North Dakota natural gas : the decision to flare

Abstract

Unconventional oil and natural gas production in North Dakota's Bakken shale formation has caused a boom in the state's production. As production in the Bakken grows, wells are one-third of their produced gas, valued at roughly $1 billion per year. Using a well-level panel of monthly production, I explore potential determinants of flaring and provide insight into the decision to produce oil from wells that are not connected to the gas gathering system. Through initial linear regressions, I show that North Dakota Bakken wells are twice as much, on average, than Montana Bakken wells. Further, I find that unconnected wells are nearly four times as much as connected wells. I model the decision to connect wells through duration analysis to show that connection timing varies between operators of different sizes and that the threat of flaring penalties increases the hazard rate of connection. Lastly, I exploit variation between field oil production rules in North Dakota to find that the rate of rule compliance varies both by rule stringency and the size of the operator.