Permian Basin faces gas problem

Producers must burn off excess or pay to have it hauled away.

America’s top shale field is becoming increasingly gassy as drilling slows down, undercutting profits for explorers at a time when investors are demanding better returns.

Natural gas has long been a nuisance in the Permian Basin in Texas and New Mexico, where a massive glut weighs on prices, with crude producers sometimes having to pay to get it hauled away or burn it off in a controversial practice known as flaring. Now the problem is intensifying as wells age and fewer new wells are drilled.

Shale wells produce a spew of oil when they’re first fracked, but over time, production falls and gas can more than double, becoming a bigger part of the mix.

It’s an issue that’s made worse when subsequent wells are drilled too close to the initial one or when there’s interference from another producer’s neighboring wells.

Diamondback Energy Inc. emerged as a victim of this phenomenon when it reported third-quarter well results that were disappointingly gassy. The percentage of oil was 65%, the lowest since at least 2011.

And in recent years investments have shifted to the western part of the Permian Basin known as the Delaware, where output is much gassier than in the eastern Midland portion.

Rather than pay to have more of their gas taken away, producers in the Permian are already burning off record levels of it. The Texas Railroad Commission, which oversees the oil and gas industry in the state, has granted nearly 6,000 permits this year allowing explorers to flare or vent natural gas. That’s more than 40 times as many permits as granted at the start of the supply boom a decade ago.

Flaring gets rid of the methane, but it still releases carbon dioxide into the air. The agency’s tendency to approve all f laring permits is the subject of a lawsuit brought by pipeline operator Williams Cos. The company recently lost a case in front of the commission, arguing that producer Exco Resources Inc. should use Williams’ pipeline system instead of burning off gas.

U.S. Energy Secretary Dan Brouillette put the Permian’s problem down to infrastructure, saying more pipeline capacity is needed.

Not everyone agrees. Colin Leyden, senior manager of regulatory and legislative affairs at the Environmental Defense Fund in Texas, said pipeline capacity will help, but not solve the issue.

“Folks are absolutely fed up with the amount of waste and pollution coming from the Permian Basin,” he said.