New rules for royalty-free gas flares up for comment

The Wyoming Office of State Lands and Investments has issued its proposed policy changes regarding royalty-free flaring of natural gas. Written comments are due to the agency by the close of November 29, and should be emailed to Harold Kemp, harold.kemp@wyo.gov.

Flaring — or setting natural gas ablaze — is a common practice in the production of oil and natural gas, typically reserved to a short period of time after a well is completed. Operators flare to get rid of impure streams of gas that do not meet pipeline specifications, and sometimes commercial-grade natural gas is flared in establishing initial flows from new oil wells — particularly when there are no gas-gathering pipelines available.

While the Wyoming Oil and Gas Conservation Commission occasionally permits flaring for periods longer than the standard 15 days after completion of the well, it’s up to the Office of State Lands and Investments to determine whether a royalty will be applied to gas flared from wells tapping “school trust lands.” The State Land Board — made up of Wyoming’s top five elected officials — hold in trust millions of surface acres and mineral estate acres and is required to oversee those lands for dedicated beneficiaries, primarily Wyoming’s K-12 students.

In light of recent requests for extended flaring in southeast Wyoming — where there are few pipeline systems to serve the Niobrara oil exploration play — the Office of State Lands and Investments staff recommended that policy be updated to address when royalties would be applied to gas flared from wells tapping state minerals.

After meeting with oil and gas industry representatives and members of the public, the Office of State Lands and Investments issued its proposed policy update. If approved as written, royalties would be applied to state gas flared beyond 15 days after a well is completed. The director of the Office of State Lands and Investments, Ryan Lance, would be authorized to administratively approve flaring beyond 15 days if the State Land Board doesn’t meet to review the request within that time. However, the board may choose to apply royalties on those volumes of gas retroactively once it does review the request.

Here are some highlights of the proposed flaring policy:

While regulatory authorization to flare or vent gas is addressed by Oil and Gas Conservation Commission Rules and Regulations, (Chapter 3, Section 40), the Office of State Lands & Investments, as trustee for the beneficiaries of Wyoming State Land production royalties, will not sanction royalty-free disposition of State’s interest gas for a period greater than fifteen (15) days from the date of completion of a well, regardless of regulatory approval by the Oil and Gas Commission or any other body, to flare or vent for a greater period, without prior approval by the Board of Land Commissioners to do so.

… All production on State land during any period requiring flaring or venting upon reaching total well depth must be recorded by a meter installed on the flare stack and the recorded volume and composition information provided to the Office of State Lands & Investments through the current operator reporting system on the regular monthly basis cycle set for the production type.

Click here to download a PDF of the proposed policy change.

For more information regarding this issue, read these WyoFile reports: Up In Smoke; How much state gas will be flared without royalties?, and State royalties go up in smoke with gas flares.

— Dustin Bleizeffer, WyoFile editor-in-chief, can be reached at (307) 577-6069 or dustin@wyofile.com.

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Published on November 16, 2011

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