Oklahoma Corporation Commissioners meet Monday to decide whether to return to a 50% allocation of natural gas production following emergency action taken during the winter storm to increase production to 100%. Some energy companies support a rate higher than 50%.
Commissioners will consider a recommendation filed by Robyn Strickland, Director of the Commission’s Oil and Gas Conservation Division to adopt a 75% proration formula for unallocated gas wells.
The 50% rate had been adopted in 2020 but was boosted to 100% earlier this month on emergency action taken when power plant production resulted in rolling blackouts due to a lack of natural gas.
The frigid weather had resulted in freeze-offs of some gas lines and Commissioners held an emergency meeting to approve the increased natural gas production.
The American Petroleum Institute, in a January filing supported a 100% proration formula pointing out then that the US natural gas supply had fallen faster than demand. It claimed there was a natural gas undersupply in Oklahoma and the claim was made a full month before the power disaster hit Oklahoma.
” Oklahoma’s gas production fell by nearly three times the national rate and twice that of Texas, and in fourth quarter of 2020 the state’s relative prices surpassed historical norms based on pipeline transportation costs,” said the API.
Oil and gas companies are split on their support for the 75% recommendation.
One main opponent is Continental Resources Inc. which, in a Jan. 15 letter to the Commission argued there is “tremendous uncertainty as to how fast and what extent the domestic and global economy will recover post-Covid……now is not the time to reverse course from disciplined gas production.”
But other energy firms support increasing the proration formula to 75% including Devon Energy. The company in a filing said it does not believe any sort of wellhead restriction should be in place but supports raising rate to 75%. It also believes the minimum allowable gas rate should be increased to 3 million cubic feet a day.
Marathon Oil is another supporter of the increase, arguing in a mid-February filing that Oklahoma’s proration “increases the uncertainty of the commerciality of drilling and completing multi-well horizontal units.”
Denver-based Ovintiv sides with the 75% rate, stating in a letter last week that the company “opposes governments intervening in free markets to influence commodity price.”
The meeting will begin at 1:30 p.m. on Monday.