The Railroad Commission of Texas (RRC) on a 2-1 vote has granted Exco Operating Co. LP its exemption request to flare natural gas in an Eagle Ford Shale field over the objections of pipeline giant Williams.
The request was granted Tuesday to exempt 69 flare points in South Texas on various leases in the Briscoe Ranch field in Dimmit and Zavala counties.
Chairman Wayne Christian voted to oppose the exemption, while commissioners Christi Craddick and Ryan Sitton voted in favor, following a recommendation to approve the request by an RRC administrative law judge (ALJ).
"Flaring is a critical part of the well construction process and it is important that companies be able to continue to use this tool,” Christian told NGI’s Shale Daily. “However, as a commissioner, I have a duty to my constituents to prevent waste and believe that if an operator has the ability to transport their gas to market, they should.
“I am aware of the economic reasons to flare, but if an operator is going to make money on the aggregate after selling their oil, it does not seem in our long-term best interest to flare the gas."
The case has been a fairly messy one. Exco in 2013 bought the Eagle Ford wells as part of a package from Chesapeake Energy Corp. Exco in early 2018 then filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division (No. 18-03103).
In the proceeding, Exco said it rejected a gas gathering contract that was between Chesapeake and Williams subsidiary Mockingbird Midstream Gas Services. The wells were connected to the Williams gathering system, but Exco representatives argued that the company would lose money if it were forced to sell the gas under the terms of the contract.
In April 2018, Williams filed a proof of claim in the bankruptcy court, asserting that Exco inappropriately flared gas that it was obligated to deliver to its gas gathering system. Williams then took its claims before the RRC to force Exco to either shut in all of the Eagle Ford wells or connect to the gathering system.
Williams asked the ALJ to consider whether the casinghead gas produced by Exco’s oil wells was dedicated by a separate contract to Williams. The pipeline operator’s representatives argued that the gathering system had been built for $1.5 billion to gather production from wells in the area, and Exco could have built a separate gas takeaway but chose not to.
ALJ Kristi Reeve testified before the RRC in June that a flaring application had never been contested. She said some direction from the commission “would be lovely." Exco’s request also was the first in which a producer sought to flare gas when almost all of the output could be connected to a gathering system.
At the July RRC meeting, Craddick argued that the question was one of economics. Historically, she said, the trio of commissioners were “pretty free market....To me, this would be forcing a contract, which we've never done.”
The RRC examiners proposed that flaring be allowed given the issues involved as Exco would need flaring approval even if the Williams system was available, citing low pressure issues, periodic upset/maintenance and for gas that the system would be unable to receive.
The recommendation, however, was not to be taken as an indication that the RRC would recommend flaring for all gas in the future or if the facts were different.
Exco “has stated it’s hope to cease flaring, and ideally sell its casinghead gas at a profit,” the examiners noted. Exco was encouraged to seek a solution to flaring most of its gas and make a good faith effort to direct the gas to or use it for purposes and uses allowed by law.