Texas regulators delay oil reduction decision

The Texas Railroad Commission has delayed a decision on a request by major oil companies to force a reduction in the state’s oil production with commissioners indicating they are in talks with regulators in Oklahoma and North Dakota as well as Canada and other countries.

The decision to delay came a day after oil prices dropped into the negative range of minus-$47 a barrel for May contracts, forcing US oil producers to pay buyers to take the oil off their hands.

Members of the Oklahoma Corporation Commission will hold a regular meeting Wednesday morning to consider a similar request made by LPD ENergy LLC of Tulsa. Owners of the firm contend the state oil is being wasted by being sold at basement prices and that commissioners have a constitutional duty and obligation to control the flow of oil.


The Texas Railroad Commission, the agency that regulates oil and gas activities in Texas, delayed voting on production cuts in Tuesday’s contentious meeting, instead opting to push the vote back to the Commission’s next scheduled meeting on May 5. Chairman Wayne Christian urged restraint as he has meetings to negotiate a broader and coordinated deal with other US states (the federal government in the US cannot legally regulate oil and gas production) and other countries, including Canada; and as the state works to determine how to legally implement production cuts.

“It would be much more powerful to move with other states and other countries,” Christian said in the meeting. “I’ve reached out to Canada this past week and talked to their oil minister, and she has offered to help us if we decide to.”

Christian and Commissioner Christi Craddick, two of the three commissioners on the board, were also concerned about voting on cuts without a clear understanding of legal ramifications. The commission is expecting lawsuits, as major oil companies including Marathon Oil and ExxonMobil have objected strongly to the cuts.

However, Commissioner Ryan Sitton disagreed with delaying the vote, calling for urgency as the energy market suffers the worst blow to energy demand in its history. Lockdowns from the global COVID-19 pandemic, which have forced at least 4 billion people globally to shelter in their homes, have caused demand to collapse at an unprecedented rate, falling by at least one-third of daily demand. Brent, though less immediately impacted by storage constraints, has also tumbled, falling to below $20 per barrel on Tuesday for the first time in history.

“Taking weeks — even days right now — to act is in and of itself is a choice,” said Sitton. “We are seeing a level of demand destruction and a level of oil industry downturn — that in the past happened over a course of years — now happening over the course of days. So, our normal process to go out and get information and to allow input, if it takes us what normally would be considered a very rapid amount of time … in the meantime, the entire world changes.”

Sitton argued the United States is at risk of losing the progress over the last two decades, as the US finally achieved energy security and an oil industry capable providing for domestic capacity. The energy industry, including hundreds of thousands of oil jobs in Texas, may never revive if the commission does not take urgent action, he said.

“Eventually those jobs will come back, but they may never come back to the state of Texas and the United States,” Sitton said.

“This is not unprecedented. This is completely out of the ordinary,” Sitton said about the demand collapse caused by the pandemic. “And when I hear people talk about how the market is working, I cannot help but ask myself: What part of this looks like the market?”

The meeting of the commission comes after factious public hearing on the issue on April 13 to hear industry feedback on proration. The state of Texas has not prorated production in the last 50 years. Since then, the industry has changed dramatically, with thousands of companies producing anywhere from a few barrels per day to 1.2 million barrels per day.

Source: Africa Oil and Gas