ND Industrial Commission grants exception to flaring goals, but asks for new policy

BISMARCK – The North Dakota Industrial Commission approved Wednesday an exception from its flaring goals but directed state regulators to draft a policy to address such scenarios in the future.

The three commissioners voted unanimously to grant an exception to Hess Corp. for failing to meet the gas capture goals when unexpected delays occurred during an expansion project.

Hess was adding capacity at its Hawkeye Compressor Station near New Town to process more natural gas, but the company had to shut down some operations for 24 days in November and December. The work was planned months earlier, but the equipment was delivered late, said Director of Mineral Resources Lynn Helms.

As a result, Hess captured 72 percent of natural gas in December while the Industrial Commission’s goal was 74 percent, Helms said. The company asked for temporary limited relief from the flaring goals, which the commission began enforcing Oct. 1.

Gov. Jack Dalrymple, who leads the Industrial Commission with Attorney General Wayne Stenehjem and Agriculture Commissioner Doug Goehring, said the gas capture plan has expectations that companies need to meet.

“Really anytime there’s surplus gas being flared, it should be initially a violation,” Dalrymple said. “And we should have a set policy on exactly how we would penalize that. Then we can hear what the mitigating circumstances are.”

The Industrial Commission can impose fines of $12,500 a day for violations of its rules.

Goehring called the request reasonable and cautioned about discouraging the development of infrastructure if companies are penalized when shutdowns are necessary as part of the expansion process.

But commissioners also said they’re concerned that other companies will ask for exceptions and blame it on delays.

“We don’t want them to think that a variance is going to be a pro forma thing,” Stenehjem said. “The burden’s on them, as far as I’m concerned.”

Commissioners directed Helms and his staff to draft a policy related to planning for shutdowns or other unexpected issues and notifying regulators when flaring goals will not be met.

“We’re going to need to have a consistent policy that doesn’t penalize people for making the investments that they need to make, but that holds their feet to the fire on doing all the planning they can and notifying us when those plans come apart for whatever reason,” Helms said.

This is the second exception to the flaring goals the commission has granted. Commissioners approved an exception for Zavanna for wells near Williston that were flaring while the company brought a new gathering system and gas plant online.

Wells in that area flared as much as 85 percent of natural gas in December, but that percent was down to 20 percent this month and is expected to be zero by the end of March, Helms said.

Also Wednesday, commissioners discussed legislative activity and said they’re getting a mixed message from lawmakers.

Legislators want oil and gas regulators to quickly address several areas such as more pipeline oversight but with fewer employees than requested and with new rules that will add time-consuming bureaucracy, Helms said.

Commissioners directed Helms to advocate during the second half of the session for more funding for staff. The governor’s budget included 22 new staff to oversee oil and gas development, but the House approved 15 positions.

The commission opposes House Bill 1187, which would require all “rules of general applicability” to go through an additional legislative review process. Helms said that requirement takes 10 months and would prevent the commission from being flexible and responding quickly to issues that arise.

Members also oppose Senate Bill 2343, which requires the Industrial Commission to report the fiscal impact of actions that have a fiscal impact of $20 million or more. Helms said any order he signs that relates to seven or more wells would require him to report a fiscal impact.

Commissioners directed Helms to testify against those bills in the second half of the session.

“This is a contradiction and we cannot accomplish the tasks laid out for us in these good bills with the constraints put on us by these bad bills,” Helms said.

Bills add regulations, research for pipelines

BISMARCK – House lawmakers unanimously approved Monday what has been called “landmark legislation” to strengthen regulations of oil and saltwater gathering pipelines.

House Bill 1358 incorporated the best ideas from five bills that dealt with pipelines as well as other issues that have frustrated landowners, said Rep. Mike Nathe, R-Bismarck.

The bill requires gathering pipelines installed after Aug. 1 to have flow meters, over-pressure devices or an approved pipeline leak detection system as required by the North Dakota Industrial Commission.

Companies also would have to submit engineered design plans and put up a bond for the pipelines, and a qualified third party would have to inspect them. The bill also requires that gathering pipelines have bonds.

The bill includes $1.5 million for a pilot project to clean up oil- and gas-related issues that occurred before 1983 where there’s no responsible party. It also includes $500,000 to identify best practices for removing salt from soil surrounding abandoned oil waste pits in north-central North Dakota, where saltwater has sterilized pockets of farmland.

The Energy and Environmental Research Center at the University of North Dakota would receive $1.5 million to study pipeline standards, materials and monitoring systems.

“We think this is a critical step in identifying the root cause of spills, researching new technologies, construction standards and conducting a comparison of other states to determine best practices and spill ratios,” Nathe said.

