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Williams' attempt to block Texas flaring permit denied again

Pipeline giant Williams Cos. Inc.'s attempt to have a Texas oil and gas driller's flaring permit denied for the first time ever was defeated again at the Texas Railroad Commission's Oct. 22 meeting, although discussions before the 3-0 vote revealed sharp differences between commissioners over flaring natural gas associated with shale oil wells.

At issue was Williams' request for a rehearing, essentially reopening the entire case, of the commission's August decision granting a renewal of EXCO Resources Inc.'s permit for flaring from some of its Briscoe Ranch wells in the Eagle Ford Shale. Williams said Exco's flaring of gas while having access to a gathering system was "wasteful," a condition the Railroad Commission is supposed to prevent. Previously, there had never been a challenge to a flaring permit in Texas.

Exco said all along that Williams' gathering fees make the gas unprofitable, and the value of the crude oil being produced far outweighs the small amount of gas that would be burned off. The potential of shutting in higher-priced crude is the real waste, Exco said.

The issue is critical for Texas oil and gas producers. With shale oil drilling in the Permian booming, producers in that play flare millions of cubic feet of gas associated with shale oil wells daily because there is insufficient capacity on the gas pipeline system to move the fuel to market. Restrictions on flaring could result in the unwelcome well shut-ins with a resulting loss of immediate revenue.

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Commission Chairman Wayne Christian supported Williams' position, noting that "waste is a problem" and gathering gas is "the cost of doing business." Exco's position was undermined by Williams' offer to reconnect the wells for free, Christian said.

Granting Williams' request to deny the flaring permit would give pipeline operators a monopoly position in negotiations with drillers that need the gas to go away so crude can be produced, Commissioner Ryan Sitton said. "None of us like flaring," Sitton said. "The onus should be on the pipeline operator to negotiate a contract that will be economical."

Christian contended that big banks and lenders, under pressure from environmental stakeholders to reduce their financing of fossil fuel companies, could see flaring as a reason to cut Texas' drillers off from capital.

Williams declined to comment on whether it would use its option to move the case to the courtroom, noting only that it was disappointed in the decision. "We are appreciative of the agency's attention to the matter and are committed to continuing to work with our customers in a productive manner to provide the market with effective natural gas-gathering solutions," the company said in a statement.

The commission also voted 2-1 at the same meeting to grant Exco a second, additional permit to flare gas from even more wells on the Briscoe Ranch leasehold.