Across Utah, many oil wells produce natural gas that can’t get to market because the infrastructure is not in place to gather it. This so-called “residue” gas is often flared or vented into the atmosphere, thus wasting a valuable resource, erasing tax revenue for rural areas and polluting the air.
To curtail such waste, Fidelity Exploration and Production Co. laid miles of pipe across Big Flat, a recreation hot spot outside Utah’s Dead Horse Point State Park in 2014, and built the Blue Hills gas processing plant near the Canyonlands Field airport. The project cost the company up to $70 million and left an extensive industrial footprint on public lands used for mountain biking and camping. At least the flaring stopped at the many wellheads, now operated by Fidelity’s successor, Kirkwood Oil & Gas, in Grand County’s most productive oil field.
But now the flaring is expected to resume after the Utah Public Service Commission lost patience with the company that operates a connected transmission pipeline. Pacific Energy and Mining Co. has been fined $100,000 and ordered to shut down its Paradox pipeline, the 16-inch-diameter steel tube that connects Kirkwood’s gas plant with the interstate Northwest pipeline 14 miles away, because of the Reno, Nev.-based firm’s persistent failure to comply with various safety and training standards.
In response, Kirkwood officers say they will seek emergency permission from the Utah Division of Oil, Gas and Mining, or DOGM, to flare the company’s natural gas production, estimated at 750,000 cubic feet per day, worth about $2,000 at today’s volatile but depressed gas prices. The company said some of the 30 wells served by that pipeline cannot be shut in without risking damage.
“The wells might not come back to their earlier level of production,” said Kirkwood official Steve Degenfelder.
In its filings with the PSC, Pacific denies its pipeline is out of compliance, arguing the agency’s inspectors were not qualified and blamed the need for flaring on regulators. Company officials downplayed the alleged violations, saying the regulations at issue have little to do with safety and more to do with record-keeping.
DOGM Director John Baza said his agency will look for ways to minimize the waste resulting from the closure of Pacific’s pipeline, but public safety and the integrity of Kirkwood’s oil wells take precedence.
“We want to make sure that pipeline is perfectly safe to operate. We and the Division of Pubic Utilities [which regulates pipelines] would need to coordinate," Baza said. "We can work with them and ask how long this could take. The preferable option is to see the pipeline back in operation. If there is a long history of noncompliance, it could take a long time.”
Under state regulations, oil and gas wells can flare up to 1.8 million cubic feet of gas per month without DOGM approval. The wells Kirkwood’s predecessor operated at Big Flat were flaring far more than that several years ago when state regulators and the Bureau of Land Management pressured Fidelity to build a 26-mile network of gathering lines to capture that gas and a 25-mile aboveground “lateral” pipeline to get it to a new processing plant. The year before, Fidelity had torched 456 million cubic feet of gas, according to state records, representing a massive loss of revenue to federal and state coffers.
State trust land officials are not pleased with the prospect of a resource they administer getting wasted.
“It will impact revenue flows into our beneficiaries. It is our hope the this can be resolved sooner rather than later,” said Kim Christy, deputy director of the Utah School and Institutional Trust Lands Administration. “While we are a proponent of extraction, there is an expectation that regulations and the obligations of the operator are adhered to.”
Fidelity sited the Blue Hills plant, which can process up to 5 million cubic feet per day, on the Paradox line to avoid replicating existing infrastructure, Degenfelder said. Delta Petroleum built that 22-mile line in 2008, and Pacific acquired it in 2012. It serves an oil field Pacific operates on state trust lands northwest of the Blue Hills plant. Kirkwood now pays Pacific 50 cents per 1,000 cubic feet to transport its gas to the Northwest interstate pipeline.
Not long after Kirkwood acquired Fidelity’s assets, however, Pacific had demanded the new operator hand over $10 million or it would cut off the company’s gas, according to a lawsuit. Pacific cited concerns that sulfur or bacteria in Kirkwood’s gas could damage the pipe. Fidelity is a billion-dollar company that could meet its obligations if such a catastrophe occurred, but Kirkwood is a much less capitalized player, Pacific Vice President Dan Green said.
A state judge ruled a $100,000 bond would suffice and ordered Pacific to resume moving the gas pursuant to a transportation agreement with Fidelity. In the meantime, however, Kirkwood was forced to flare millions of cubic feet of gas before obtaining the court order in 2016. That was about the time the Division of Public Utilities concluded Pacific’s pipeline was not operated according to standards and initiated the proceedings that led to the latest shutdown.