The North Dakota legislature is considering legislation that would impact exploration and production (E&P) companies, including offering incentives to eliminate natural gas flaring at the wellhead.

Citing U.S. Energy Information Administration (EIA) data, lawmakers were struck by North Dakota’s current percentage of associated gas that is flared (30%) in the oil extraction process, compared to EIA statistics of 1% nationally and 3% globally. A bill (HB 1134) to offer tax exemptions is also being discussed.

In North Dakota, E&P operators may flare gas for a year without paying taxes or royalties, and they can seek hardship status for extending the practice. Some operators are trying to find uses for the gas, including using it to produce electricity to run hydraulic fracturing equipment, and to produce fertilizer.

Industry and state officials have been wrestling with the problem since the percentage of gas being flared reached an all-time high of 36% in September 2011.

E&P operators also could be exempt from paying the state’s 6.5% extraction tax if they process their supplies at the state’s only refinery, according to other legislation (HB 1032).

The state’s chamber of commerce chief told the House Finance and Taxation Committee that the business organization is against the proposed oil extraction tax exemption because the state’s only refinery, operated by Tesoro Corp., has a 68,000 b/d capacity and would provide a windfall only to those operators “lucky enough to sell to Tesoro,” according to reports.

North Dakota Petroleum Council (NDPC) President Ron Ness told reporters Monday that the organization, which represents most of the E&Ps in the state, would be offering a version of a tax restructuring bill later this month. A spokesperson for NDPC said the organization has not taken any positions yet on about a dozen bills that have emerged so far.

In his state-of-the-state address earlier this month, Gov. Jack Dalrymple did not advocate any specific legislation related to oil and gas production, but he cited the significant increases in energy production. Similar to oil, he said, “our production of natural gas has more than doubled from two years ago.”

State lawmakers are limited to how many days they may be in session and the biennial session ends in April.

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