The bill would allow landowners to ask for a review of wells that have been placed on temporarily abandoned status for seven years and companies would have to validate why the well should remain on temporarily abandoned status.

House Minority Leader Kenton Onstad, D-Parshall, said the bill had a lot of good provisions and he urged representatives to support it.

The bill also makes public information about spills that occur on confidential wells when more than 10 barrels spills off of the location.

The bill has an emergency clause, which means the funding would become available before the next biennium.

“This is important research and we can’t afford to miss a summer when this work could take place,” Nathe said.

The Senate approved similar legislation addressing pipelines in Senate Bill 2374 last week. The chambers will reconcile the two bills in the coming weeks of the session.

Hearing set on Williston power plant expansion

WILLISTON, N.D. – The North Dakota Public Service Commission will hold a public hearing next week about a proposed expansion of the Pioneer Generation Station in Williams County.

Basin Electric proposes to expand the facility 15 miles northwest of Williston to meet the growing electricity demands in the area at the center of the state’s oil and gas activity.

“We are still seeing load growth,” said Curt Pearson, spokesman for Basin Electric.

A 2014 forecast calls for the cooperatives served by Basin Electric in the Bakken to see a 1,616 megawatt increase in demand by 2035.

The Pioneer Generation Station, which is fueled by natural gas produced and processed in the region, became operational in 2013 with additional units that came online in 2014.

The $161 million expansion would consist of 12 reciprocating internal combustion engines that are enclosed in a large building, Pearson said. The project would have the capacity of generating up to 111 megawatts of electricity.

The new gas engines would occupy about 8 acres within the existing facility area, which includes a total of 120 acres.

The Public Service Commission public hearing is at 9:30 a.m. Monday in the Ernie French Center, North Dakota State University Williston Research Center, 14120 Highway 2, Williston. Public comments received after the hearing will not be considered part of the official record.

For more information, contact the PSC at (701) 328-2400 or www.psc.nd.gov.

Film about Bakken receives Oscar nomination


WILLISTON, N.D. – A documentary about the Bakken will be one of the films up for an Oscar Sunday night.

“White Earth,” a 20-minute film about North Dakota’s oil boom from the perspective of three children and an immigrant mother, has received critical acclaim, including an Academy Award nomination for documentary short subject.

Director and producer J. Christian Jensen said he knew there were a lot of stories and films being made about North Dakota, but he wanted to approach it from a different perspective.

“I find that children have a way of speaking honestly and truthfully about things without sugarcoating the truth,” Jensen said. “They are always watching. They’re always listening. I felt like they could maybe give us some additional insight into what’s happening and how the changes are affecting different types of families.”

One of the children featured in the film, James McClellan, spent his days wandering around the tiny town of White Earth while his father constructed well pads for oil drilling.

“All I know is he sits in a bumpy bulldozer all day,” McClellan says in the film.

He talks in the film about natural gas flaring in North Dakota and other impacts to the environment.

“Why should we just take away all the beauty from the landscape by putting up fires and making it smell horrible?” McClellan said. “But I don’t know what would happen if there was no oilfields. That’s the only job my dad ever worked in.”

The film also features an immigrant family of five who moved to North Dakota from California and lived in an RV with a single bedroom in order to stay together rather than split up the family.

A local girl, Leevi Meyer, whose family has lived in North Dakota for generations, talks in the film about all the new people and changes the oil boom has brought to her home.

“When I’m really old, I think North Dakota will be back to normal,” Meyer says in the film, a fifth-grader at the time.

Jensen filmed the documentary during several wintry months in 2012 and 2013 as the thesis project for his film program at Stanford.

The local family continues to live in North Dakota, but the other families have since left the state, Jensen said.

Jensen said he’s grateful for the people of North Dakota who helped make the film possible. He’s hoping to have a public screening of the documentary in the Oil Patch.

“White Earth” has received many awards, including best cinematography from the Fargo Film Festival last year. It can be viewed at www.whiteearthmovie.com for a $3.99 rental fee.


House passes surge funding bill

BISMARCK – House lawmakers overwhelmingly approved Friday the $1.1 billion “surge” funding bill that aims to address critical needs in the Oil Patch.

The House voted 90 to 2 to approve amended Senate Bill 2103, which includes the full $450 million requested by the Department of Transportation but cuts the amount of money for cities, counties and townships included in the Senate version.

The bill received more than the two-thirds majority required for an emergency clause, which means funding can more quickly be dispersed so communities can get a jumpstart on the 2015 construction season.

