Crossing state lines? Oil firms flare Texas gas as investors vent on climate

HOUSTON (Reuters) - Across the Permian Basin’s high desert landscape, natural gas is going up in smoke even as oil majors including Exxon Mobil and BP pledge cuts in greenhouse gas emissions.

FILE PHOTO: A flare burns off excess gas from a gas plant in the Permian Basin oil production area near Wink, Texas U.S. August 22, 2018. Picture taken August 22, 2018. REUTERS/Nick Oxford

Flaring, the deliberate burning of unwanted polluting gas, is rife during oil production in the biggest U.S. shale field, and an acute problem in Texas, home to most of the Permian reservoir, which sprawls 86,000 square miles (220,000 km2) across two states.

Loose regulation in Texas means that companies including Exxon, Matador Resources and privately-held BTA Oil Producers last year burned off gas at more than twice the rate as in neighboring New Mexico, a Reuters analysis of data compiled by Rystad Energy from more than 50 of the largest producers shows. Some drillers burned natural gas at up to six times the rate in Texas as they did over the state line, the data shows.

Exxon flared more gas in Texas last year than any other producer, data released in February by a state regulator shows.

This is despite Exxon and other large oil producers, which have spent billions drilling and building pipelines in the region, promising emissions cuts to curb global warming.

Although companies have to apply for permits to burn unwanted gas, Texas allows producers to burn unwanted gas for six months and routinely issues waivers after the six months expires. New Mexico allows new wells to flare for 60 days and is moving toward 30-day extensions thereafter. Producers must present a plan to pipe or store gas with their permit request.

Even though flaring is legal, it is a growing problem for companies. While it is cheaper for them to burn gas, investors are badgering them to improve their green credentials.

Exxon is “making significant investments in gathering, processing and natural gas pipelines” and was able to lower its Permian flaring rate to just above 2% by the end of the year, spokeswoman Julie King said. The Rystad data shows it averaged 6.6% across the Permian during the first 11 months of last year.

Some companies are going beyond what regulations require. EOG Resources, ConocoPhillips, Chevron Corp and Occidental Petroleum have low flaring rates in both states. And Shell, which only works in the Texas Permian, burned off just 1.5% of its gas.

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Gas flaring has been on the rise since 2011 and so much has been produced alongside oil that it become worthless for much of February in West Texas, with producers having to pay a buyer to take it. Gas price turned positive this month as oil companies cut drilling, a move expected to reduce unwanted gas later this year.


Some investors have seized upon flaring, which generates greenhouse gas carbon dioxide, as a measure of environmental performance.

“It is the number one ESG (environmental, social and governance) thing they need to be focused on,” said Rob Thummel, portfolio manager at energy investors Tortoise Capital. “They can choose or not to flare ultimately.” Exxon, along with BP, Shell and Chevron, said in September it would minimize flaring, which exacerbates climate change by releasing carbon dioxide into the atmosphere. BP, which bought BHP Billiton’s assets in 2018 and said it has been trying to reduce flaring, burned 13.5% of its natural gas in the Permian last year.

The alternative, known as “venting”, is even more damaging as it releases unburned, odorless methane, which is the main component of natural gas and many times more potent as a greenhouse gas.

Flaring is more common than venting - New Mexico producers report burning 2.6 times as much gas as they vent, according to state data - but producers in Texas do not have to specify how they dispose of gas. Regulation is the big difference between New Mexico and Texas, which has approved every permit for flaring or venting since 2013, sometimes even when pipelines were available. In New Mexico, applications require a plan to capture gas and must be refiled as often as every 30 days, the New Mexico Oil and Gas Association says, whereas in Texas, renewals are good for six months. That has led to wildly different rates of flaring by the same companies. BTA Oil Producers burns 12% of its gas output in Texas, but only 1.8% in New Mexico.

BTA and Matador Resources did not reply to requests for comment.

“The regulatory regime in a lot of ways drives the infrastructure,” said Colin Leyden, a policy advocate for the Environmental Defense Fund, which tracks and monitors flaring. “In Texas you essentially have a blank check right now.”

Investors are so focused on this that they spend as much as 15 minutes of an hour-long one-on-one meeting on “in the weeds” questions about flaring, venting and other environmental issues, said Matt Gallagher, chief executive of Parsley Energy, which does not bring wells online until pipeline connections are available.

“There’s too much product in the air,” Gallagher said.

MORE GAS The split in the Permian could worsen over time. Texas wells are making more gas, with the oil-to-gas ratio per well falling about 10% in the last five years. Texas could double its flaring rate by the end of this year due to the “gassier nature of the new acreage being drilled,” said Amrita Sen, chief oil analyst at Energy Aspects. The prospect is even concerning the shale industry’s top financiers. “It just feels like it’s been too easy,” said energy banker Bobby Tudor, chairman of Tudor, Pickering, Holt & Co. And the two states are moving at different speeds. While a Texas energy regulator has promised meetings on the issue, New Mexico Governor Michelle Lujan Grisham last year signed an order directing state offices to develop regulations that would lower methane emissions in the industry.

New Mexico’s oil and gas regulator told Reuters it expects to have new flaring rules in place by the end of the year. A Texas regulator recently said he plans to seek public recommendations on how to reduce wasted gas in the state.

Reporting by Jennifer Hiller; editing by Gary McWilliams and Alexander Smith