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Shale Lawsuits Abound

Keith Kohl

Written By Keith Kohl

Posted May 19, 2014

Last Wednesday, the U.S. District Court Judge from North Dakota, Daniel Hovland dismissed 13 lawsuits against oil companies in the state. They were being sued because of gas flaring at drill sites.

Although we expect these kinds of lawsuits from environmentalists and “fractivists,” that wasn’t the case here. It was actually mineral rights owners filing suit.

Roughly a dozen property owners living in the Bakken felt they were owed $200 million from oil companies due to losing money on the amount of natural gas being flared off from wells on their land.

Currently, companies flare over 30% of the gas from their wells because of a gap in infrastructure development for natural gas. Because of the sudden and rapid drilling boom that took place, pipelines and gas capture facility construction just can’t keep up with the extra natural gas being produced.

Unfortunately, this means that oil companies and mineral rights owners lose a lot of money from the sluggish pace of construction.

But there is something these plaintiffs should realize…

If companies waited for construction to finish, they would receive no royalties. Without the fast paced oil drilling, which they’re richly rewarded for, the owners of those mineral rights would be stuck in their pre-boom financial status, instead of raking in hundreds of thousands from oil production.

Granted, I don’t blame them for trying to get some of their money back for gas under their land, but the overall benefit to the parties involved should outweigh the measly profit from 30% of gas flared away with the more expensive oil being sold to market.

In fact, the amount of gas flared isn’t that egregious everywhere. Continental Resources, for example, flares just 10% of the natural gas from their wells.

Marathon Oil Corp. (NYSE: MRO), on the other hand, has another case pending against it, but I have feeling it will be similarly dismissed, since the company can’t just magically build pipelines or gas capture warehouses without waiting a few years.

Granted, flaring natural gas doesn’t just happen in North Dakota either…

The practice takes place in other major shale plays, including areas like the Eagle Ford, where drillers run out of places to hold or transport excess gas and a strong market that wants to buy it.

Even though I see why they have to flare the gas, it does seem feckless to let all of the potential profit go to waste. And with $6 billion already invested and another $1.7 billion to be invested in infrastructure over the next two years, we can expect to see more natural gas find a market in the U.S.

As you can probably guess, there are a sect of companies begging for cheap fuel to spur more economically efficient production of their hydrogen cyborg fuel cells.

Of course, that’s not to mention the plethora of manufacturing companies returning to the U.S. because of cheap natural gas.

Until next time,

Keith Kohl

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