Oklahoma Corporation Commissioners are being told the 50% prorationing formula they adopted last year on unallocated gas wells in the state hurt the industry and the state and should be increased to 100%.
The American Petroleum Institute, in a Jan. 13, 2021 letter to the three commissioners stated their action in March 2020 resulted in an undersupply of Oklahoma produced natural gas while surrounding oil and gas states increased theirs.
“Oklahoma’s losses in natural gas production and drilling activity stood out as the worst among major gas-producing states since April 1, 2020,” wrote Dr. R. Dean Foreman for the API. He is the group’s chief economist in its Policy, Economics & Regulatory Affairs division.
“Furthermore, there were zero active gas-directed rigs operating in the state as of January 8, 2021, and future production will continue to decline without new drilling,” he continued.
He went on to say that an analysis of the Commission’s own data showed that prorationing “appears to have contributed materially to lowering the state’s natural gas production.”
“As API and several of its members operating in Oklahoma have emphasized throughout these proceedings, prorationing works against the most productive and economic wells, reduces well economics, and undermines incentives for drilling, investment and trust n consistency of Oklahoma’s natural gas regulation,” his letter stated.
He said figures show Oklahoma’s natural gas production and drilling activity “have fallen precipitously” since the commission adopted a 50% formulate rate. Figures show the state’s natural gas marketed production fell to 7.3 billion cubic feet a day in October 2020 from 8.9 bcf/d in March, a 21.2% drop.
It also amounted to a 3.3% loss of t he U.S. market share in production.
“In fact, Oklahoma’s share of U.S. production fell by more between March and October 2020 than it did over any similar period on EIA (Energy Information Administration) record since 1973, added Dr. Foreman.
The Commission will hold a public virtual technical conference on Friday to discuss the latest proration effort and to create a new rate.
No vote is expected at the conference and if a new formula is adopted by the commission, it would apply for production of unallocated gas wells from April 1, 2021 to March 31, 2022.
Click below to read all of the API’s letter to the Commission.
API OCC Foreman comments – rdf Jan 15
