Burning Money, Fouling the Air: Citizens ask the state to curb flaring
As operators continue to churn out record volumes of oil from the Bakken play in North Dakota, Chesapeake Energy — among other operators — are setting up what could be a rival oil play in Wyoming’s southern Powder River Basin.
Several hundred permits to drill have already been approved, predominantly in Converse County, where the industry is drilling horizontal wellbores that stretch for 2 miles and further.
The wells, which cost $5.5 million to $11 million to drill, require multiple stage hydraulic fracturing — or fracking — and they produce a lot of wet natural gas associated with the shale- and tight sands-oil zones. It is common practice to flare — or burn — the natural gas because the volumes of gas do not immediately justify the cost of capturing it, treating it, and transporting it to pipeline networks for commercial sale.
But flaring can be troublesome — especially when it emits dangerous toxins into the air near homes and neighborhoods. There have been several instances of rogue flaring (flaring more gas than allowed) and improper flaring (when the gas isn’t burned completely, emitting more toxins).
It’s also extremely troublesome in times of state and county budget cuts. Operators typically pay no royalties or taxes on gas that is flared. That waste of gas and loss in revenue is justified by the larger revenues that come from oil production.
In May, the landowner advocacy group Powder River Basin Resource Council joined at least nine others in petitioning the state of Wyoming to rework its oil and gas rules to improve oversight of gas flaring, and to step up inspections and enforcement of industry activities.
Even in Wyoming — a state with a rich history of oil and gas development — state officials readily admit that it’s difficult for statute-driven regulatory agencies to keep pace with an industry that’s experienced a quantum leap in technology.
Yet, state leaders don’t particularly like it when citizens and citizen groups attempt to lead such reforms.
Asked for his reaction to the citizens’ petition, Gov. Matt Mead told reporters, “My view is changes in rules and regulations should be driven by the commission (Wyoming Oil and Gas Conservation Commission), or by this office.” Mead added that citizens have an opportunity to comment on any rule changes, but that the changes should be driven by state officials.
Wyoming Oil and Gas Conservation Commission supervisor Grant Black said that his agency formally recognized receipt of the citizens’ petition at the commission’s June meeting. The commission has not said that it will take up a rule-change effort at the petitioners’ request. However, Black said the commission does intend to undertake a broad review of its oil and gas rules and regulations, and through that effort the commission may address some of the petitioners’ concerns and recommendations.
Life in the shadows of drilling and flaring
Count Kristi and Pete Mogen, and their neighbor Janice Switzer — along with many others in the rural Wyoming neighborhood of Clear View Acres subdivision — among the growing number of citizens living in the shadow of America’s onshore oil and natural gas rush.
Since April 2012, they’ve witnessed a well blowout that forced them and their neighbors to evacuate their homes, they’ve been forced to navigate — daily — a huge wave of industrial traffic on rural roads, and they’ve been exposed to the noise and toxins of constant flaring of natural gas.
As they sought answers about exposure to toxins and how the state can better manage operators — some proven negligent in following the state’s existing rules — Kristi Mogen said they were ridiculed by other neighbors as greedy opportunists hoping to cash in on deep-pocketed corporations.
“My family felt like we lived through hell last year,” Mogen told WyoFile. “Our whole summer was destroyed — into our winter. Our health was impacted seriously, and I would say we did not turn a corner until about January of this year.”
Mogen said she and her neighbors didn’t expect to live in the middle of an oil rush but they reluctantly must play the role of watchdog. They constantly mine public databases, monitor nearby activities and ask state officials for more accountability from oil producing companies.
Chesapeake Energy, the primary operator in their rural community near Douglas, declined to answer WyoFile’s questions.
After a chaotic spring, summer and fall in 2012, things did get better, said Mogen. She and her neighbors got help from the Powder River Basin Resource Council, a landowner advocacy group. The state issued citations to Chesapeake Energy for rogue flares. Public meetings were held and other efforts have been made to prevent drilling and production activities from interfering with the lives of rural homeowners.
“We know that we are having an impact on the county, and we think most of what we do is a positive for the county,” John Dill, who manages Chesapeake’s Rockies operations, said at a December 2012 town hall meeting in Douglas hosted by Chesapeake.
But the oil play in Wyoming’s southern Powder River Basin is only the beginning to what could be a major extraction effort by the industry.
There’s not much federal land in eastern Wyoming, making the area attractive to rural homeowners and drillers alike. If operators set roots close to existing infrastructure, Mogen says many other homeowners may find themselves living next to oil and gas activity.
In the meantime, Mogen is still seeking information about the current and long-term health risks associated with toxins from the April 2012 well blowout and the constant flaring. The EPA lists a host of toxins related to oil and gas emissions and potential health risks, but site-specific assessments in the Clear View Acres subdivision area are lacking.
“What are the effects going to be on my daughters? I mean we saw it kill our gardens, we saw it affect the health of our family and our cattle. What’s the long-term affect going to be? I don’t know,” said Mogen.
Earlier this year, the Wyoming Department of Environmental Quality installed an air quality monitor near the Clear View Acres subdivision, and it began planning a mobile air quality data collection effort in coordination with the University of Wyoming.
