The Texas Railroad Commission (RRC) on Aug. 6 granted Exco Operating Co. LP its request for an exemption to the state’s anti-flaring regulation, the first time such a request had been contested.

The 2-1 vote affects Exco’s 69 flare points at its operations in Dimmit and Zavala counties in the Eagle Ford Shale. The Williams Cos. Inc. had opposed the request, contending that Exco did not need to flare associated natural gas because its Mockingbird Midstream Gas Services LLC system was nearby.

Read: The Texas Flare Dare: Upstream Vs. Midstream

Exco had contended that the cost of building a line to connect with Mockingbird was well above the revenue that would have been generated by selling the gas, which made it cheaper to flare.

Commissioners Christi Craddick and Ryan Sitton supported granting the exemption.

“Exco can’t go out today and just turn the valve open because there is no contract in place and it’s not our job,” Sitton said. “We don’t have regulatory capacity over those contracts or signing contracts.”

The lone no vote was by Chairman Wayne Christian.

“I have some serious concerns about the frequency and ease with which this commission grants flaring exemptions that may not be associated with the drilling of a completed well,” Christian said later during the meeting. “The price of gas right now is a lot of incentive to flare out of convenience and economics rather than necessity.”

The benchmark Henry Hub price was up slightly at $2.111 per million British thermal units (MMBtu) at midday Aug. 6. It closed at a 12-month low of $2.07/MMBtu on Aug. 5, which was 28% below its price one year ago. Weak gas prices have had negative impacts on companies’ quarterly earnings.

The U.S. Energy Information Administration forecasts the country’s top seven oil- and gas-producing regions will produce 745 million cubic feet per day more gas in August than they did in July, pushing the amount to just under 82 billion cubic feet per day (Bcf/d). This includes 14.7 Bcf/d from the Permian Basin, where Rystad Energy said as much as 661 million cubic feet per day on average was being flared in first-quarter 2019.

“Upstream production of liquids, at least in the short term, looks like it will be prioritized in terms of the flaring of associated natural gas,” Gabriel Collins, Baker Botts fellow in energy and environmental regulatory affairs at Rice University’s Baker Institute, told HartEnergy.com following the vote.

 

Rule §3.32 of the Texas Administrative Code prohibits flaring of associated gas from initial completion beyond 10 producing days. The RRC has fielded more than 27,000 requests from producers to flare gas, many of them in the booming Permian Basin, where natural gas infrastructure has lagged behind the massive volumes of associated gas that accompany the production of crude oil.

The issue is expected to be largely resolved by the end of 2020 when several major pipelines are completed and go into service.

Christian, presiding Aug. 6 over his first RRC meeting as chairman of the three-person commission, said he talked to experts on the flaring issue as well as visiting different locations and made phone calls. He said he is concerned about whether the current level of flaring in Texas is in the best interest of the state, the industry and the RRC in the long term.

The number of venting and flaring requests from oil companies and granted by the RRC has consistently grown in the last 10 years as oil production has ramped up, including in the Permian Basin.

RRC data show 107 venting and flaring permits were approved statewide by the RRC in fiscal year 2008. That number swelled to 5,488 in fiscal year 2018.

Most of the requests are to flare casinghead gas from oil wells. 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.

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.

Christian asked RRC staff to gather data on how many wells in Texas have received a flaring exemption that exceeds 180 days that are physically connected to a pipeline and how many of those are still flaring.

“If we’re going to gather some data, I want to be cautious that we don’t gather only a limited selection that may demonstrate a certain thing when there’s really more at play there,” Sitton added.

He added to the request, asking staff to also include how many wells are connected to gathering systems, how many of those are connected to processing plants and what are the total capacities of processing plants and pipelines.

The related rate discrimination case involving Exco and Williams, which was broken into two parts, is ongoing. Plans are for the discrimination part of the gas utility gas to be heard in December.

Onshore