State oil and natural gas auditors in the North Dakota Department of Mineral Resources (DMR) will be looking in detail at how wellhead associated gas is handled, according to a letter sent to oil/gas operators by DMR’s auditing supervisor.
The letter, sent last Friday, is part of a full-court press to implement the state Industrial Commission's mandate to rein in volumes of flared associated gas (see Shale Daily, July 2).
DMR auditing supervisor David Tabor wrote that a gas production report (Form 5B) must be filed on each well in the state monthly. The reports will be used to track all wet gas produced, along with dry residue gas, for which royalties would be paid, including gas flared in violation of the applicable state rules.
For July, operators were able to capture 74% of associated gas, which would meet the state goal for October. DMR Director Lynn Helms last Friday voiced concerns about the industry's ability to sustain that level or better in October because of a number of challenges, including the disconnect between operations on Fort Berthold Reservation federal regulated lands, which account for nearly one-third of the state's oil production (see Shale Daily, Sept. 12).
Helms said that on the reservation the capture percentage in the most recent statistics was 70%, compared to operators on all other lands being at 75% capture. Put together, they equate to the 74% statewide capture rate. The state’s gas capture percentage is due to increase to 77% in January.
Tabor's letter said the state will notify all operators that are found to be out of compliance, and "additional well information may be requested by the Commission to determine compliance."
As part of the state's review process, Tabor said the gas capture volumes will be calculated on a statewide, countywide, and field-wide basis. It will also identify wells that will have production restricted due to noncompliance.
"Future applications for drilling permits may be postponed if [an] operator is not meeting the [state's] gas capture percentage and not desiring to utilize the gas in a beneficial manner," Tabor said in the letter.
Wells for which production is restricted can get back to full production by demonstrating that statewide, local and field compliance targets are being met. Tabor outlined a series of "beneficial uses" for the associated gas that would be counted as part of the captured volumes totals. They include:
Onsite electric generation consuming wellsite gas;
Surplus gas and natural gas liquids used for fuel, transported to processing facilities, used to produce fertilizers, converted to liquid fuels, and/or collecting at least 50% of the propane and heavier hydrocarbons; and
"Value-added processes" approved by the DMR director as reducing the volume or intensity of the flare by more than 60%.
For volumes sent to gas processing, a separate report (Form 12) is required monthly by the gas processing plant owner/operator.
"These are general guidelines only, and additional information may be required as needed," Tabor said.