Pipeline giant Williams is suing the Railroad Commission of Texas (RRC) for routinely approving natural gas venting and flaring, which it claims violates state law.
The lawsuit was filed in late November in the 345th Civil District Court in Travis County by Williams MLP Operating LLC and subsidiary Mockingbird Midstream Gas Services LLC. It follows a 2-1 decision in early August in which the RRC granted Exco Operating Co. LP an exemption to flare gas in an Eagle Ford Shale field.
Exco has permission to burn gas produced by 130 wells and 69 flare points in the Briscoe Ranch field in South Texas. Williams and Mockingbird have a vested interest in whether flaring from the field should be allowed.
Exco in 2013 bought a package of Eagle Ford wells from Chesapeake Energy Corp. In early 2018, the Dallas producer filed for Chapter 11 protection. Williams had a gathering contract with Chesapeake, which terminated in 2017. Exco and Williams have yet to reach a gathering agreement for the well.
The former Chesapeake wells were connected to the Williams gathering system, but Exco argued that it would lose money if it were forced to pipe the gas through the system under the terms of the transportation contract. Since late 2017, Exco has been using temporary permission from the RRC to burn off gas from the wells.
In the Exco bankruptcy proceeding last year, Williams filed a proof of claim asserting that the producer inappropriately flared gas obligated to the gas gathering system. Williams 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. However, the RRC approved Exco’s request, with Commission Chairman Wayne Christian casting a dissenting vote.
In the new lawsuit, Williams and Mockingbird said the RRC has set a dangerous precedent with the extended approval for Exco, which “reflects an evolved practice at the commission under which it has not denied any of the more than 27,000 requests for flaring permits received in the past seven years.”
Many years ago, the plaintiffs said, the RRC “adopted its Statewide Rule 32 to regulate flaring. In practice, however, for some years now the commission has effectively disregarded its rule in the granting of flaring exceptions. This practice lies at the heart of this appeal.”
The RRC “authorized flaring based on Exco’s flawed economic model, which virtually guarantees the grant of flaring exceptions. This flawed model, commonly used in flaring exception cases, considers only the so called ‘gas economics’ and notably ignores oil revenues from the same wells,” the lawsuit noted.
“Moreover, the exception was granted despite the fact that Exco’s wells are connected to a gathering system that is available to gather its gas, and there was therefore no actual need for the wasteful flaring. The grant of an exception to the no-flaring rule in this case is especially significant because this is the first known protested flaring application, and the commission approved the application despite there being no need to flare.”
With positive “gas economics,” the plaintiffs noted, “operators have a strong incentive to always save and get the gas to market. It is only with ‘negative gas economics’ that operators request an exception -- an exception which under the ‘gas economics’ test is virtually insured.”
However, the RRC authorized flaring “where the pipeline to take the gas is in place and connected to the wells. This approach to flaring exceptions effectively guarantees an exception if an operator applies for one, thus eviscerating the protections of Rule 32 and resulting in the needless waste of natural gas.”
Meanwhile, more than two dozen environmental groups and individuals, including retired Shell Oil Co. President John Hofmeister, in a letter sent to the commission on Tuesday wrote to “express our deep disappointment” to continue the practice of routinely issuing flaring exceptions.
“This practice encourages gross waste, significant harm to the environment and public health, and contravenes historic commission precedent to prohibit flaring and venting,” the groups said.
At current prices, “flaring in the Permian Basin burns an excess of $1.8 million a day worth of natural gas. Annual waste of gas is sufficient to power 400,000 Texan homes for two and a half years. Irresponsible actors in isolation disproportionately burn 24.8 Bcf of natural gas per year.”
The Exco ruling, “among thousands of others by the commission, allows Texas companies to burn millions of dollars worth of viable natural gas, regardless of pre-existing pipeline infrastructure...
“The commission can vote against issuing and extending licenses to flare and vent excess natural gas produced by shale oil extraction. We recommend that the commission cease issuing flaring and venting permits, and return to its strong legacy of waste prevention, where the RRC strictly prohibited the destruction of Texan assets.”