Oklahoma will continue its control of natural gas production for the remainder of 2020 with the same rate it adopted in March of this year. But one regulator wonders if it is the right move as a hurricane hits the Gulf Coast.
The Corporation Commission, in a 15-minute meeting on Wednesday voted 2-1 to keep the proration rate at 50% even though some major oil and gas companies last week urged a 100% allowable production for the unallocated gas wells.
Commissioners Todd Hiett and Dana Murphy voted to approve the continuation from Oct. 1 to March 31, 2021 while Commissioner Bob Anthony voted against it, same as he did when the first prorationing vote was taken in March of this year.
The decision means the wells will be kept at 50% of wellhead calculated absolute open flow potential or 2,000 mcf/d, whichever is greater. The commissioners followed through on the recommendation of Robyn Strickland, Director of the Oil and Gas Conservation Division for the commission.
Strickland’s request for the order stated that in her opinion, the “rate will preserve a stable regulatory environment, maintain important incentives to the domestic petroleum industry, and encourage production to meet the nation’s demand for gas.
In his dissenting opinion, Commissioner Anthony said he supports a 65% rate to allow the wells to generally produce without restriction and avoiding any reduction in royalty payments.
He noted that the commission’s own study of 2019 well tests and production data revealed that the 50% applicable rate represented only 2% of statewide production.
“The current proceeding’s targeting of only capable unallocated gas well production appears to be discriminatory,” stated Anthony. “It ignores the contribution of minimum wells to oversupply, and it puts unallocated capable wells at a production disadvantage relative to competing oil wells with substantial associated gas production which is not prorated.”
Anthony later questioned how bad Hurricane Laura might affect the price of natural gas and whether the commission’s 50% rate might be the wrong move in Oklahoma.
“With today’s Hurricane threat to U.S. natural gas availability, Oklahoma should let markets work and allow wide-open production stead of a 50% proration factor,” he said.
Neither Commissioner Hiett nor Murphy commented about Anthony’s stance, which was not read aloud during the brief meeting. But Murphy initiated discussion of a review of the prorationing regulation.
“This structure and process needs to be re-evaluated,” she said, adding that it is “an antiquated statute.”
Murphy said, “We need to look at what we’re doing, work with the stakeholders and see if there’s a different way that things ought to be done. This is just not an appropriate structure but we’ll be taking another look in six months.”
“I totally agree,” said Chairman Hiett. “I have a lot of the same questions and after the first of the year, we need to take a hard look at the statute.”
Click below to read Commissioner Anthony’s dissenting opinion.
Click below to read the OCC prorationing order.
file:///C:/Users/User/Downloads/ProrationFormulaOrderCD202001262%20Final.pdf