Regulators consider requests to declare oil production a “waste”

While Oklahoma Corporation Commissioners took no vote in Monday’s 5-hour long hearing of testimony about requests to declare a “waste” of oil production in the state, it is clear there is distinct separation of opinions about making such a move. Some operators contend it’s a waste of oil to sell it at the low prices while others argued the free market system is working and oil production is already being reduced voluntarily.

Commissioners decided to take two related requests “under advisement” as the Oklahoma Energy Producers Alliance modified its request for such a declaration, now saying it is a “voluntary” decision on the part of oil makers if an order were to be approved by the agency.

In the first of two hearings, the Commissioners considered whether to issue a rule on the emergency order granted to LPD Energy Company LLC of Tulsa last month.

“This is a serious matter we’re facing. There could be a substantial period of tie before the industry recovers,” argued attorney Lee Levinson. “What we’re asking for is voluntary, not compulsory. I’m not asking for anything mandatory.”

His company filed the request for the Commission to consider the production and sale of oil at current prices is a waste as defined in the constitution.

“I’m not asking for anything on a state-wide basis,” he added during the initial 3-hour hearing before the commission.

But his request was met with opposition from Charles Helm with Crawley Petroleum.

“There’s no evidence to support the claim,” said Helm in disagreeing that there is no market for Oklahoma crude oil.

Steven Hatfield, CEO with Crawley Petroleum agreed.

“Operators already have the ability to shut in wells on leases. What they’re trying to do is interfere in contractual rights and it only opens the floodgates to legal actions. It will open Pandora’s box for litigation.”

At one point in the hearing, he and Levinson openly disagreed as Levinson cross-examined Hatfield.

“This order has achieved nothing productive,” proclaimed Hatfield. “Oil in the ground is worth nothing until it’s produced.”

His comment produced laughter on the other end of the remote-hearing and a man proclaimed loudly, “That’s bullshit!”

But Levinson, under questioning by Commissioner Bob Anthony agreed, the commission cannot mandate any reduction in crude oil production on a statewide basis.

“I can see one big word all over this and it’s called litigation,” said Anthony at one point.

“I’m dumbfounded how anyone could disagree with relief for the industry. This is very important for small producers of Oklahoma,” responded Levinson.

Others disagreed with Levinson, arguing the Oklahoma Corporation Commission “cannot delegate its authority” while Michael Stack with Tulsa-based Kaiser-Francis Oil company maintained “The Corporation Commission has a duty to prevent these wastes.” Kaiser-Francis supported LPD’s request and one filed by the Oklahoma Energy Producers Association.

LPD’s request was not opposed by Devon Energy but it was by the Petroleum Alliance of Oklahoma and the Oklahoma Mineral Owners Association. Devon took no stand on LPD’s request but did oppose the prorationing request of the OEPA.

After agreeing to take the LPD Energy request under advisement, Commissioners heard similar arguments for a broader request by the OEPA.

Nine representatives of the organization testified for the request including Dewey Barlett, the former Tulsa mayor who was a founder of the OEPA.

He urged the commissioners to “show courage and stand up” because the Corporation Commission “was created to protect Oklahoma oil.”

Mary Anne MaGee, another board member told the commissioners, “The bottom line is—this is waste” in referring to the crisis before the OEPA members and others in the oil and gas industry.

“I cannot stay in business if I continue to lose money,” stated Darlene Wallace, another member of the group’s board. Mike Cantrell explained 70% of his wells are shut down.

“We ought to follow the law and if you don’t like the law, go across the street and change it!”

Attorney Richard Parrish who represented the OEPA told the three regulators, “The Commission not only has the authority but the duty to make rules” to prevent waste..

But others who opposed the request by the OEPA made their arguments to allow the free market to continue working.

“Their testimony failed to prove there was waste statewide,” argued Grayson Barnes, an attorney for Staghorn Petroleum.

An attorney for Marathon Oil also announced the firm was opposed to any pro-rationing as request of the commission.

“All operators would be forced to shut in production statewide and that would be devastating,” avowed Matthew J.  Allen.

The Petroleum Alliance of Oklahoma stood firmly against the request by the OEPA.

“The scope of the application exceeds the commission’s authority,” argued Brook Simmons who took over as the Alliance President on May 1. “This is a blatant attempt to force the Commission to pick winners and losers. The free market is already working. The Commission can do nothing to affect the armada waiting to unload oil in the U.S.”

The last to testify was Dr. Dean Foreman with the American Petroleum Institute.

“The supply and demand are responding and we need to resist the temptation to affect the market,” said Foreman. “States are gradually reopening and hopefully, the worst may be past us now.”

Like the first request, the issue of declaring a waste of oil was taken under advisement by the Corporation Commissioners.

 

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