Pipeline owner sues Texas over flaring: Correction

Corrects sixth paragraph to clarify EXCO's role in the gathering contract.

US midstream operator Williams is suing Texas regulators over an exemption it says will give oil producers a "blank check" to flare off associated natural gas whenever doing so would be profitable.

The Texas Railroad Commission, which regulates oil and gas in the state, this summer gave US independent EXCO Resources a two-year exemption from the state's prohibition on flaring for 130 wells in the Eagle Ford basin. The company said it would have to shut in the wells, reducing recovery of oil, if it were unable to flare the gas.

But Williams, which owns a gathering system that could service the wells by turning an existing valve, says regulators were incorrect that flaring is necessary. The pipeline operator, in a lawsuit filed last week, says the decision effectively guarantees an exemption to any operator requesting one and marks a shift from a state policy to ban flaring unless an operator shows it is a necessity.

"This shift eviscerates the no-flaring rule and policy by effectively giving operators total discretion in deciding whether and how much to flare," Williams said in the lawsuit.

Texas producers this year have been flaring record amounts of natural gas, as a shale oil boom generated massive amounts of associated gas with too few pipelines to carry it away. Flaring and venting in the Permian Basin, which straddles Texas and New Mexico, reached an all-time high of 661mn cf/d in the second quarter of 2019, according to the consulting company Rystad Energy.

Williams had a gathering contract with the previous owner of the wells at issue in the lawsuit. But that agreement terminated in 2017, and EXCO and Williams have yet to reach a gathering agreement for the wells.

The wells' owners said the pipeline gathering rates were uneconomic, resulting in the need to flare.

Texas Railroad Commission member Ryan Sitton, in explaining his vote to support the exemption, said he did not want to "artificially force" the producer into a pipeline contract to avoid flaring gas worth $10,000/d when the wells at issue are producing $500,000/d of crude.

But Williams in its lawsuit argues that the state granted the exemption based on a flawed model that only considers the economics of gas production, while disregarding oil revenues and environmental harms from flaring. The pipeline operator says the state's prohibition on flaring would be "meaningless" if exemptions are allowed every time a producer finds it is more economic to flare.

EXCO said it was committed to finding a long-term solution for excess gas at its wells in Texas and was evaluating a range of options, including working with potential midstream partners.

By Chris Knight