North Dakota’s natural gas production rose nearly 40 million cubic feet per day in July, a 3 percent increase, and the state’s gas capture also rose, increasing from 72 percent in June to 74 percent in July indicating that the industry’s efforts to capture more gas are working.
However, those are cumulative statistics with some operators capturing more than 74 percent and others capturing less as drilling activity continuing to rise. The state’s Department of Mineral Resources Director Lynn Helms said the industry “will have to work very hard” in order to meet the upcoming requirements set by the North Dakota Industrial Commission, NDIC, that require that each operator capture 74 percent of produced gas by Oct. 1 and 77 percent by Jan. 1.
North Dakota Petroleum Council President Ron Ness told Petroleum News Bakken the greatest challenges to those operators still struggling to hit the gas capture target include delays in right-of-way approvals and the fast approaching end of the construction season.
“The right-of-way issue … is still the critical path item for collecting the largest volumes of flared gas,” Ness said. “Any help from local, state, and federal agencies to expedite the process is much needed.”
Hess plant running below capacity
One such obstacle is the Hess Tioga gas plant which is still only operating at 70 percent capacity while the company continues work to obtain federal permitting required for a small stretch of gathering pipeline near Lake Sakakawea. “That’s a major disappointment and that’s going to hold the Tioga gas plant in that 70 to 75 percent capacity through the winter and make it harder to reach that gas capture goal,” Helms said. Hess Corp. is hopeful it will obtain the necessary permits in October to be ready for the 2015 construction season. Because the first two versions of a required cultural study were deemed inadequate, Hess has issued a third version in its effort to obtain the permit.
“It’s a previously disturbed corridor so I don’t quite get it,” Helms said. Hess is attempting to receive a finding of no significant impact, or FONSI, from the federal government. Oneok Partners is also seeking a FONSI for a 1.6-mile high pressure gathering line across federal and tribal lands in order to connect to its recently completed Garden Creek III plant. The Three Affiliated Tribes would prefer to not have infrastructure across the scenic Bear Den area, but Oneok has approached the U.S. Forest Service and is hopeful to obtain a FONSI from that agency.
“It’s frustrating to companies to have a 50-mile pipeline and have a 1.6-mile section of that pipeline require all this extra effort, but it’s the reality that we live in and it’s the terrain they’re trying to cross,” Helms said.
Even though these delays will affect gas capture and processing, Helms said the NDIC is very firm and will push the industry to plan ahead in order to build pipelines and achieve the gas capture goals.
Remote capture units on the rise
Helms said he recently met with an operator that does not have easy access to gas gathering pipeline, so it has made a $30 million investment by ordering 15 well site gas capture units to try to minimize flaring.
“Industry is taking this dead serious and really ramped up,” Helms said.
Helms’ department has provided operators with preliminary audit information to help them identify problem areas in order to begin allocating capital for those areas. He anticipates a large increase in remote capture units being ordered in the coming months.
After October data are collected in December, the department’s audits will initiate notices of non-compliance to operators, and production restrictions would be required in January. In addition to curtailment, the department could penalize operators up to $12,500 per day for periods when it doesn’t appear the operator made a diligent effort to increase gas capture. Those complaints would not roll out until March. Those “diligent efforts” will be measured in various ways but it hinges greatly on operators effectively communicating with the department. Helms said if an operator is not meeting gas capture targets, some examples of due diligence include ensuring production is restricted, or that a sundry notice was submitted stating that well site capture units were ordered, or that perhaps there was an accounting error and information was misreported.
Reservation still trails
Flaring on the Fort Berthold Indian Reservation remained higher than the statewide average with only a 70 percent capture rate and Helms said the state and tribe are still in the process of discussing jurisdictional issues that have arisen due to a proposed gas capture plan written by the tribe. Helms said the tribe’s initial proposal already faces changes in order to meet federal regulations, and a state legal analysis expected by the end of September may require more adjustments. The tribe’s proposal bases flaring regulation on a mandated royalty system rather than what it calls a “penalty program” by the NDIC. Under the tribe’s proposed plan, operators can flare gas for 30 days, but then must pay 25 percent of royalties on new wells and 75 percent on infill wells. After 90 days, that percentage rises to 50 percent for new wells. After 180 days, operators must pay 75 percent of royalties flared on new wells and 100 percent on infill wells. New wells that are still flaring after 270 days will be subject to a 100 percent royalty payment on flared gas.
