Exco Operating Co. LP has landed another exemption to the state’s anti-flaring rule, despite objections from a midstream provider with infrastructure nearby, in a vote that again left the chairman of the Texas Railroad Commission (RRC) on the opposite side of his counterparts.

In a 2-1 vote on Oct. 22, the RRC granted the Dallas-headquartered company’s request to flare casinghead gas from a well on the Winterbotham ZAV Lease in the Eagle Ford Shale for two years. Although a gas gathering system operated by The Williams Co. is nearby and has serviced other wells on the lease, Exco said connecting to the system would be uneconomic, Robert Musick, technical examiner for the RRC’s hearings division, told commissioners.

The decision was made as flaring continues to capture attention amid a global shift toward cleaner forms of energy and heightened focus on environmental, social and governance criteria used by socially alert investors. It also comes as E&Ps are focusing on returns, eyeing higher profit potential from oil as the natural gas glut and low prices continue to hit producers.

Exco initially requested permission to flare 500 million cubic feet per day (MMcf/d), but agreed to the examiner’s recommendation that instead authorized 266 Mcf/d based on the highest month of production over the past year.

The request—similar to one made by Exco and granted in August for 69 flare points at operations on various leases in Dimmit and Zavala counties in the Eagle Ford—was opposed by Williams and Mockingbird Midstream Gas Services.

RELATED

None of the parties appeared before commissioners Oct. 22.

“If we don’t grant the flaring exception, then we don’t allow the operator who right now is not connected to a system to continue to produce their well,” Commissioner Ryan Sitton said before voting to grant the exception along with Commissioner Christi Craddick. “In the end, allow the parties to come to an agreement on the rates. If we don’t grant exceptions, then we artificially drive one direction as opposed to let the market decide.”

However, Chairman Wayne Christian voted against the request, citing proximity, economics and waste. He pointed out that the site is about 1,000 ft away from one gathering system and about 100 ft away from another.

As far as economics, Christian said Exco was claiming a loss of $40,000, but he said the project’s oil and gas income is $98,000 a month. Plus, the company is saving $435,000 for a connection to infrastructure, because Williams said it won’t charge for that connection, he said.

“The third is waste and pollution [that] we’re supposed to watch,” Christian added. “In my business, I have to pay for the local sewage, the local garbage. It’s a cost of doing business. I see nothing but profits in here.”

Rule §3.32 of the Texas Administrative Code prohibits flaring of associated gas from initial completion beyond 10 producing days. RRC data show 107 venting and flaring permits were approved statewide by the RRC in fiscal year 2008. That number has grown to 6,972 in fiscal year 2019. Many requests have come from the Permian Basin, where unlike in the Eagle Ford, natural gas infrastructure has lagged behind the massive volumes of associated gas that accompany the production of crude oil.

Flaring permits are issued administratively for 45 days at a time for a maximum of 180 days, the RRC said on its website. Longer extensions are granted through a commission final order.

Operators may need to flare gas for a variety of reasons, including gas plant shutdowns, repairs to a compressor, gas line or well, or other maintenance, according to the RRC. If companies are exploring in new areas and conducting tests, flaring may also be needed because well productivity has not been established and pipeline connections haven’t been constructed.

Economics is another reason some operators choose to flare.

During the same meeting, the RRC denied a motion, as recommended, for a rehearing filed by Williams MLP Operating and Mockingbird Midstream Gas Services concerning the RRC’s Aug. 6 order approving Exco’s exception request for the 69 flare points.

“All the issues raised in the motion were already raised by Williams and considered by the commission prior to the commission entering its order in this case,” Kristi Reeve, administrative law judge for the RRC, told commissioners.

Sitton added that he found the argument for a rehearing “unpersuasive.” He took issue with the protestants calling out the RRC’s approach and philosophy on flaring. He pointed out that the amount of produced gas flared has dropped to less than 2% today compared to 50% some 100 years ago.

“[Texas] produced 26 billion cubic feet a day of gas. We’re flaring around 400 million cubic feet a day of gas,” Sitton said.

He added, “None of us like flaring. And everybody you talk to across industry … they’re trying to do everything they can to reduce flaring right now. Infrastructure is being built that will reduce the amount of flaring that’s out there.”

Christian also pointed out that some independents are already losing financing from Wall Street bankers and that some mutual funds are moving away from fossil fuels altogether.

“The markets are being affected and our own industry is under threat,” Christian said. He added that the industry should be aware that the RRC is paying close attention to flaring, which has become a national issue.

Comments