SM Energy pledges to eliminate routine flaring as investor, regulator pressure increases

Matt Whittaker
Natural gas flaring in western Texas oil field in 2020.Jonathan Cutrer/Flickr

By Matt Whittaker / NewsBreak Denver

(Denver, Colo.) A Denver-based fossil fuel company operating in Texas is joining other energy firms around the nation in reducing burning unwanted natural gas associated with oil extraction.

Called “flaring,” the practice of routinely burning off natural gas is common among oil and gas producers, also known as “upstream” companies. But it is also wasteful and polluting, drawing the ire of investors, regulators and environmentalists. 

As fossil fuel companies routinely burn excess natural gas because capturing and transporting it is expensive or impractical, it’s notable that a shortage of natural gas is to blame for rising energy bills in Colorado.

This month, Denver’s SM Energy announced it would stop all routine flaring and reduce non-routine flaring to 1% or less of natural gas production by 2023. 

By 2030, SM said it would reduce by half the intensity of greenhouse gas emissions from its own sources and those that result from its energy-related purchases, based on 2019 levels. It also said it would maintain its “already very low” methane emissions at the 2020 level or better.

"Feedback from our stakeholders has emphasized the importance of proper stewardship by the upstream sector, particularly in the important areas of flaring, and methane and GHG (greenhouse gas) emissions,” SM Energy CEO Herb Vogel said.

Flaring declines in the United States

SM Energy’s new environmental targets come as flaring, in general, has been on the decline in the United States. Texas is scrutinizing the practice more closely, and investors are joining environmentalists to urge ending the routine practice.

In the third quarter, onshore gas flaring in the United States fell to its lowest level since at least 2012 and possibly since the shale boom of the 2000s, according to research firm Rystad Energy, which uses satellite data to track flaring trends. Flaring activity fell about 24% from the previous month in September alone.

“Flaring activity is tumbling as best practices that only major operators had previously adopted spread to smaller, independent players,” Rystad said this month. 

In the Permian Basin of Texas, one of the areas where SM Energy operates, the average flaring intensity among the 50 biggest natural gas producers was 1.6 percent in the third quarter, down from 2.5 percent in the first half and 3.2 percent for all of 2020, the consultancy said. 

Meanwhile, major investors are calling for the routine practice to end.

The world’s largest money manager, BlackRock, a major shareholder in SM Energy, has called for nearly eliminating flaring by 2025. 

Last year, large financial asset managers AllianceBernstein, California State Teachers' Retirement System and Legal and General Investment Management sent a letter to the Texas Railroad Commission, which regulates oil and gas in the state, calling for the end to routine flaring by the middle of the decade.

“It represents wasted natural resources, increased emissions and failure to monetize a product that would otherwise add value to the oil and gas producing companies in our portfolios,” they said. 

After a February meeting when the Texas energy regulatory body deferred flaring requests, commissioner Jim Wright supported a reduction in the practice. 

“When someone requests an exception … I want to know if and how they are working to reduce flaring, or what I see as wasting our state’s natural resource,” he said. “Flaring is a necessary last resort during an upset, and we have work to do internally at the commission to ensure that we are not approving requests that go beyond that.”

In the Centennial State, the Colorado Oil and Gas Conservation Commission last year adopted rules eliminating routine flaring, prompting the Environmental Defense Fund to praise the “critical move for protecting Colorado’s communities and climate from needless waste and pollution.” 

Oil, gas prices, production rise

The flaring declines come even as the increasing prices for oil and gas are prompting fossil fuel companies to produce more of the commodities. Oil and natural gas prices have risen as the global economic recovery from the pandemic generates more demand to power businesses and homes. At the same time, supply hasn’t recovered, partly because there is less oil drilling than there was before the pandemic.

During the third quarter, the daily price for an international crude oil benchmark averaged $73 per barrel, 69% higher than the same period in 2020, the U.S. Energy Information Administration said this month in a study involving 87 global oil and natural gas companies, including SM Energy.

Those energy companies produced 1% more petroleum liquids and 4% more natural gas over that period, helping them rake in $157 billion, the highest amount of cash for any quarter in the 2017-2021 period.

For its part, SM Energy produced the equivalent of more than 14 million barrels of oil in the third quarter, a year-on-year jump of 23 percent while the average price the company realized on that production surged 118 percent.

The company said reduced flaring helped production volumes during the quarter exceed expectations.

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Matt Whittaker writes about natural resources industries, including oil and gas, mining, renewable energy, agriculture and cannabis. He's been based in the Denver metro area since 2013. You can follow him on Twitter @mattswhittaker.

Lakewood, CO

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