A bill in the North Dakota Senate would require oil companies to pay taxes and royalties on a portion of natural gas that is flared, a move supporters say would stop them from wasting a natural resource.
Sen. Tim Mathern, D-Fargo, proposes to charge taxes and royalties on flared natural gas on wells that have been flaring for more than one year. Mathern, who has introduced similar legislation in previous sessions, said Friday his plan is a “pragmatic” approach to increase gas capture rates.
The North Dakota Petroleum Council opposed the bill, telling the Senate Energy and Natural Resources Committee that the solution to reducing flaring is to encourage more investment in pipelines, natural gas processing plants and other infrastructure.
“The solution to capturing more of this resource does not lie in taxes and penalties,” said Ron Ness, president of the industry group.
Flared natural gas volumes reached record highs in 2018 due to growing volumes of natural gas production and inadequate pipeline and processing capacity plant capacity.
Operators burned off an average of 527 million cubic feet per day of natural gas in November, or 21 percent of all gas produced. There were no taxes assessed that month on flared natural gas, according to Tax Commissioner Ryan Rauschenberger.
Andrew Alexis Varvel, of Bismarck, testified in support of the bill, comparing flaring to burning money.
“In my point of view, refusing to tax flared gas is really stealing,” Varvel said.
The Dakota Resource Council supports the bill because it ensures royalty owners and taxpayers are paid for wasted natural gas, testified Scott Skokos, the group’s executive director.
“This is a one-time harvest after all,” Skokos told committee members.
Mathern said the intent of his bill is to assess taxes and royalties on all wells that have been flaring for more than one year, not just wells drilled after the effective date of the bill.
MineralTracker, a Watford City firm that audits and tracks mineral income for royalty owners, estimated the impact of the proposal if it had been in place in 2018. Royalty owners would have received increased revenue of nearly $18 million and the state would have received nearly $4 million in additional tax revenue, said Joel Brown, co-founder of the firm.
Brown testified in opposition to the bill, telling committee members it would have unintended consequences for royalty owners by deterring drilling in fringe areas of the Bakken where wells are less productive.
In addition, Brown said the potential gain in natural gas royalty revenue “pales in comparison” to oil production that is restricted due to companies working to meet gas capture goals.
Department of Mineral Resources Director Lynn Helms estimates that companies voluntarily restricted oil production by 99,000 barrels per day in November to meet the state's gas capture target.
The North Dakota Industrial Commission requires companies to limit flaring from Bakken wells to 12 percent or they can be forced to curtail oil production. But those forced production curtailments are rare. Operators can flare more than 12 percent and still be considered in compliance with the policy if they meet one of several caveats in the policy, such as flaring that is due to a gas plant outage. In November, the industry flared 20 percent of Bakken natural gas produced.
Varvel said one reason he likes the bill is it involves “less red tape” than the Industrial Commission policy.
Sen. Donald Schaible, R-Mott, said many companies flare natural gas due to situations they can’t control, such as delays in getting a pipeline easement.
“Is it fair to penalize them for reasons beyond their control?” Schaible asked.
But some supporters of the bill argued they’d prefer to see companies wait to produce the oil until they are able to capture the associated gas.
“That oil and gas in the ground is as useful to our grandchildren as the money that’s in the Legacy Fund,” said Tracy Potter, a former Democratic state legislator from Bismarck. “We do not have to harm our environment and our landowners and state government because we’re in a rush to produce the oil.”
The committee did not take immediate action on the bill.