North Dakota Department of Mineral Resources is a valuable organization for oil producers and seekers.
The drop in oil prices has put the North Dakota Department of Mineral Resources Oil and Gas Division in new territory: How should it handle temporarily abandoned wells?
The Oil and Gas Division monitors and manages all wells in the state from the permitting process until they’ve gone through reclamation.
“Our department covers a lot of ground,” says Alison Ritter, public information officer for the North Dakota Department of Mineral Resources Oil and Gas Division. “We handle the entire regulatory process from even before wells are approved. We lay the framework so the industries know what kind of resources are available.”
With the lower oil prices, some companies complete the drilling process but haven’t put the wells into service, and others have applied for temporarily abandoned status.
“That’s something new for us. We need to figure out how to accommodate that and what steps need to be taken,” Ritter says. “Inspections still need to be done and there are administration issues related to it.”
She adds that many companies hope to come back to the wells once oil prices go up. The state collects a bond for each well and holds that money until a site goes through reclamation so taxpayers don’t wind up paying if a company walks away without returning the site to its previous condition. The state collects a $50,000 bond for one well and $100,000 for two or more.
To help oil companies weather the tough financial times, Lynn Helms, director of the Oil and Gas Division, points out that North Dakota lowered its extraction tax rate from 11.5 percent to 10 percent as long as oil prices stay below $90. He adds that price per barrel is what will really drive oil production in the state and elsewhere.
“Operators are now committed to running fewer rigs than their planned 2015 minimum as drill times and efficiencies continue to improve and oil prices continue to fall,” Helms says. “This has resulted in a current active drilling rig count of 10 to 15 rigs below what operators indicated would be their 2015 average if oil prices remained below $65 per barrel.”
North Dakota definitely feels the effects of lower oil prices, Helms says. In September, the state permitted 154 drilling wells and one seismic well, down from an all-time high of 370 in October 2012.
“Oil price weakness now anticipated to last well into (2016) is the main reason for the continued slowdown (in the state),” he says.
Trying to determine what to do with the temporarily abandoned wells is just one of the many duties handled by the Oil and Gas Division. Besides overseeing all wells, it also handles the state’s geological mapping. The department gets involved on a project before a site goes through the permitting process. Monthly hearings look at all proposals, including current sites looking to expand.
“It’s like being preapproved for a loan,” Ritter says. “You go through that to make sure everything looks good and then you find what you want to buy and then need to go out and get the actual loan.”
To keep track of the state’s wells, the department works with a database that tracks each site and where it is in its life cycle. “We keep watching the well until it’s no longer being used and the site has been returned to its previous state,” Ritter says.
Ritter says the department balances helping oil companies identify and develop potential sites while protecting the rights of everyone involved.
“There’s a lot involved. While we’re promoting the development of wells, we want to do it in a way that prevents waste and maximizes the economic recovery while fully protecting the rights of all owners to the end that the landowners, the royalty owners, the producers and the general public realize the greatest good from these vital natural resources,” she says.
The department also works with landowners or others who have questions about drilling sites or are wondering about when they’ll receive their royalties.
“We’re a place where people come for answers they may have during the oil drilling process,” says Ritter, adding that the department’s website is full of information to help people with their questions. “There’s a lot that goes into the entire drilling process, and we’re there every step of the way helping the companies as well as the people affected by the drilling, such as the landowners or even the state if it’s on state property.”
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