BISMARCK-A federal agency plans to determine whether the oil industry owes royalties for flaring natural gas from federal and tribal oil wells, a review a North Dakota tribal chairman calls "way overdue."
The Bureau of Land Management announced this week it plans to review about 2,500 requests to flare from wells the agency manages in North Dakota and determine whether the flaring was avoidable.
If the agency determines the companies could have avoided flaring natural gas as they produced oil, royalties could be due to the U.S. government, North Dakota's Three Affiliated Tribes or other beneficiaries for flaring on federal wells dating back as far as five years.
Tribal Chairman Mark Fox said Thursday the BLM has a responsibility to review requests to flare and called the agency's process "grossly delayed."
"Unnecessary flaring causes a significant loss of gas resources and income that mineral owners have a right to be paid for, including our tribal nation," Fox said.
The BLM requires operators to get authorization to flare natural gas from federal and Indian oil wells by submitting documents known as sundry notices. But the BLM stopped processing the sundry notices due to concerns that the agency didn't have an adequate environmental document, said Loren Wickstrom, manager of the BLM's North Dakota field office.
The agency announced this week it concluded that environmental assessment and will now move forward with processing the backlog of pending sundry notices, which Wickstrom estimated to be about 2,500.
Though the decision is called an environmental assessment, it won't have impacts on the environment because it relates to flaring that occurred prior to January 2017.
"The reality is the gas has already flared. It's gone. It's in the atmosphere," Wickstrom said.
Questions remain about how long it will take the agency to review the backlog and what level of financial impact it could have.
"This is going to be a huge undertaking," said Kari Cutting, vice president of the North Dakota Petroleum Council.
The industry group has long awaited BLM action on this issue and, in the meantime, has invested $13 billion in pipelines, gas processing plants and other infrastructure to capture natural gas, Cutting said.
Statewide, North Dakota natural gas flaring peaked in September 2011 with companies flaring 36 percent of all natural gas produced, according to the Department of Mineral Resources.
The North Dakota Industrial Commission established rules to reduce flaring, and the industry is exceeding the current target with a flaring percentage of 10.5 percent.
On the Fort Berthold Indian Reservation, flaring is slightly higher at 15 percent, according to the latest figures.
Engineers with the BLM will consider factors, such as pipeline availability, pipeline capacity and the economics of capturing natural gas, when determining if the flaring was avoidable, Wickstrom said.
A lack of pipeline availability was a major challenge for operators in the beginning of the Bakken development, but today all but 2 percent of wells are connected to a natural gas gathering pipeline.
Most of the flaring that continues is due to pipelines that are not large enough to transport all of the gas or in cases where there are maintenance issues.
Cutting said the industry believes the decisions from the BLM should be that the flaring was predominantly unavoidable.
"We're certainly hoping that after the $13 billion investment that industry has made in gas processing that we've already corrected the problem," Cutting said.
Initially, the agency will review 10 to 20 cases as it works to establish a consistent process, Wickstrom said. Until that initial review occurs, Wickstrom said he doesn't have an estimate on how long the process could take.
Fox said the lengthy process is unacceptable and the BLM needs to either "fulfill its trust responsibilities" or defer the responsibility to the tribe, which he said requires royalty payments on flared gas after one year.
In 2013, more than a dozen private mineral owners filed lawsuits claiming they were owed royalties on gas flared in violation of North Dakota statutes.
The courts did not rule on the merits of the cases, but said the owners need to first bring claims to the North Dakota Industrial Commission.
"The difficulty is that it's not very economical for a lot of royalty owners to bring these actions individually in front of the Industrial Commission," said Derrick Braaten, one of the attorneys involved with the cases.
Braaten said he still plans to pursue actions on behalf of royalty owners for flared gas.
"Most of this flaring, there's really no argument that the company owes royalties," Braaten said. "They've just made it noneconomic for someone to recover."
Flaring from federal wells after January 2017 would be subject to the new BLM methane and waste prevention rule, the rule that Congress recently failed to repeal.