrels-per-day drop, Helms still expects a notable reduction.

“We’re probably looking at a 15,000 to 30,000 barrels per day type of range for production curtailment in order to reduce flaring,” Helms said. “We haven’t really quantified it, but we’ve looked at lots of different models. There will be a reduction in oil production as a result.”

Helms said the curtailment is necessary in order to modify the flaring curve, but with the million barrels a day mark within easy reach this spring, the oil production curve may not show a noticeable slump even with restrictions.

“Once we go over a million barrels a day, we’ll probably stay there,” Helms said. “The plan we come up with, and the timing of it, shouldn’t take us down below that.”

The hearing slated for April 22 begins at 9 a.m. at the Department of Mineral Resources office at 1000 East Calgary Avenue in Bismarck. The resulting order will become effective the day the commission approves it, but it doesn’t carry the force of law until 30 days after the vote to allow opportunity for a party to petition for reconsideration or appeal to district court.



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10 to 15% flaring decline anticipated

The amount of natural gas flared in North Dakota remained static from January to February at 36 percent, a tie of the all-time high set in September 2011. The main cause for the high rate was weather-related delays at the expanded Hess natural gas plant near Tioga. The plant began processing gas at the end of March and is expected to run at full capacity by the end of April.

“We’re hoping for a 10 to 15 percent reduction in flaring with the Hess plant,” Department of Mineral Resources Director Lynn Helms said in an April 11 press conference.

The reduction will be a welcomed change as the state strives to curb flaring (see story, page 1).

The total volume of gas flared in February rose slightly to 10.95 billion cubic feet, or 391 million cubic feet per day. The Hess plant will be capable of processing 250 million cubic feet of gas per day, which is twice as much as its initial design.

According to data from the North Dakota Pipeline Authority, by the end of 2014, the state should have a total processing capacity of more than 1,300 million cubic feet per day.

“Once we get into April figures and May, and the full effect of the Hess facility, we’ll see dramatic shifts in … overall statistics and number of wells flaring and connected to sales,” said Justin Kringstad of the Pipeline Authority.

—Maxine Herr