The move here in early 2015 by the Obama administration to implement even stricter regulations, which are designed to curb methane emissions by as much as half of current levels over the next decade, could create a serious liability for the bottom line of many domestic oil and gas producers. Particularly those who are forced to flare off excess gas at the wellhead, a phenomenon due in large part to the persistent lack of necessary infrastructural pipeline capacity and/or access to LNG plants (or CNG proliferation), as methane is the primary component of natural gas.
In Texas, one of the top flaring states in the country alongside North Dakota and Wyoming, flaring in the Eagle Ford Shale has been roughly ten times higher than the combined rate for the fields in the remainder of the entire state, with something like 39 BCF flared between 2009 and 2012 alone. Eagle Ford production for December 2014 was around 1,653 MBOPD (EIA), up 36% from the same period in 2013, well ahead of the state’s other major production target, the Permian basin.
Texas Railroad Commissioner Christi Craddick even issued stern warnings last year to E&P companies in the state about the consequences of violating Rule 32 regulations on gas flaring, setting the stage for Texas to be in the crosshairs when it comes to achieving the new federal methane reduction targets. As the biggest producer, Texas is going to be asked to carry a considerable amount of the load when it comes to satisfying the new Federal Energy Regulatory Commission methane standards and this coordinated, cross-agency effort planned by the Obama administration will invariably catch E&P companies who flare in the bite.
One of the only ways for E&Ps to effectively avoid the looming costs associated with meeting these new targets will be to utilize technology like the Micro-Refinery Unit (MRU) system Well Power, Inc. (OTCQB: WPWR) has obtained the exclusive licensing rights to from ME Resource Corp. for the state of Texas (as well as first right of refusal in the other states). The skid mounted wellhead MRU technology is scalable, modular and can be easily transported from site to site, but more importantly, it turns waste gas that may now become a major liability, into an additional revenue stream. The demand for such technology is now approaching historically unprecedented levels as new emission regulations get set to storm the industry. The need to offset costs associated with emission reduction standards, especially for small wildcat operators, combined with the advantage of being able to produce on-site clean electricity, as well as engineered fuels like diluents (key for heavy oil and oil sands), no-sulphur drop-in diesel and pipeline-quality synthetic crude, is now greater than ever before.
The MRU technology is also high-capacity and can easily handle 75 Mcf to 250 Mcf flows, making it an ideal solution for most companies that are currently wasting stranded, vented, and flared gas. If investment and eventual economies of scale on this technology could keep pace with the rate of new environmental regulations, we might not even need more gas pipeline capacity. At any rate, the writing is on the wall when it comes to gas flaring taxes, with a Wyoming House bill that could cripple smaller producers headed to the Minerals, Business and Economic Development Committee for voting this week, as the news comes in that some $11.4 million in natural gas was flared in the first ten months of 2014 alone statewide.
Last word out of management at WPWR in October of 2014 was that they had chosen a prototype unit build area and that they were in negotiations for a specific site proximal to their R&D team for its development, and that process engineers have also been tapped to assist in the project’s completion. The strategic financing control afforded to the company by the Equity Purchase Agreement from August of last year with Premier Venture Partners, LLC has given Well Power the breathing room they need to keep the ball rolling forward towards commercialization of the MRU and prevailing emission regulations seem to now be batting away many naysayers who have speculated that WPWR is now potentially worth the $0.80 share prices seen during the stock’s rally last year.
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