The Blue Hills natural gas processing plant near Canyonlands Field Airport is currently flaring off residue gas in violation of state law. State officials say the plant itself is not responsible for the violation, and are instead holding the owners of a nearby lateral gas pipeline at fault. [Photo by Rudy Herndon / Moab Sun News]

“Would you trust a company called NERD?”

Pacific Energy & Mining Company Secretary Tariq Ahmad says he doesn’t, and that distrust is at the center of a contract dispute that is forcing the owners of a natural gas processing plant near Canyonlands Field Airport to flare off “residue gas” from the facility.

Reno-based Pacific and its partners informed the owners of the Blue Hills plant earlier this month that they won’t follow the terms of a contract that allowed the facility to transport its excess natural gas through their pipeline network to the distant Northwest Pipeline.

A joint venture partnership that does business under the banner of Wesco Operating Co., including NERD Energy and Kirkwood Resources, recently bought the plant through its acquisition of Fidelity Exploration & Production’s Moab-area assets.

After Fidelity notified the pipeline owners of its plans to transfer its rights and obligations under the agreement to the new joint venture, Pacific asked for a $10 million cash bond. Fidelity and Wesco balked at the request, and when the $10 million bond failed to appear in their bank account, the pipeline owners cut off access to their network.

The Blue Hills plant operators said they had few other options at their disposal, so they began to flare off residue gas at the facility, in violation of the Utah Oil and Gas Conservation Act.

The Utah Attorney General’s Office and the Utah Division of Oil, Gas and Mining (UDOGM) have since ordered Pacific and its partners to restore access to their pipelines, after determining that the ongoing violation is a direct result of their actions.

“The concern of the state is to make sure that the resources of the state (are not wasted),” Utah Attorney General’s Office Public Information Officer Dan Burton said. “We’re more concerned that Pacific Energy & Mining fulfills its duty (and reopens the lines).”

The state gave Pacific until Monday, April 18, to comply with its orders at the risk of facing civil penalties. Yet as of Wednesday, April 27, the flaring was continuing around the clock.

Ahmad said his company doesn’t believe that UDOGM or the attorney general’s office have the authority to tell the pipeline owners what to do.

“We wrote them a letter saying, ‘We don’t accept your jurisdiction,’” Ahmad said.

As a petroleum engineer, Ahmad said he has been working in the area since 1979, and he said he’s wary of new arrivals with no clear track records, given the routine turnover of other companies in the industry.

“I’ve seen companies come and go, and we don’t want to be stuck with a company that doesn’t know what it’s doing,” he said.

A person who asked not to be identified said that the contract dispute stems in part from the recent history between Fidelity and Wesco on one side and Pacific on the other.

Pacific was originally in contract negotiations to buy Fidelity’s local assets, the person said, but when that deal fell through, Fidelity moved on and found another buyer.

“That’s where some of this tension is arising from,” the person said.

Seventh District Judge Lyle R. Anderson is scheduled to wade into the dispute on Tuesday, May 10, in response to the plant operators’ request for preliminary and permanent injunctive relief against Pacific.

Plaintiffs’ attorney George M. Haley of Holland & Hart LLP said in his motion that his clients are suffering as a result of Pacific’s actions, and could suffer irreparable harm if the court doesn’t rule in their favor as soon as possible.

“The requested injunctive relief would not be adverse to the public interest,” Haley wrote. “Rather, as implicitly recognized by the Utah Attorney General’s Office, the public interest strongly supports (it).”

UDOGM Associate Director John Rogers is siding with the plaintiffs, saying that his office has a mandate to ensure that Utah’s oil and gas resources are put to beneficial use.

“We feel that it’s a product that’s being wasted and should be allowed to go through the pipeline,” he said.

While his agency has determined that the flaring is in violation of state law, Rogers said he doesn’t believe that it is having a significant impact on the surrounding environment.

“There is flaring going on, but it’s not a permanent thing,” he said. “It’s something that’s going to come to a head pretty quick here.”

Sierra Club protester and Pacific official are one and the same

The dispute took an unusual twist when the U.S. Bureau of Land Management’s (BLM’s) Utah State Office received a letter from a Nevada man who protested the burning of natural gas without a permit.

