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N.D. officials clarify when oil companies are exempt from flaring rule

BISMARCK -- They always said rules are made to be broken.

North Dakota officials on Tuesday clarified when oil companies are exempt from anti-flaring gas capture rules. Qualifying as  "extenuating circumstances," they said, were right-of-way delays, safety issues and system upgrades.

Oil companies can also avoid production curtailments if flaring is caused by upgrades to improve gas capture in the future, like shutting down a gas plant in order to expand it.

In the face of mounting criticism and concern of the runaway gas that companies were flaring as they raced to get more valuable oil, the North Dakota Industrial Commission last year adopted new goals for how much of the gas is captured.The industry captured 78 percent of gas in January, exceeding the 2015 goal of 77 percent. It must next capture 85 percent beginning Jan. 1, 2016, and 90 percent starting Oct. 1, 2020.

But since the policy went into effect, companies have requested permission to flare for various reasons, causing the Industrial Commission, made of Gov. Jack Dalrymple, Attorney General Wayne Stenehjem and Agriculture Commissioner Doug Goehring, to seek clarification on when to authorize it.

Last month in Lignite, N.D., a power surge caused a two-day shutdown of ONEOK Inc.'s gas plant there, which processes 6 million cubic feet a day. In that case, ONEOK sent the Department of Mineral Resources a letter explaining the incident and its effect on gas capture.

The "force majeure gas" flared during that time, under the guidelines, would not count for or against ONEOK's calculations, DMR Director Lynn Helms said.

In another case, Hess Corp. increased capacity at its Hawkeye Compressor Station but was down for 24 days for upgrades and delivery delays.

"There are sometimes unforeseen circumstances in anything and I think the NDIC just needs to weigh them ..." Hess spokesman John Roper said of the Hawkeye expansion. "We were trying to do all the right things."

When companies don't meet the goals and the Industrial Commission doesn't authorize the excess flaring, the wells are restricted to producing 200 barrels a day if 60 percent or more of gas is captured, or to 100 barrels a day if it captures less than that percentage.

The guidance Helms presented rewrites a paragraph in the original order to outline six causes of flaring in which the Industrial Commission would likely grant relief from the production restrictions penalty: right-of-way delays, midstream downtime for system upgrades or maintenance, federal regulatory delays, safety issues, delayed access to electrical power and possible reservoir damage.

In all cases, the company would have to notify the Industrial Commission within the month after the goal wasn't achieved, and the commission would then hold a hearing to verify the company's excuse.

The guidance also leaves open the option of seeking an exemption for unlisted "extenuating circumstances." In those cases, Helms said, the flaring would occur in the process of upgrading a system to, within a year, capture more gas than ever.

"If you don't allow the companies to shut down ... for the issues listed, then we're never gonna be able to further expand our ability to capture more gas," said Ron Ness, president of the North Dakota Petroleum Council. "As a producer, you're at the mercy of the electric company, you're at the mercy of the processing company. ... I think those made sense."

Zavanna LLC's 1804 Ltd. gas plant northeast of Williston is an example of the open-ended exemption, Helms said. The Industrial Commission granted its first exemption to the rule for flaring relief December through March for the company's gathering line and plant to get up and running.

"Coming out, gas capture will be far better than it was going in, so we would lean toward approving those," Helms said.

The plant will be selling gas starting April 15, and their flaring has gone from 75 percent to 12 percent, Helms said.

Helms also outlined the penalties for when companies don't report their violation of the flaring requirements within the month after the violation occurred.

"If a company is a bad actor, if they've had a bad month and they know that they weren't meeting the gas capture goals but they delay in coming to ask for relief, there could be a penalty," Helms said.

The penalty starts at $1,000 a month and doubles every month up to $12,500 a month. If a company doesn't curtail production after found to be flaring too much, the commission would issue a verbal notice the first month, a written notice the second month and then a fine of up to $12,500 per well per day starting the third month.

Stenehjem questioned the impact of the fines for not reporting in time: "Is that gonna be adequate?"

Helms said so far companies are getting in touch with his department when they don't meet the capture requirements within the required month, or in advance.

However, there have been instances where the commission decided excess flaring was unacceptable.

Commissioners denied Whiting Petroleum Corp.'s request for an exemption for flaring in a situation where, Helms said, the company knew the gathering system that it relied on to avoid flaring would not be up and running in time.

"Whiting went ahead and fracked these wells in February, two months after they knew the compressor wasn't going to be up and running at full capacity ... We don't believe that this application meets one of the six mitigating circumstances," Helms said.

The company will have to restrict production for about a month in its Sand-Creek Bakken Pool in McKenzie County to get back in line with gas capture requirements.

Ness said he was frustrated the commission ruled against Whiting, noting the company has "gone above and beyond" to try and capture the gas in this case, like with remote capture units.

"I think they have done everything they can to try and get that gas in that field," he said.

Additionally, in taking over Kodiak Oil and Gas -- a company that had "substantial flaring challenges" -- late last last year, Whiting had to race to meet the gas capture goals, Ness said.

"They've done a tremendous job, I think, in terms of doing everything they possibly can to every extent possible ... there's not consideration to them for doing that today."

Whiting spokesman John Kelso didn't return a call for comment Tuesday afternoon.

The commission did approve exemptions for XTO Energy Inc., which dealt with a poster-child example of the extenuating circumstances.

Part of the ONEOK gathering pipeline, which XTO relied on for capturing the gas, eroded out of a hill after heavy rains.

"It was a nature event, unpredictable and unstoppable. The line's exposed and it's not safe to keep operating it so they shut it down," Helms said. ONEOK has also struggled to obtain right-of-way for looping around the obstruction.

Commissioners unanimously approved the flaring.