State regulations to curb flaring just got some teeth.
The North Dakota Industrial Commission, NDIC, voted unanimously on new production restriction rules to reduce flared gas and meet a goal to capture at least 90 percent of the gas by 2020.
Lynn Helms, director of the state’s Department of Mineral Resources, DMR, presented the commission with the proposed order at its monthly meeting on July 1. It imposes oil production restrictions if producers fail to meet the gas capture goals determined by the North Dakota Petroleum Council, NDPC, flaring task force. The first target is to capture 74 percent of the gas by Oct. 1. This date was chosen because Oneok’s Garden Creek II plant is scheduled to be operational at that time, adding 100 million cubic feet of gas processing per day.
To meet that goal, the commission ruled to allow all infill horizontal wells within the Bakken and Three Forks pools to produce at a maximum efficient rate for 90 days. The first 14 days of flowback gas can be removed from the total monthly volume calculation. That leaves another 76 days for an operator to get connected to a gathering facility or utilize remote capture processes in order to hit the gas capture target. If unsuccessful, the operator will face production restrictions. If they can capture 60 percent of the gas through remote capture, then they can produce up to 200 barrels a day. But if they fail to employ that technology, they are restricted to 100 barrels a day until they implement a solution.
The order addresses the difference between wells in the delineation phase and those in full development. The first wells completed in the pool can produce at a maximum efficient rate indefinitely, but those flaring totals will count against the operator in its overall performance. The commission intends to review an operator’s track record of getting wells connected before curtailing production on a well that may have special circumstances attached to it, such as poor topography that can impede construction. But even these areas will be subjected to finding well site solutions in order to solve their flaring problem. Allowing maximum production on the first well provides for critical evaluation to determine the accurate number of wells to drill and the needed infrastructure.
“A lot of 8-inch pipe was laid in the ground over the last few years because we didn’t do this and now we found out it was too small,” Helms explained, “and so we don’t want to compound that error.”
The only exception to the production restriction rule on infill wells are those proven to never be economic to connect to a gas facility. This applies to just over 1,000 wells and most of those produce less than 100 barrels of oil so restriction wouldn’t be necessary anyway.
“I think the way this order rolls out, companies are going to have adequate time between today and Oct. 1 to secure those well site processes and increase gathering capacity,” Helms said.
But NDPC President Ron Ness said the industry would have preferred a “toolbox option” that would allow operators not in compliance to be given greater opportunity to find gas capture solutions.
“This is, if you’re not meeting the target, and you go into the penalty box, what’s going to happen?” Ness said. “It’s a big change. Typically this type of thing would take place over months and months and maybe legislative discussions, but they made a drastic change on how you’re going to impose potential curtailment on production if you’re not meeting those goals and that is a significant issue to operators.”
Critical features
If the commission issues a directive to restrict production, it constitutes a force majeure on any contracts with a midstream company. This will allow the operator to use a temporary solution to process the gas until adequate gas capacity arrives at the well. This was an issue for many operators at an April 22 flaring hearing. Hearing testimony also caused Helms to consider air quality within the order, so now if the state Department of Health determines a well’s flare violates air pollution control rules, then NDIC has the authority to restrict production to zero.
“I think that’s a critical thing,” Helms said. “But we do want it to be a case where the health department does an analysis and it is based on science.”
Flaring on the Fort Berthold Indian Reservation is significantly higher than the rest of the state with percentages in the 40 percent range due to topography and right-of-way delays. DMR is working with the tribe so they can develop a similar resolution.
“It will be challenging in many ways, so I don’t think the lands on Fort Berthold will come along as quickly as those off, but I do think we’re going to have a cooperative effort.”
Helms said the commission will be flexible with operators struggling to reduce flaring on the reservation if they are proving to be hitting gas capture targets on wells elsewhere. He said operators will be evaluated on a statewide, field-wide, well pad and well basis.
With gas capture goals spread over October through January 2016, Helms said the order is a continuous rollout of “increasing and tightening” flaring restrictions. With October production reported in December, the earliest restrictions could come is January. By then, the next goal - capturing 77 percent - takes effect.
“I suspect if you bring the average (flaring percentage) down, there’s going to be a couple producers out there that will feel the pinch and they’re going to be scrambling,” Gov. Jack Dalrymple said. “We don’t know who those are but we’ll find out. What we do here today, we’re serious about it.”
Helms noted not only will the flaring percentage go down, but a significant drop of volume flared should follow.
The new rules come exactly one month after a new requirement took effect for operators to submit a gas capture plan with each drilling permit outlining how they plan to capture the gas. Helms said the response to those plans indicate the industry understands what the commission is trying to accomplish.
“I think this order and its implications spread the pain pretty evenly,” Helms said.