House Majority Leader Al Carlson, R-Fargo, said he hopes the Senate approves the fast-tracked bill Monday and Gov. Jack Dalrymple signs it Tuesday.

The bill contains about $36 million less than the version the Senate passed three weeks ago.

The bill passed by the House also changes how the $240 million for oil-producing counties will be distributed, meaning some counties that fared well under the Senate bill took a cut in the House bill.

“I’m sure that there are some people that might think they got left behind,” Carlson said. “But there’s an awful lot of money being spread into the infrastructure of this state. And personally, I don’t believe there’s a better investment in the future of North Dakota than our infrastructure to keep our commerce and businesses going.”

House Minority Leader Kenton Onstad, D-Parshall, urged support for the bill, but acknowledged western North Dakota has additional needs.

“There’s a lot in here for everybody,” Onstad said. “Is it enough? I’ll probably say not, but when we look at our revenues, we’ve pretty much maximized what is going to go out there to our western political subdivisions and also across the entire state of North Dakota.”

The bill will drain the unobligated balance of the state’s Strategic Investment and Improvements Fund — currently at $964 million — and rely on revenues coming into the fund during the rest of the biennium to make up the difference. The fund is supported mostly by oil and gas tax revenues and intended for one-time infrastructure projects.

Rep. Jeff Delzer, R-Underwood, chairman of House Appropriations, said some portions of the surge funding will need to be dispersed later since the fund does not have enough dollars immediately available.

In addition to the $450 million for the Department of Transportation, the bill includes:

— $240 million for the state’s top 10-oil producing counties.

— $172 million for “hub” cities Williston, Dickinson, Minot and Watford City.

— $100 million for cities within the top 10 oil-producing counties, other than the hub cities.

— $112 million for non-oil-producing counties.

— $16 million for townships in non-oil-producing counties.

— $10 million for certain cities bordering the Oil Patch.

Onstad said there’s still a need to change how the oil production tax revenue is distributed to oil-producing counties, which will be addressed later in the session.

Proposed pipeline would send Bakken oil east through Canada

WILLISTON, N.D. – A proposed pipeline from the same company behind the Keystone XL would connect Bakken crude with markets now reached only by rail.

TransCanada plans to seek approval for the $600 million Upland Pipeline that would carry oil from south of Williston and head north to connect with other pipelines that reach markets in eastern Canada and the eastern United States.

The company said in a statement it has significant interest from shippers in the Williston Basin – in both the United States and Canada – for the project. It would have an initial capacity of 220,000 barrels per day with potential of carrying up to 300,000 barrels per day.

There’s a large demand on the East Coast and in eastern Canada for light, sweet crude, said Justin Kringstad, director of the North Dakota Pipeline Authority. But currently the only access North Dakota oil has to refineries in eastern Canada is by rail or truck, Kringstad said.

“Projects like this then open up that possibility for pipeline movement,” he said.

North Dakota had about 820,000 barrels of oil per day – enough to fill about 11 trains – leaving the state by rail in December. About 59 percent of oil was transported by rail with 35 percent by pipeline.

The safety of transporting Bakken crude by rail continues to be a debate nationwide, particularly on the heels of this week’s fiery train derailment in West Virginia. That train was carrying oil from North Dakota.

The Upland Pipeline would be in use in 2018 if approved by the U.S. State Department, Canada’s National Energy Board and the North Dakota Public Service Commission.

TransCanada’s Keystone XL Pipeline has been long been stalled in the U.S. regulatory process and faces a presidential veto. That project would have the capacity to transport up to 100,000 barrels per day of Bakken crude from an on-ramp in Baker, Mont.

The Upland Pipeline would cross the border near Northgate, Sask., and Lignite, N.D., and end near the Manitoba-Saskatchewan border in Canada. It would connect with other pipelines including the Energy East Pipeline in Saskatchewan.

TransCanada has commitments for 70,000 barrels per day from North Dakota for the Upland, a company spokesman said.

Meanwhile, another Bakken crude oil pipeline went into service this month and the largest proposed pipeline for the Bakken took a step forward recently by applying to the Public Service Commission.

The Double H Pipeline that transports oil from North Dakota to Guernsey, Wyo., went into service this month, said a spokesperson for Kinder Morgan, which recently acquired the pipeline from Hiland Partners.

The pipeline that starts near Dore, N.D., near the Montana state line in McKenzie County, and has the capacity of transporting 84,000 barrels per day.  The company did not disclose how much it is currently transporting.

But looking forward, all other major crude oil pipelines proposed for North Dakota are years away from going into service, meaning a majority of oil will continue to be hauled by rail until they’re completed.

