North Dakota is America’s second-largest oil producing state1 due to the rich Bakken and Three Forks Formations.2 North Dakota natural gas production hit a record high in March 2018 when the state produced more than 2.1 billion cubic feet per day of natural gas.3
Statutory and Regulatory Framework
The North Dakota Industrial Commission, Department of Mineral Resources, Oil and Gas Division (the “Commission”)4 administers the oil and gas laws found in the North Dakota Century Code and the North Dakota Administrative Code (“NDAC”). Specifically, the Commission is charged with regulating “[t]he drilling, producing, and plugging of wells[;] . . . chemical treatment of wells[;] . . . [t]he spacing of wells[;] . . . [o]perations to increase ultimate recovery[;] . . . [d]isposal of saltwater and oilfield wastes[; and] . . . [t]he underground storage of oil or gas.”5 North Dakota’s Oil and Gas Conservation regulations generally subject hydraulic fracturing operations to many of the same provisions as conventional operations; for example, provisions governing well permitting,6 bonding,7 setback,8 well spacing,9 well construction,10 waste disposal,11 pits,12 and reporting13 are generally applicable to both conventional and hydraulically fractured wells. However, hydraulic fracturing-specific regulations govern the act of stimulating a well.14
On March 3, 2014, the Commission adopted a drilling permit review policy requiring producers to submit a gas capture plan with every drilling permit application,15 part of its state-wide flaring reduction policy (Commission Order No. 24665, or the “Order”).16 Pursuant to the Order, gas capture plans submitted at permit hearings must include information on area gathering system connections and processing plants, the rate and duration of planned flowback, current system capacity, a timeline for connecting the well, and a signed affidavit verifying that the plan has been shared with area midstream companies.17 These requirements became effective June 25, 2014.18
The Order states that these measures will help meet the State’s targets for reducing flaring; North Dakota originally intended to capture 77 percent of gas production by January 2015, 85 percent by January 2016, and 90 percent by November 2020.19 In September 2015, the Commission pushed back the deadline for achieving an 85 percent reduction to November 2016, added an 88 percent reduction milestone by November 2018, and increased the final November 2020 target to a 91 to 93 percent reduction.20 Companies captured 89 percent of Bakken gas produced statewide in February 2018, exceeding the state’s current requirement of capturing 85 percent.21
To ensure these targets are achieved, the Commission will compel operators to curtail production from wells found to be in violation.22 However, the Commission will allow all infill horizontal wells to produce at a maximum efficient rate for 90 days.23 After that time, the operator must either connect the well to a gathering facility or implement remote capture processes.24 There is a narrow exception for infill wells that cannot be economically connected to a gas facility;25 this exception applies to approximately 1,000 wells, most of which produce less than 100 barrels of oil.26
On June 29, 2016 the Commission finalized a comprehensive set of new rules addressing site construction, underground gathering pipelines, and spill containment.27 The rules require all crude oil and produced water underground gathering pipelines to be bonded,28 and all gathering pipelines installed in environmentally sensitive areas will be subject to additional requirements.29 If horizontal directional drilling (“HDD”) is to be used in an environmentally sensitive area, an HDD plan prepared by the owner must be filed with the Commission prior to commencement of HDD.30
The North Dakota Department of Health, Environmental Health Section administers provisions of the NDAC that protect the state’s air, land, and water resources.31 The North Dakota Department of Trust Lands regulates oil and gas lease agreements, bonus payments and royalties, rights-of-way applications and procedures, surface damage agreements,32 and seismic surveys.33
Recent News and Developments
Updates to Flaring Reduction Rules
The North Dakota Industrial Commission amended the flaring reduction rules in April 2018 to allow companies drilling outside of the core areas of western North Dakota’s oil patch to drill multiple wells for up to a year without capturing the gas; allow operators to accumulate credits over a six-month time period instead of only three months; give companies credit if the natural gas they produce is used in the state to power equipment or facilities; and allow companies that are meeting targets to forgo a capturing plan with their drilling permit applications.34
North Dakota Legislature Adopts Higher Threshold for Spill Reporting
In March 2017, the North Dakota Legislature passed a bill increasing the spill reporting threshold to 10 barrels, or 420 gallons, for spills of oil, produced water, or natural gas liquids contained to a well site.35 The higher reporting threshold only applies to oil wells drilled after September 1, 2000 or facilities constructed after September 1, 2000 and does not eliminate the requirement to clean up all spills. The North Dakota Industrial Commission unanimously approved final administrative rules implementing these changes in December 2017.
Last updated September 2018.