Rules recently proposed by the Bureau of Land Management (BLM) concerning the capture of natural gas released as a by-product of oil production on public lands in North Dakota threatens to limit production within the massive Bakken Shale region of the country.
Since May of 2012 the BLM has published a set of 11 proposed rules dealing with oil and gas well stimulation and hydraulic fracturing on Federal and Indian Lands. Some rules concern natural gas venting and flaring regulations, others relate to proposals to capture natural gas, while others are responses to decisions made by other agencies including extensions of to the Clean Water Act (Waters of the United States or WOTUS), the clean air act (Clean Power Plan or CPP) and the Endangered Species Act (ESA). Affected states are required to monitor, review and respond to each proposed Rule, a process states say is time consuming, resource draining and costly.
North Dakota is Different
The North Dakota Industrial Commission (NDIC), which through the Department of Mineral Resources, Oil and Gas Division administers North Dakota’s comprehensive oil and gas regulations, submitted a Comment on the proposed revision of BLM Onshore Order No. 3 concerning new requirements to capture natural gas on public lands on September 30, 2015. BLM’s proposal would change the way federal production is measured and allocated for calculation of royalties, require a federal Application for Permit to Drill costing $5000 per application, and extends the BLM’s deadline for considering the drilling permit by 190 days or more than half year, even for wells on state and private lands with an area considered a single, co-mingled drilling units. The proposal would also require a National Enviornmental Policy Act, environmental impact review for new wells on private or state lands if the underlying mineral estate is co-mingled with federal holdings. Landowners worry about the increased time, costs and potential privacy concerns raised by the NEPA requirement
NDIC is worries the proposed Rule will adversely affect North Dakota’s ability to regulate the oil & gas industry and negatively impact private oil & gas production in the state. Just 9% of oil & gas development in North Dakota involves federal land or minerals; however, with current horizontal drilling techniques, BLM’s proposed Rule would raise new hurdles for drilling activity over much of the Bakken.
The State of North Dakota is second in oil production in the United States. It produces approximately 400 million barrels of oil per year and 465 billion cubic feet of natural gas per year. In North Dakota approximately 85% of the area currently producing oil & gas is owned privately, 9% is comprised of federal land and/or minerals, and 6% of current production is on state lands.
North Dakota’s has unique history of land ownership resulting in a significant portion of the state consisting of split estates, properties consisting of both private and public owners. This, together with current horizontal drilling practices which involve spacing units of 1,280 acres or more, means large portions of the Bakken would be covered by the proposed rule.
Unlike many western states containing large blocks of unified federal surface and federal mineral ownership, the surface and mineral estates in North Dakota were at one time more than 97% private and state owned as a result of the Railroad and Homestead Acts of the late 1800s. During the depression and drought years of the 1930s, the federal government through the Federal Land Bank and the Bankhead Jones Act foreclosed on many farms taking ownership of both the mineral and surface estates of numerous small tracts of land. Many of the surface estates were later sold to private parties, but some or all of the mineral estates were retained by the federal government. This resulted in a very large number of small federally-owned mineral estate tracts scattered throughout western North Dakota. Because of this, it is typical for oil and gas spacing units in North Dakota to consist of a combination of federal, state, and private mineral ownership.
Over Regulation and Uncertainty
The NDIC is concerned these small and dispersed federally owned parcels will impact potential oil & gas development in the state far out of proportion to its minority mineral ownership. The NDIC stated “In order to comply with the additional obligations imposed by the proposed rule, operations on spacing units that contain any (emphasis added) federal minerals will be substantially delayed.”
To illustrate this concern, NDIC included a diagram with its Comment submission showing a hypothetical 1,280 acre spacing unit. This diagram shows a typical 1,280 acre spacing unit in North Dakota with 1,040 acres owned privately, 160 acres owned by the federal government and 80 acres owned by the State of North Dakota. The NDIC’s interprets the proposed rule to mean, despite owning just 160 acres of the 1,280 acre spacing unit, the federal government would virtually control the entire unit, requiring environmental impact analyses, high fees and possibly the payment of royalties for oil and gas wells developed solely on private or state land, inhibiting private property owners from developing their own resources.
Bette Grande ([email protected]) is a Heartland Institute research fellow and former North Dakota state legislator.