“There will be a period of time there where we won’t have any pipeline projects going into service until those are finished with construction and commissioned,” Kringstad said.

Energy Transfer Partners, which proposes the Dakota Access Pipeline from North Dakota to southern Illinois, recently submitted its initial application to the Public Service Commission, Chairman Brian Kalk said Thursday.

That project would have a capacity of 450,000 barrels per day, the largest currently proposed for North Dakota.

Kalk anticipates that the proposed pipeline would have hearings with the PSC early this summer. The project also needs to go through the regulatory process in other states along the route.

The other major pipeline projects on the table that would serve the Bakken are Enbridge’s Sandpiper Pipeline, which is still going through the regulatory process in Minnesota, and the Keystone XL.

Senate kills natural gas flaring bill

BISMARCK – State senators rejected a bill Thursday that would have added restrictions to further reduce natural gas flaring.

Senate Bill 2287, which failed in an 11-35 vote, would have reduced the length of time a well can flare from one year to 90 days. It also would have limited the volume of natural gas that could be flared each day and removed some exemptions from the current flaring policy.

Prime sponsor Sen. Jim Dotzenrod, D-Wyndmere, said the amount of natural gas that’s flared in North Dakota, most recently at 24 percent, is unreasonably high and would not be acceptable in other oil-producing states. Dotzenrod added that the technology exists to capture more of the natural gas.

“I think we as a Legislature have made it easy to flare,” Dotzenrod said.

Sen. Donald Schaible, R-Mott, said the Senate Energy and Natural Resources Committee gave the bill a do-not-pass recommendation because members felt the North Dakota Industrial Commission had already addressed the issue with its recent gas capture goals.

Schaible also said committee members thought the industry was working toward reducing flaring but being held up by challenges securing pipeline easements.

“We feel the policies we have are working and need more time to get the desired effect,” Schaible said. “Our restrictions would magnify the problems and create greater hardships for the industry and the state.”

The goals adopted by the Industrial Commission set the allowed flaring rate at 15 percent by first quarter of 2016, 10 percent in 2020 with the potential of reaching 5 percent by the fourth quarter of 2020.


Five significant oil-related spills reported over weekend

TIOGA, N.D. – “Suspicious activity” may be to blame for two oil-related spills reported in Williams County over the weekend that released produced water and affected at least one nearby wetland.

The incidents were two of five significant spills reported Tuesday by state officials.

Hess Corp. reported spills on two well sites Monday about three miles apart, both caused by opened valves, the North Dakota Department of Health said.

The company reported that vandalism may be the reason tank valves on both sites were open, but health officials have no evidence to confirm or disprove that, said Karl Rockeman, director of the Division of Water Quality.

“We’re calling this suspicious activity,” said Hess spokesman John Roper, adding that the Williams County Sheriff’s Office is investigating.

At one site, about 12 miles northwest of Tioga, about 500 barrels, or 21,000 gallons, of brine spilled and a portion escaped the site and impacted a wetland, the health department said. Remediation efforts have begun and the company used vacuum trucks to recover fluid at the site.

The second spill, about 15 miles northwest of Tioga, involved about 460 barrels, or 19,320 gallons, of brine. Some of that spill may be affecting a different nearby wetland, but the site was still being surveyed, health officials said.

The saltwater spills also will likely affect nearby croplands, Rockeman said.

Personnel from the Oil and Gas Division had been on site. Health department personnel were en route to the site Tuesday.

Inspectors from both departments were also responding to other spill incidents in the Oil Patch Tuesday.

“It seems like there were a number of spills that did impact water this weekend, moreso than we would expect to see,” Rockeman said.

In McKenzie County, an estimated 30 barrels, or 1,260 gallons, of oil released Friday evening after a truck that was filling with water over filled and some oil that was left in the tank spilled out the truck’s overflow vent, the health department said.

Some of the spill impacted an isolated oxbow of Charbonneau Creek less than a mile west of Cartwright, but did not enter the creek.

Rockeman said the truck was filling with fresh water at Caliber Midstream Water Depot but there was some residual oil left in the tank from a previous load.

“Luckily it did not impact the creek, but the potential was there,” Rockeman said.

On Sunday, about 400 gallons of diesel fuel spilled at a bulk sales facility near Alexander, affecting a drainage adjacent to the facility that is a tributary to Lonesome Creek, Rockeman said.

An error during loading from a truck to the facility caused the spill, he said.

The Oil and Gas Division reported Tuesday that a pump leak caused about 500 barrels of brine, or 21,000 gallons, to spill in Divide County but the contamination was contained at the site.

