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Vol. 18, No. 43 Week of October 27, 2013
Providing coverage of Bakken oil and gas
Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©1999-2019 All rights reserved. The content of this article and website may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.

ND flaring twist

Lawsuits filed against 10 operators seeking royalties on flared gas

Mike Ellerd

Petroleum News Bakken

The efforts to reduce flaring of natural gas in North Dakota took a new turn when class action lawsuits were filed Oct. 16 against 10 oil and gas producers seeking compensation for mineral rights owners who are missing out on natural gas royalties on flared gas. The suits were filed in district courts in Divide, McKenzie, Mountrail and Williams counties.

The 10 lawsuits were jointly filed by five law firms with oil and gas as well as class action experience from North Dakota, Montana, Wyoming, Colorado and Texas. Collectively, the suits are seeking compensation which could be in the range of tens to hundreds of millions of dollars. In an Oct. 16 press release, the five firms cite an estimate that $100 million worth of natural gas is flared in North Dakota each month. That estimate puts the gross economic loss from flaring in the state at more than $1 billion per year.

The complaints note that under Section 38-08-06.4 of the North Dakota Century Code, an oil and gas producer may flare associated natural gas for a period of one year after the well goes on production and is not required to pay royalties providing the producer fully complies with applicable North Dakota Industrial Commission rules and orders. After that one-year period, the producer may continue flaring only if a statutory exemption is obtained from the Industrial Commission. The complaints state that none of the defendants in the 10 cases received such exemptions, and the complaints seek damages for all gas flared after a year.

Century Code also cited

Additionally, the complaints maintain the producers named in the lawsuits were not in compliance with the Century Code during the first year of production when a number of specific wells were producing. Specifically, the Industrial Commission provides field rules for wells during the first year of production. One such rule is North Dakota’s “60-60-60” rule that states that a well can produce oil and gas at a maximum rate for only 60 days from the point of initial production after which production is limited to 200 barrels per day for the next 60 days, then is limited to 150 barrels for the next 60 days, and then to 100 bpd up to the first anniversary of production. Each field has a similar rule.

The complaints contend that the defendants produced more oil than allowed under the applicable rule and were, therefore, in violation of the rule. Consequently, the complaints maintain that those 10 defendant producers should pay royalties to mineral rights owners for the natural gas that has been, is being and will be flared in violation of the field rules.

Baumstark Braaten Law Partners of Bismarck, one of the five law firms filing the suits, issued a press release on Oct. 16 claiming that mineral rights owners “potentially have lost millions of dollars in royalties due to producers’ practice of burning off large quantities of gas rather than selling it.”

Defendants and damages sought

The 10 operators against whom the suits are filed are Burlington Resources (ConocoPhillips), Continental Resources, Crescent Point Energy, HRC Operating (Halcon Resources), Marathon Oil, Samson Resources, SM Energy, Statoil, WPX Energy and XTO Energy (ExxonMobil).

Each complaint identifies specific individual mineral owners as plaintiffs but also includes “all those similarly situated,” i.e., a “proposed class” for the class action. In addition, each complaint indentifies one or more specific wells operated by the defendant. The amount of oil and natural gas produced and the amount of gas flared from the specific well(s) is quantified as calculated from North Dakota Department of Mineral Resources Oil and Gas Division production records.

The complaints ask that the plaintiffs and the proposed classes be paid royalties on the gas flared during the first year of production and during the period after one year of production as well as all gas improperly flared in the future. The complaints state that the plaintiffs and proposed classes are entitled to the highest value of the gas during the period in which the gas was flared. The complaints indicate that the actual amount of damages will be proven at trial. The plaintiffs and proposed classes are also asking to be reimbursed for attorneys’ fees.

In addition, the complaints ask that, unless the defendants pay the royalties to the plaintiffs and the proposed classes, the courts should declare that the flaring of gas and future production and flaring of gas is a violation of the North Dakota law.

Industry perspective

The lawsuits come just as the North Dakota Petroleum Council’s task force on flaring is beginning work to identify solutions to flaring in the state, including optimizing gas at the wellhead and increasing and improving gas gathering infrastructure. The task force met with the Industrial Commission on Oct. 22 and discussed specific flaring issues and objectives, and is planning to present recommendations to the commission in December.

Petroleum Council President Ron Ness said the council recognizes the challenges with capturing associated natural gas in oil production, not only in the Bakken play but in other major oil discoveries where there was not sufficient infrastructure in place. The council’s task force was formed to address those challenges. “The NDPC Flaring Task Force is working hard to identity every possible solution to reducing the flaring,” Ness told Petroleum News Bakken.

One of the challenges with the Bakken is that the play is in the early stages of development and is in an area with little existing infrastructure. “We have to remember that the Bakken is still a very young play, and this is just one factor in why production has outpaced our ability to build the infrastructure needed,” Petroleum Council Chairman Terry Kovacevich said in an Oct. 16 press release officially announcing the task force. “Furthermore, the Bakken is unlike any other play in the world and requires solutions specifically tailored to its geology, climate, landscape and resources.”

Ness said the oil and gas industry has been working hard to catch up with the natural gas infrastructure needs. “Industry has invested $6 billion on building the natural gas infrastructure and it will require substantially more investment moving forward to capture and process this rich Bakken gas,” Ness told Petroleum News Bakken. “It’s not like we aren’t trying to capture the gas — it just takes time.”

In addition, Ness said it is unclear to him exactly what the plaintiff’s objective is in terms of future royalties. “I do not completely understand what this group of mineral owners is seeking in the lawsuits on future production,” he told Petroleum News Bakken. “These same mineral owners greatly benefit with the production of oil from these same wells. The current law is pretty clear and the companies must comply to get a flaring variance approved by the North Dakota Industrial Commission.”

Plaintiff’s legal team

In addition to Baumstark Braaten Law Partners of Bismarck, the other four law firms filing the suits are Murdock Law Firm PC of Casper, Wyo.; The Monts Firm of Austin, Texas; Balzer Law Firm PC of Loveland, Colo.; and Tarlow, Stonecipher & Steele PLLC of Bozeman, Mont.

Petroleum News Bakken spoke with Matt Kelly, an attorney with Tarlow, Stonecipher & Steele working on the case, and Kelly said the efforts by industry to address the flaring haven’t gone unnoticed, but added that it is compliance with state law that is the issue. “Effort doesn’t equal compliance,” Kelly said.

While it might appear at first glance that a single law firm representing multiple plaintiffs would be more efficient than involving multiple firms, Kelly said lawyers from the five firms were assembled to create a team of lawyers with a variety of specific, case-related skills. The reason, Kelly said, is that the defendants are likely to assemble a group of lawyers from large and powerful firms to fight the lawsuits, which he said makes a team approach necessary for the mineral owners’ side. “We’re smaller firms and so we’re taking a team approach to work together,” Kelly said.

Once the defendants officially receive their complaints, they will have 21 days to respond. After that, the legal discovery stage begins after which the process moves into actual litigation.

The plaintiff’s legal team has set up a website at http://ndgasflaringlitigation.com/. The Oct. 16 press release is available at that website along with all 10 complaints and information on the five law firms.



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Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News Bakken)©2013 All rights reserved. The content of this article and website may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.





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