That man – Jerry Kumar – is listed as Pacific’s treasurer, and as an officer of its board of directors, according to the company’s most recent filings with the Nevada Secretary of State’s office.

Haley maintains that Kumar sent the letter with the sole purpose of putting additional pressure on the plaintiffs to “cave in” to Pacific’s “unjustified and unreasonable demands” for a $10 million cash bond.

Kumar said he wrote the letter as a concerned member of the Sierra Club, and he said he was not aware that state officials are holding Pacific responsible for the ongoing violations of Utah law.

“I had no clue whether this thing was affiliated with Pacific or not,” he said. “I said, ‘This doesn’t look right.’ I know what’s right and wrong.”

Kumar said he serves as Pacific’s treasurer in name only, and said his day-to-day responsibilities center around a cable TV and broadcast business.

“I stay out of their part of the business, and they let me do what I want to do,” he said.

He said he happened to notice the bright lights from the flare in the vicinity of Arches National Park during a recent visit to the area.

“I looked at it from the standpoint (of), ‘Why is there a big flare there? It’s near Arches,’” he said.

While his letter asks the BLM to remedy the situation, it did not achieve the outcome that Kumar was seeking.

In a written response, Acting BLM Utah State Director Jenna Whitlock said that although the plant is located on a BLM-administered right-of-way, jurisdiction over the concerns that Kumar raised falls under the Utah Division of Air Quality’s umbrella.

Rogers said the connection between the Sierra Club member and the Pacific representative appears to be obvious, but he declined to say whether Kumar was trying to exert pressure on the plant’s operators.

“The name is the same, and we have been told it is the same person, so you can draw your own conclusion there about what the motivation is,” he said.

However, he did take issue with Kumar’s claims about the flare’s visibility. The gas plant is located about seven road miles off U.S. Highway 191, and he said that the flare is not noticeable from the main road near the airport.

“You wouldn’t see that driving to or from Arches,” Rogers said. “Obviously, there’s an issue with the contract, and they’re not happy with what’s going on.”

Ahmad suggested that the plant operators could stop the flaring at once if they shut-in the oil and gas wells that ultimately feed into the processing facility, noting that Pacific was ordered two years ago to shut-in its wells in the Cisco area.

“If they have a problem, they should shut that field in,” he said.

Haley has countered that the shut-ins aren’t feasible, and Rogers agreed, arguing that any move to do so could cause permanent damage to the oil and gas reservoirs below the surface.

“It’s not like a garden hose – it cannot be turned on and off,” Rogers said.

All sides content to let judge review dispute

Under an agreement that took effect in April 2015, Haley reported that the plant’s operators gained the right to send an established amount of residue gas through the pipelines without interruption. The pipeline owner, in turn, accepted liability for any economic loss that the Blue Hills plant reports due to flaring or venting of natural gas, he says in court filings.

As the plant transitions to its new owners, Haley writes that a $36,000 bond would be more than sufficient to cover any fees for a six-month period – an amount that Ahmad calls “B.S.”

Ahmad said that Pacific sought the much higher bond amount because it needs to protect itself and its assets – as well as the public – from any catastrophic or unforeseen events that may occur.

“When you own a pipeline, you’ve really got to be careful about what you do,” he said. “We have no idea who these people are.”

He maintains that Wesco is not officially the plant’s new operator because the BLM’s state office has not formally approved a transfer of operations.

BLM Utah Acting External Affairs Chief Jeff Fontana said the joint venture partnership has 90 days from the date of the sale to submit its paperwork, and in this case, his agency is continuing to process the documents as they come in.

“We have already received some assignments (paperwork) and we have been in contact with the company as they work on the remaining paperwork,” he said.

In the meantime, UDOGM’s board could move to take action against Pacific and its partners. But Rogers estimated that process could take at least two months, and he said he believes that Judge Anderson will get around to it sooner.

“This will be handled fairly quickly by a judge,” Rogers said.

Ahmad said he’s just waiting for that court date to arrive.

“Let’s see what Judge Anderson has to say about it,” he said.

State orders quick fix, but all sides waiting now for judge to intervene on pipeline access

We feel that it’s a product that’s being wasted and should be allowed to go through the pipeline.