On April 26, 2013, North Dakota Governor Jack Dalrymple signed House Bill No. 1134 (HB 1134) into law, amending the state's flaring and oil and gas production tax statutes to promote reduction of natural gas flaring at the state's oil and gas wells.

While earlier proposed versions of HB 1134 included a reduction in the flaring grace period from one year to six months, the final legislation maintains the one-year grace period.

Upon the end of this grace period, a well operator's options are currently limited under statute to either: 1) capping the well, 2) connecting the well to a gas gathering line or 3) equipping the well site with an electric generator consuming 75% of the gas from the well, all subject to an "economic infeasibility" exception.

The final version of HB 1134, which becomes effective July 1, 2013, expands the state's list of permitted activities for an operator to undertake at the end of the grace period to include:

  1. Equipping the well site with a collection system that intakes at least 75% of the gas and natural gas liquids volume from the well for beneficial consumption by means of:

    1. Compression to liquid for use as fuel.

    2. Transport to a processing facility.

    3. Production of petrochemicals or fertilizer.

    4. Conversion to liquid fuels.

    5. Separating and collecting over 50% of the propane and heavier hydrocarbons.

  • Other value-added processes as approved by the North Dakota Industrial Commission that reduce the volume or intensity of the flare by more than 60%.

HB 1134 further creates an oil and gas production tax exemption under N.D.C.C. § 57-51-02.2 for a period of two years plus 30 days for all gas that is: 1) collected and used at the well site to power an electric generator that consumes at least 75% of the gas from the well; 2) collected at the well by a collection system; or 3) collected by other value-added processes. The two year plus 30 days exemption will also apply to oil extraction taxes assessed under the Century Code against liquids produced from a collection system that utilizes absorption, adsorption or refrigeration.