Murex Petroleum Corp. reported the spill on Sunday at a well site five miles south of Fortuna. The saltwater, along with 1,260 gallons of snow and ice that were present prior to the release, were contained and recovered on site, a news release from the Oil and Gas Division said.

A state inspector had been to the location.


Senate kills bill to add scrutiny on oil and gas penalties

BISMARCK – A bill that would have required North Dakota Industrial Commission members to approve settlements of oil and gas penalties failed Monday in the Senate.

Senators voted 30-17 against Senate Bill 2342, that prime sponsor Sen. Tyler Axness said would have added transparency to the reductions of fines that are negotiated by the director of the Department of Mineral Resources.

“Who is in charge? Where does the buck stop with this current process? I believe the public has right to know what their publicly elected officials have to say in this matter,” said Axness, D-Fargo.

Sen. David Rust, R-Tioga, said the fine reduction for a company involved with filter socks abandoned in Noonan prompted him to co-sponsor the bill.

In that case, the Department of Mineral Resources originally proposed an $800,000 fine but collected about $20,000 from the company.

Rust said although he agrees there are instances when it’s appropriate to reduce fines, citizens in his area look at those dramatic fine reductions as “less than a slap on the wrist.”

“There are times that it appears as if the public safety of the people in that area is not as huge a concern as it should be,” Rust said.

Sen. Kelly Armstrong, R-Dickinson, urged senators to oppose the bill, which received a 4-2 do-not-pass recommendation from the Judiciary Committee.

Armstrong said the Industrial Commission members – the governor, attorney general and agriculture commissioner – have the authority to delegate duties to the Department of Mineral Resources.

“This bill is legislative micromanagement,” Armstrong said.

Armstrong also pointed out that the fine cited for the filter socks in Noonan was not for the company that illegally disposed of the waste. As part of the settlement, the company has to cooperate with the investigation into the responsible party.

The Department of Mineral Resources proposes penalties for oil and gas companies that commit violations and routinely suspend 75 percent to 90 percent of the fine in settlement agreements. Director Lynn Helms has defended the practice, saying that holding the fines over causes companies to change employee behavior long-term.


December oil production a ‘tug of war’ in N.D.

BISMARCK – North Dakota oil production was a “tug of war” in December as production hit a record 1.2 million barrels a day but drilling began to decline, the state’s top oil regulator said Friday.

Oil production increased 3.3 percent in December, according to preliminary numbers, even as declining oil prices prompted the number of drilling rigs operating in North Dakota to drop.

December saw a surge in well completions as operators had end-of-year budgets to spend and 2014 production targets to hit, Lynn Helms, director of the Department of Mineral Resources, said in his monthly update.

Helms said the December figures give him increased confidence that oil prices will not stay low enough to hit the so-called “large trigger,” which could cost the state significant oil and gas tax revenue if oil prices average less than $52.59 for five straight months.

The exemption that drops the oil extraction tax to 0 percent for all wells during their first two years of production could take effect as early as June, which would affect revenues in July. The budget forecast that legislators are working with calls for the state to hit the large trigger June through March of next year.

“It’s looking more and more likely that the large trigger will not hit,” Helms said.

The price of West Texas Intermediate oil was at $52.78 a barrel Friday.

The state had 137 drilling rigs operating Friday morning, the lowest since July 2010. Helms said he expects the rig count to fall to the low 120s.

Company executives are having a lot of “circular discussions” about when to complete oil and gas wells taking into consideration oil prices, the tax exemption triggers and what’s needed to hit gas capture goals set by the Industrial Commission, Helms said.

“With all of the forces at play here, a lot of companies aren’t exactly sure what to do,” Helms said.

Crews completed 173 oil and gas wells in December compared to 48 the month before. The number of wells waiting for fracking and completion crews was estimated to be 750 at the end of December, down 25 from November.

Helms said he heard from one operator that fracking crews are running at 100 percent despite the slowdown in drilling.

Natural gas flaring fell to 24 percent in December. Companies are on pace to exceed the goal set by the North Dakota Industrial Commission to capture 77 percent of natural gas in January, Helms said.

At least one company has restricted oil production by about 5,000 barrels per day in order to meet the goals, he said.

“There’s a fair amount of pressure to relax those goals on the part of the Industrial Commission, but there is no hard evidence or information that would lead me to make that recommendation to the commission,” Helms said.

Fifty-nine percent of oil was transported by rail in December and 35 percent by pipeline, the same breakdown as November, said Justin Kringstad, director of the North Dakota Pipeline Authority.

Helms said he projects that oil production will hold steady at a little more than 1.2 million barrels per day for 2014.