Companies plumbing the Niobrara formation in hopes of spurring a new shale oil play in Wyoming likely will not be allowed to waste large volumes of state-owned natural gas that sometimes mingles with the oil during initial production.
State and industry officials met Monday in Casper for an informal, public discussion on the matter. Both parties appeared to agree that royalty-free “flaring” — or setting natural gas ablaze — could be held to a limit without hurting the economics of exploratory drilling in southeast Wyoming.
But exactly how long and how much gas is flared before state royalties are applied to the gas wasted must still be determined by the State Lands and Investments board, which is made up of Wyoming’s top five elected officials.
“What I can’t have is a high volume of high Btu (British thermal heating unit) gas going up the flare stack and not getting revenue from it for state beneficiaries,” said Ryan Lance, director of the Office of State Lands and Investments.
The State Lands and Investments board is charged with the fiduciary responsibility of maximizing the state land trust and generally maximize revenue from those state-owned assets. Revenues from state lands, including state-owned oil and gas, are dedicated almost exclusively to fund Wyoming schools.
“The policy behind our interest is we don’t get another shot at this gas stream. After it goes up the flare stack it’s gone,” said Lance, referring to the fact that natural gas is a finite resource.
The agency’s staff recently recommended the board set a 30-day limit on royalty-free gas flaring, and they noted that some flaring is necessary to determine whether a well, or a state lease, can produce commercial volumes of oil or natural gas.
Joe Icenogle, director of environmental affairs for Fidelity Exploration & Production Co., suggested a 180-day royalty-free period ought to give producers enough time to make a determination on commercial productivity and to make long-term plans for capturing and selling gas and oil that flows from a well.
“Equally, in that beneficial interest argument (state royalties for Wyoming schools) is you want industry to explore state leases and not have those be the last ones they go to,” said Icenogle.
In other words, industry doesn’t want the royalty-free flaring period to be so short that an operator cannot determine the commercial viability of a well or group of wells.
When drilling into shale oil formations, a fair amount of natural gas and petroleum condensate (liquids) stream up the well bore with the oil for many days before steady oil production begins. Particularly in exploration or the early stages of a new oil play, there are not pipelines available to capture the gas for commercial sale, so the byproduct is flared until the finite resource is exhausted or facilities are constructed to capture gas and liquids for sale.
There’s a notable lack of pipeline infrastructure in southeast Wyoming where there has not been much oil or gas activity.
Lance said that lack of pipeline infrastructure is a concern. The current exploratory phase of Niobrara shale oil drilling is spread across all of southeast Wyoming, and it could be a long time before producers — acting independently — convince pipeline companies to invest in the gathering and transportation pipelines to take all the products to market.
So far, there’s not a large volume of state gas flared in the Niobrara play — less than 1.7 million cubic feet of gas per day (Mmcf). But state officials want to get ahead of gas flaring before it snowballs into a larger waste, like the estimated flare of 270 Mmcf per day, according to one estimate, in North Dakota’s Bakken oil shale play.
Industry representatives also noted that much of the natural gas flared after a well is drilled is mixed with other constituents and doesn’t meet gas pipeline specifications, so applying a market rate to those volumes of flared gas might not be fair.
In reference to supposedly “wasted” gas, Steve Degenfelder of Double Eagle Petroleum said, “I hope we use the word wast very sparingly.” Degenfelder said he wasn’t convinced that natural gas, without a pipeline connection to markets, has a value at all.
Dan Neal, executive director of the Equality State Policy Center, asked that Office of State Land and Investments board make its determination regarding royalty-free flaring in a public manner.
— Contact Dustin Bleizeffer at 307-577-6069 or [email protected].