North Dakota Oil Companies Sued for Flaring Natural Gas

For the past few years, the North Dakota oil boom has run far ahead of the state’s ability to ship its oil and gas out of producing areas because of a lack of gathering pipeline infrastructure. While excess oil can be shipped by rail, the low price of natural gas has led producers to flare what cannot be collected and pumped out.

Despite more than $6 billion being invested in new pipelines in North Dakota, construction is not only failing to keep pace with gas production but is actually falling behind in the amount of wasted gas. Flaring in the state has tripled over the last two years, and even though the percentage of gas being flared has fallen from 36% in 2011 to 29% in August, the flaring is still so widespread it can be seen from space.

Estimates of the value of gas being flared are as much as $100 million every month. This is money that is, literally, going up in smoke, and it is an amount that has roiled both state regulators and landowners.

A group of the latter has now gone beyond complaining. Last week, North Dakota mineral rights owners filed ten class action suits against exploration firms that are currently flaring gas, seeking damages for lost revenue from flaring.

North Dakota law allows producers to flare gas for 12 months after an oil well enters production, under certain restrictions. However, after the first year, a producer must apply for a written exemption to continue flaring; otherwise, it must pay royalties and taxes on the value of the flared gas. In the lawsuits, the plaintiffs contend that producers in North Dakota are flaring in excess of production limits during the first year, and flaring after a year without securing exemptions or paying appropriate royalties.

Approximately 1500 wells in North Dakota are flaring gas because of a lack of connections to gathering infrastructure. The suit alleges that other wells have pipeline connections in place but producers continue to flare the gas anyway.

The North Dakota Petroleum Council (NDPC) insists the industry has been working to reduce flaring. Also last week—though the timing was apparently coincidental—it announced the formation of a task force to address the issue. “We also want to optimize the development of our oil and natural gas resources in North Dakota,” NDPC chairman Terry Kovacevich said in a statement, “but this will take significant investments of time and money and will require collaborative efforts between the industry, landowners, government agencies and a number of other key stakeholders.”

—Thomas W. Overton, JD, gas technology editor (@thomas_overton, @POWERmagazine)