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Reduced Production, Revenues Likely From BLM Flaring Rules, North Dakota Producers Say

The U.S. Department of Interior's Bureau of Land Management (BLM) proposed rules governing flaring and venting of associated natural gas on public and tribal lands could cut production in parts of the Bakken by 20% and cause tens of millions of dollars in lost tax and royalty revenues, according to comments given Thursday to the federal agency by the North Dakota Petroleum Council (NDPC).

BLM is seeking to require operators to deploy equipment and processes to limit the amount of flaring of gas at oil wells on public and tribals lands, and to periodically inspect their wells for leaks (see Shale DailyJan. 22). NDPC estimated that in the Bakken this could affect more than 2,780 wells.

BLM is taking comments through April 8 on its rules that also would require operators to limit venting from storage tanks, and would clarify when operators owe the government royalties, and allow the federal agency to set certain royalty rates higher than 12.5%.

Based on the comments, BLM plans to "revise the draft accordingly" with the goal of finalizing rules by the end of the year, a spokesperson told NGI's Shale Daily on Friday. NDPC, community leaders and regulators all have asked for an extension of the April 8 deadline.

NDPC contends that more time is needed to assess the impacts of the proposed rules. There also is a need to determine how these rules would work in concert with existing regulations, the producers' group said.

Initial estimates by NDPC indicate that the state would lose up to $23.8 million in oil/gas severance taxes and North Dakota mineral owners could lose more than $39.1 million in royalty income from the proposed BLM rule on flaring/venting, given a 20% production cutback.

"The industry supports the goals of capturing greater quantities of associated gas and reducing waste but this one-size-fits-all federal process could come at a huge cost to North Dakotans while providing few -- if any -- benefits," said Tessa Sandstrom, NDPC communications manager.

"BLM claims that it could collect $23 million in additional royalty revenues for the federal government, but even if that were true, it would be at the expense of more than $62.9 million in tax revenues and royalty income in North Dakota alone."

Sandstrom called the statistical estimates "very conservative," adding that they are all the NDPC could develop, given the short time frame. "We didn't take into account a lot of the smaller technical aspects," she said. "Getting a comprehensive estimate would take a very long time because of the complexity involved."

Obama administration officials in the Interior Department introduced the flaring/venting proposal as "common sense and cost-effective" measures, and Interior Secretary Sally Jewell said the administration is concerned about wasting natural gas "that should be used to power our economy." Jewell said the new rules will help "modernize decades-old standards to reflect existing technologies so we can cut down on harmful methane emissions."

NDPC counters that North Dakota already has some of the most comprehensive regulations for flaring in the nation (see Shale DailyApril 13, 2015). "The industry has voluntarily made huge strides in gas capture by investing more than $13 billion in natural gas infrastructure since 2006," Sandstrom said. "This progress has been despite federal regulations, which are often responsible for delays preventing industry from building infrastructure needed to capture more gas."

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