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Does ESG Present a Risk to 1.2 MMb/d of Permian Production?


By Corey Boettiger  |  February 4, 2020

Despite the start of Gulf Express Pipeline (GCX) in September 2019, Waha natural gas spot prices are trading at $0.43/MMBtu as of February 4, 2020. BTU Analytics’ most recent data indicates flaring volumes in the Permian were around 580 MMcf/d through the end of December 2019, down from peak volumes in late 2018 of just under 900 MMcf/d. However, Permian gas pipelines are once again full and oil production remains on the uptick, and with it, associated natural gas volumes.  

ESG Funds and Investing 

Looking into 2020, will operators be able to continue to advance corporate environmental, social, and governance (ESG) goals and maintain production targets at the same time? Here, we focus on Permian producer ESG goals and the potential impacts on volumes should flaring curtail production. 


ESG funds are becoming ever more popular among investors. According to Morningstar, as of the third quarter of 2019, flows into open-ended and exchange-traded ESG funds for the first three quarters of 2019 were approximately $13.5 billion dollars, on pace to triple the flows into these same funds in 2018 of just $5.5 billion. As interest in investing more in ESG-type funds and companies increases (and the present potential for divestment from companies not seen as ESG friendly), some operators are facing investor pressure to address how they plan to become more ESG friendly. 

The Balancing of Production Targets With ESG Goals 

In recent years, many operators have started releasing climate impact reports addressing some of these investor questions. For example, in a recent climate report, Occidental Petroleum pledged to eliminate routine flaring of natural gas by 2030. EOG Resources indicated in their 2018 climate report that they will be reducing flaring due to the installation of more gathering infrastructure and procuring firm transport for their natural gas. In their 2019 climate report, Apache stated that they have begun implementing automated choke systems to decrease production or shut-in wells to reduce flaring, in the Permian specifically. Below is a chart showing the changes in flaring that are attributed to some of the top Permian producers by flaring volumes. 


Looking at historical flared volumes for a subset of Permian operators highlights some challenges producers might face as they try to balance production targets with ESG goals. Several of these operators, such as Occidental, EOG, and Cimarex Energy, have flaring volumes down to under 5% of their gross gas production. EOG has moved in the direction indicated in their climate report, with flaring volumes in 2019 down from 2018, and the percentage of gas production that is flared is down by half, indicating they are producing more and flaring relatively less.  

However, some operators increased flaring in 2019 due to growing pipeline constraints. As gas takeaway capacity remains scarce in 2020 and production continues to grow, operators will be faced with the difficult decision on how to manage production, flaring, and ESG goals. 

Flaring Regulations and Managing Gas Production

If operator ESG goals or stricter flaring regulations are implemented and lead producers to eliminate flaring altogether, just between these 10 operators, that adds around 300 MMcf/d of gross gas to a system today. Additionally, if these 10 operators were forced to stop flaring gas altogether and shut in the oil production associated with these wells, the below chart shows an upper bound of 1.2 MMb/d of oil at risk. Note that this example assumes that operators choose to shut-in oil production on flared wells and are not able to find another solution to manage gas production. 


However, operators would likely choose between a combination of options if they were forced to eliminate flaring. This includes strategies like choking wells to reduce overall volumes or shutting in their highest gas-to-oil-ratio (GOR) wells. High GOR wells represent wells with relatively larger gas volumes than oil volumes and whose economics will be weighted to gas prices rather than oil. There are approximately 800 MMcf/d of high GOR wells with gallons per MCF (GPMs) <1.5 in the Permian; the associated oil production to these wells is roughly 30 Mb/d.  

Shutting in these wells is an example of a lever an operator could pull to help reduce the need to flare gas in the Permian while leaving oil production largely unchanged. However, infrastructure and producer production mixes suggest that the operators with the largest need to flare or shut-in production may not be the same operators with large volumes of high GOR wells. 


As investors continue looking to put money toward more ESG-related options, operators may face difficult decisions to balance oil production and flaring until new pipelines arrive. For more information on how BTU Analytics’ flaring and shut-in estimates affect production outlooks, as well as when Permian gas takeaway constraints could end, request a sample of our Upstream Outlook Report. 

This article was originally published on the BTU Analytics website. 

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article. 

BTU oil and gas data

Corey Boettiger

Senior Energy Strategy Analyst

Mr. Corey Boettiger is a Senior Energy Strategy Analyst at FactSet. In this role, he develops datasets and analytics around global energy transition projects. Prior, he was a senior energy analyst at BTU Analytics, which FactSet acquired in 2021. He has previously been involved in several areas of BTU Analytics’ market research, including U.S. power markets, wellhead economics, and NGL production, and has created and maintained several of BTU Analytics’ models. Mr. Boettiger earned a B.S. in Applied Mathematics and Statistics from the Colorado School of Mines.


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.