Paradox pipeline lives up to its name for Utah regulators

(Tribune file photo by Brian Maffly) The Blue Hills natural gas processing plant north of Moab is served by a pipeline that Utah Public Service Commission shut down last year, calling it a "hazardous facility" because of its operators' poor compliance with safety standards. Now the plant's operator is forced to flare the gas it produces from a nearby oil field, prompting another Utah agency, the Board of Oil, Gas and Mining, to seek ways to get the pipeline back in service to avoid the waste.

Millions of cubic feet of natural gas are being wasted in a ball of flame at a Moab-area oil field while state regulators and a bankruptcy court determine the fate of an indefinitely idled pipeline.

The Paradox pipeline connects to a major interstate transmission line, passing oil-producer Wesco Operating Inc.'s Blue Hills plant, which processes natural gas coming from its 18 oil wells on Big Flat, a popular recreation area northwest of Moab. Without access to that pipeline, which regulators have designated as “hazardous” because its operator has long ignored safety standards, Wesco has been flaring much of its natural gas production since June with no end in sight.

Now that pipeline is presenting regulators with a real paradox.

One agency, the Utah Division of Public Utilities, wants the line shut down to protect public safety, while another, the Utah Division of Oil, Gas and Mining, is seeking ways to keep it in service so that Wesco can get its gas to market instead of burning it, resulting in wasted resources, lost revenue and pollution.

Faced with only bad options, the agencies’ governing boards last month chose to “deactivate” the pipeline — purging it of gas and sealing it — and authorize Wesco to torch up to 300,000 cubic feet of gas a day at its Blue Hills plant. The Board of Oil, Gas and Mining could have asked Wesco to choke back production at its wells, but DOGM Director John Baza feared that such a move could damage the reservoir tapped by Wesco’s 18 wells and strand vast amounts of hydrocarbons underground.

“Wesco has done nothing to inherit this problem,” board Chairman Ruland Gill said at a Jan. 29 hearing before voting to allow flaring to continue while the Paradox line remains out of service.

The board did not have much choice. Wesco would have been within its rights to flare excess gas at its 18 wellheads, which would have resulted in a dirtier burn and more waste because those flares would also consume the natural gas liquids, which are at least extracted at the Blue Hills plant.

(Christopher Cherrington | The Salt Lake Tribune)

Board members agreed it was better to allow one flare at the plant rather than see 18 separate flares scattered throughout a sensitive dark sky area popular for camping.

The alleged culprit in this dilemma is Pacific Energy and Mining Co., which is now in bankruptcy court, that had been operating the Paradox pipeline until last year, when the Division of Public Utilities lost patience with Pacific’s failure to adhere to various safety and bookkeeping requirements. There is nothing wrong with the pipeline itself, only in the way it had been operated, officials stressed.

Reached Thursday, Pacific’s principal, Nevada businessman Tariq Ahmad, declined comment.

In April, the utilities division had secured an order from the Public Service Commission to take the pipeline offline until safety standards, which had to do with leak-detection surveys and record keeping, were met. To the dismay of oil and gas regulators, Wesco has been flaring gas ever since. The oil and gas producer has even tried to buy the pipeline but to no avail.

“Wesco is taking every effort within its power to get the pipeline back on line,” Wesco engineer Thomas Kirkwood told the oil and gas board at a recent hearing.

Meanwhile, Pacific Energy and its successor never addressed any of the violations, prompting a Dec. 26 hearing before the Public Service Commission in which assistant Utah attorneys general, representing different agencies, advocated for opposing outcomes.

Patricia Schmid, for public utilities, insisted the pipeline should be deactivated, while Michael Begley, for oil, gas, and mining, proposed putting the pipeline in receivership so it could be returned to service in the hands of a “prudent” operator.

Now officials are not even sure who owns the pipeline, whose operation has been taken over by a firm called Dead Horse Oil Co.

“The Division of Public Utilities is also concerned about waste, the effect on the environment, the effect on taxes, royalties and impacts on local communities,” Schmid told the PSC. “However, paramount in our minds, is public safety. ...We tried to explore different options, what needed to be done, but because we didn’t receive procedures and records of how this pipeline was maintained, we just don’t know. And because we didn’t know, we erred on the side of caution and believed this was the best option for us, to request a deactivation of this pipeline.”

Since the pipeline’s closure, Wesco has burned about $100,000 worth of natural gas. That’s trivial compared with the nearly 3 million cubic feet its predecessor was flaring daily at its wellheads before it installed the processing plant.

Under pressure from the federal Bureau of Land Management, Fidelity Exploration and Production built the plant and a network of pipelines in 2015 to gather huge quantities of gas coming out of the 18 oil wells it had drilled on Big Flat, a scenic area surrounding Hell Roaring Canyon, located on the doorsteps of Dead Horse Point State Park and Canyonlands National Park. Now that $70 million investment is going to waste.

“It was intended to avoid flaring if at all possible,” Wesco’s lawyer Frederick MacDonald told the oil and gas board at the Jan. 29 hearing. “The unusual circumstance here is that this is beyond Wesco’s control because of PSC orders [sealing the pipeline] and the bankruptcy. Nobody wants to see this happen.”

Environmental activist Lionel Trepanier argued Utah law prohibits waste of oil and gas, insisting Wesco should be required to slow production until the pipeline mess is resolved.

“DOGM has failed to consider the disruptive impacts and huge costs of this unnecessary air pollution,” he said.

MacDonald and the Utah School and Institutional Trust Lands Administration, which holds a 10% stake of the oil and gas leases on Big Flat, said flaring would be the least wasteful alternative. SITLA has collected $9 million in royalties from the oil there through the years, versus $30,000 in gas royalties, according to Wes Adams, an oil and gas official with SITLA.

Kirkwood explored various options for getting the gas to the interstate pipeline, such as trucking it in a compressed state, but all were cost prohibitive and required big investments that would be useless once the pipeline is back on line.

“Wesco is paying royalties on gas that is being burned. Obviously it’s in their best interest to get the gas through the pipeline to sale,” MacDonald told the oil and gas board. “Yes, [the law] says waste is prohibited, but waste is when you don’t produce and maximize resource recovery. If you leave oil in the ground, you are committing waste.”

The BLM, meanwhile, is reviewing Wesco’s latest proposal for 45 new wells on its nearby West Fertilizer unit. Once approved, the company intends to drill two wells a year, potentially producing even more gas that it hopes to gather and process at the Blue Hills plant.