(Reuters) - North Dakota’s energy regulator said on Wednesday he is worried about hedge funds and other investment groups buying oil assets in the state and conducts background checks on potential acquirers.
Billions of dollars in investment capital have started to flow toward the oil industry, with fund managers and others sensing a long-term buying opportunity for wells, pipelines and other energy assets.
Lynn Helms, head of North Dakota’s Department of Mineral Resources, said he is worried some buyers might have a lack of experience running oil or natural gas facilities, which normally pose safety risks.
“It is a big concern,” Helms said on a conference call with reporters to discuss monthly oil production.
Under North Dakota law, producers must bond their wells so the state has insurance to pay to plug wells in case an operator abandons an oil field.
Because the state regulator has control over those bonds, Helms or his supervisors at the North Dakota Industrial Commission could block potential asset sales by not approving a bond transfer, a nightmare scenario for an industry eager for any kind of cash infusion.
The enhanced oversight could, though, assuage environmental groups who say the state does not do enough to police the oil industry.
As part of the background checks, which the state has conducted for nearly two years, “we don’t just look at the company but we also get a list of their officers and directors and look a little bit into them as individuals,” Helms said.
DMR is also concerned with investors buying water disposal assets in the state, especially since such buyers might not have experience in an industry with pipes that crisscross the entire state, Helms said.
“We’re looking at a mechanism to require bonding of those operations,” Helms said.
The comments come after investment groups have begun buying oil assets in the state in recent months from traditional oil producers eager for a cash infusion. Occidental Petroleum Corp, the fourth-largest U.S. oil producer, sold all of its North Dakota shale oil acreage and assets to private equity fund Lime Rock Resources two months ago for $600 million.
Reporting by Ernest Scheyder; Editing by Terry Wade and David Gregorio
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