The petition states, “Since 1995, the Commission has permitted 106,119 oil and gas wells. … In spite of the great increase in the number of oil and gas wells, the basic fundamentals governing the industry — such as setbacks from homes and schools — have not changed in many decades.”
Flaring gas runs counter to the charge of the Wyoming Oil and Gas Conservation Commission. It is the state’s fiduciary responsibility to collect revenue on these minerals, and the commission’s responsibility to protect correlative rights among mineral owners.
Wyoming statutes declare that the waste of oil and gas resources is prohibited. The state makes exceptions, such as flaring gas as a necessity to completing and putting into production oil and gas wells. Currently, operators can flare up to 60 thousand cubic feet (mcf) of gas per day without notice to the state.
In June 2012, the oil and gas commission granted its supervisor authority to approve natural gas flaring applications up to 250 mcf per day per well, for up to 180 days. The petitioners want the state to require notice of intent to flare to landowners and royalty owners well in advance to beginning a flare, and they want the state to better scrutinize the actual need to flare.
Not all flaring leads to certain commercial oil production. For example, the Wyoming Oil and Gas Conservation Commission recently declined a request by SM Energy Co. to continue flaring from two horizontal oil wells in southeast Wyoming at a rate beyond the state’s standard allowable 60 mcf per day. Combined, the wells were flaring about 320 mcf per day — a necessity, according to SM Energy, in order to keep oil flowing and make the wells attractive for sale.
SM Energy officials said they’d investigated the cost of connecting gas gathering lines to the locations for commercial sale, and it was cost-prohibitive. They also investigated the cost of fixing the wells with controls that would strip the gas of liquids, decreasing the volumes flared and creating revenue from the additional liquids. That, too, was cost-prohibitive, said company officials.
According to the citizen petitioners, state officials perhaps should not have approved a flaring variance for these wells in the first place. It’s a sentiment not lost on some members of the Wyoming Oil and Gas Conservation Commission.
“They are not working diligently enough on marketing solutions prior to (drilling). … I think it may save a lot of time and money to alert them to a very challenging marketing (scenario) prior to drilling,” said commissioner Tom Drean, who also serves as Wyoming’s state geologist.
Regarding flaring, petitioners propose the state should:
- Require, not merely “encourage” well operators to employ technologies to minimize or prevent flaring during drilling and completion operations (proposed Section 39(b)(iv));
- Require, not merely encourage, safety methods for the management of sour gas (proposed Section 39(f)(i));
- Require noise controls for flares operating within one (1) mile of occupied dwellings (proposed Section 39(f)(ii));
- Require smokeless flares (proposed Section 39(f)(iii)); and
- Require best available technology to limit emissions from flaring (proposed Section 39(f)(iv)).
The petitioners also asked the state to increase the minimum 350-feet setback of an oil and gas well from homes, schools and businesses to 1,320 feet, or a quarter-mile, and — given recent examples of illegal flaring — to seriously step up monitoring and enforcement of the state’s rules.
“We always talk about developing energy on our own terms,” Marcia Shanor, chairwoman of the Equality State Policy Center — one of the petitioners — said in a prepared statement. “Flaring gas means we lose a valuable resource and forgo royalties and tax revenue while polluting our good Wyoming air. That’s not development on our own terms. Meanwhile, the good neighbors of these wells deal with noise pollution and other flare impacts.”
What’s the revenue loss?
So how much flared gas should the state allow without royalty and taxation? It’s a question the state may struggle with as oil drilling increases in eastern Wyoming. But the state doesn’t even know exactly how much gas is flared currently.
Remember, the state already writes off all gas flares of 60 mcf per day or less. And for wells approved to flare beyond that volume, the state relies on self-reporting from operators — which hasn’t always been accurate.
Wyoming Oil and Gas Conservation Commission supervisor Grant Black recently reported that the state has approved flaring variances (above the standard 60 mcf per day per well) for 65 wells, and that 63 were presently flaring. He said that from late 2010 to May, the industry reported flaring approximately 1,620,209 mcf of gas, representing an average of 1,479 mcf per day total for all wells.
No taxes or royalties are collected from flared gas, which means the state — and private royalty owners — are missing out on millions of dollars in revenue each year.
Wyoming State Lands director Ryan Lance, who also serves on the five-member Wyoming Oil and Gas Conservation Commission along with Gov. Matt Mead, said it’s difficult for his office to figure out the loss in revenue related to wells on state lands.
“The issue is that we normally base our royalty on the price of the product as it was ‘sold’ into a market. Here, there are no sales. As such, we generally know the volumes but don’t have a ‘price’ to afix to it,” Lance told WyoFile via email.
Nor has the state attempted to calculate the Btu content of the gas to estimate potential revenue from liquids that could be extracted from flared gas.
One potentially significant solution to flaring large volumes of gas is to attract interest from a company that would find it economical to gather the gas and treat it for commercial sale.
Last month, the Douglas Budget reported that Texas-based Crestwood Midstream Partners LP has plans to build a $100 million gas processing plant southwest of Douglas, followed by construction of a $200 million gas processing plant northwest of Douglas.
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