The Blue Hills natural gas processing plant doesn’t want to flare off its residue natural gas any longer, and it might not have to.
A Seventh District Court judge this week granted the plant owners’ request for a preliminary injunction against a nearby pipeline operator that shut off access to its 14-mile system. The move by Pacific Mining & Energy and its partners forced the plant to burn off its residue gas in violation of the Utah Oil and Gas Conservation Act.
Judge Lyle R. Anderson ordered Pacific and its partners to reopen their Greentown Pipeline to a joint venture partnership that recently purchased Fidelity Exploration & Production’s assets near Moab, including the plant.
Reno-based Pacific cut off the plant’s access to its lateral gas pipeline on April 5, when the new partnership that does business under the banner of Wesco Operating, Inc., rejected its request for a $10 million cash bond.
The pipeline owners say they sought the high amount because they know nothing about the joint venture partners’ operating histories, or their financial status. The plant uses 60 percent of the pipeline’s capacity, and Pacific officials say they fear that any corrosive materials in the gas could damage their pipeline, which was valued at $42 million in 2008.
“We’d like to make money on the pipeline, but we don’t want to take on the risk,” Pacific Mining & Energy President Dan Green told the Moab Sun News.
But Judge Anderson said that based on all of the concerns he heard in court this week, he doesn’t believe that Pacific’s stated fears will come to pass in the near future, as litigation drags on.
“I don’t think that what we have here is a pipeline in danger of dying tomorrow,” he said during a preliminary injunction hearing on Tuesday, May 10.
While the judge said he is likely to grant the joint venture partnership’s request for a permanent injunction against Pacific, he said he must also consider the possibility that the line could be damaged at some point.
The residue gas is a byproduct of oil production from the Cane Creek Unit wells in the Big Flat area off state Route 313. From there, the Dead Horse Lateral Pipeline carries the gas to the processing plant west of Canyonlands Field Airport, about 7 road miles off U.S. Highway 191.
Plaintiffs’ attorney Mark L. Burghardt of Holland & Hart LLP said in court filings that residue gas from the plant does not contain corrosive acids that could harm the pipeline.
“The parade of catastrophic events described by the Defendants will not occur,” Burghardt wrote.
However, defense attorney Craig C. Halls surprised the plaintiffs’ attorneys, the judge and audience members by announcing in open court that recent sampling results confirm the presence of bacteria in the pipeline.
The bacteria can cause “pitting” in the pipeline, he said, which could eventually lead to gas leaks. Any time there are impurities in the system, he said, it becomes an issue of public safety.
Halls said the results from the February sampling work only came to light within the last week or so, yet he told the court that Pacific sought the higher bond amount partly because of the bacteria in the line. However, none of Pacific’s court filings mention the bacteria, and Judge Anderson reprimanded Halls for making those claims.
“You don’t get to keep shifting the field, Mr. Halls,” he said.
Nonetheless, Green indicated that he will report the findings to Williams Companies, Inc., which owns and operates the nearby Northwest Pipeline, the main artery of the natural gas transmission system that runs between the Four Corners region and the Pacific Northwest.
The Greentown line connects the gas processing plant to the Northwest Pipeline, and if Williams cuts off access to its property, he said, Pacific cannot be held responsible for the shutdown.
The judge agreed with him.
“But a word of caution about that, if someone thinks that’s a way out,” Anderson said. “You’d be shutting yourselves down (as well).”
Both sides trade strong words
While Halls called the joint venture partners “bullies,” plaintiffs’ attorney George M. Haley of Holland & Hart LLP accused the defendants of extortion.
“They don’t request a bond,” he said. “They demand that we put (give) $10 million cash to them that they can put in their bank account, and not surprisingly, your honor, we took exception to that.”
In the event of a catastrophic incident, Haley said, $10 million in general liability insurance would cover any claims. However, he suggested that Pacific is not really concerned about the potential for damages.
“Our concern and our suspicion is they’re trying to substitute our $10 million cash for an insurance policy that they’re trying to buy,” he said.
Halls told the court that his clients are willing to negotiate the bond amount, and the judge acknowledged that Pacific does have some discretion to ask for a higher figure.
“But I think that $10 million is just way, way off the charts,” he said.
The judge ultimately set the bond at $100,000. Although that was almost three times the amount that the plaintiffs initially offered, Haley agreed to the higher figure.
He maintained that the continued shutdown of the pipeline would cause irreparable harm to his clients.
Since the wells are located on public lands, state and federal agencies collect royalties on the gas that flows out of them – whether or not that byproduct ever makes it to market.
“We pay them royalties on the gas we’re flaring, but we don’t get any money,” Haley said.
Likewise, Burghardt said that flaring has led to the “irretrievable loss” of a finite resource that cannot be used or recaptured. Pacific’s actions cost the plaintiffs even more because they haven’t been able to reactivate four wells, or start work on a proposed well in the area.
While the Utah Division of Oil, Gas and Mining (UDOGM) has said that the flaring does not pose a significant long-term threat to the environment, Haley said it’s “clearly bad” for everyone when the unprocessed gas goes to waste.
“You don’t take out all of the heavy hydrocarbons,” he said. “It just burns.”
UDOGM and the Utah Attorney General’s Office previously ordered Pacific and its partners to reopen their pipeline, finding them at fault for the flaring violations. Although some of the Cane Creek Unit wells have been shut in due to economic concerns or mechanical problems, UDOGM ruled that further shut-ins could harm the underground reservoirs of oil and gas – a finding that Green disputed.
“It’s just a ploy to keep the oil flowing,” Green said.
Green said his company only received word of the April sale in the form of two sheets of paper that came through the day after their deal with Fidelity closed.
“What’s frustrating here is that nobody will pick up the phone and call us,” he told the Moab Sun News.
Two days after the sale was announced, he said, his company notified the plaintiffs that it would cut off service if they didn’t put down the bond amount.
According to Green, Fidelity itself came up with the suggestion of a bond during previous contract negotiations, and agreed that the pipeline transporter would set the bond amount.
Green said that Pacific didn’t ask the same of Fidelity or its former parent company, MDU Resources, because both entities are well-established.
“We didn’t have a bond with Fidelity because it’s a billion dollar company, and it’s owned by a $6 billion utility,” he said.
Based on the history of oil and gas operations in the area, he said, Pacific has good reason to be skeptical about the joint venture partnership.
“We’ve seen companies come and go in eastern Utah,” he said, adding that the revolving ownership is especially common in the Cane Creek Unit.
“It changes hands a lot,” he said.
However, Haley said he believes there is lingering resentment on Pacific’s part because that company previously tried – and failed – to buy Fidelity’s local assets.
“That deal fell through – I think there was some anger on their part,” he said. “We think that what this was really about was trying to stop the (sale).”
Court orders pipeline operators to restore access at site near airport
I don’t think that what we have here is a pipeline in danger of dying tomorrow.
