Over the last month, the Coronavirus has continued to wreak havoc on the world’s economies and increased the oil demand destruction. Back in early April, two potential oil market remedies were being floated as help for U.S. producers—a federal imported oil tariff, and prorationing (mandated production cut) by the Railroad Commission of Texas (RRC).
For a few days, President Donald Trump said that he was keeping a tariff in reserve as a potential tool. But that idea seemed to go away. In its place, we heard in late April that the Federal Reserve would revise a loan program, which helps companies weather the pandemic, so that more oil and gas firms could access it.
Opportunity missed. As regards prorationing in Texas, the RRC commissioners for several weeks danced around the possibility of prorationing without committing to it, while producers chose up sides. During the RRC’s 10-hr online meeting on April 14, 50-plus people, both pro and con, offered testimony. As the commissioners adjourned that session, they set another meeting for April 21.
However, on April 21, Chairman Wayne Christian suddenly announced a Blue-Ribbon Task Force, which would spend two weeks looking at “every aspect” to assist Texas producers in the crashed oil market. It was assumed that prorationing would get fair consideration. Christian asked six Texas oil and gas associations to guide the Task Force and set the next meeting for May 5. However, four associations were already against prorationing.
Then, unexpectedly and inexplicably, Christian late on April 29 placed an op-ed on the Houston Chronicle website. This blustery recitation of free market attributes finished with a declaration that he was against prorationing. Of course, there is no free market in oil, but I digress. My colleague, Technical Editor Craig Fleming, has done a fine job of dissecting the chairman’s actions, so please go to page 56.
Christian violated the two-week period’s spirit by declaring a stand halfway through it; he steered the Task Force in a different direction when its mission was only half-done; and he made the May 5 meeting a moot point, since it was obvious that Commissioner Christi Craddick was against prorationing and Commissioner Ryan Sitton was for it. Sure enough, the final vote was 2-1, just as expected.
But before the May 5 vote was held, the chairman extolled the Task Force’s work in authoring four dozen ideas. These initiatives involve relaxing some regulations, extending deadlines for various permits, easing royalties and taxes, and other various ideas. We asked three of our editorial advisors and one contributing editor about these ideas. Their consensus was that while some initiatives will be marginally helpful, they are, overall, underwhelming.
Diverse rhetoric. Also, before the May 5 vote was held, Christian launched into a 4-min. commentary that was vociferous, somewhat angry and defensive. “One of the greatest threats to a market is uncertainty, not knowing an answer,” he declared. A couple of sentences later, he said, “And, I believe we owe the market or the companies or our constituents, to say that the Railroad Commission has come to a durn decision.” Christian did not hold back, when it came to thumping prorationing. “Those in favor of proration are trying to use every tool at their disposal, to turn this thing around,” he said disapprovingly. “I refuse to implement an antiquated policy, simply because it exists.”
On his Twitter account, Sitton summed up the fruitless situation. A day before the May 5 vote, he said, “Prorationing will not be happening. I wish I could explain why so many Texans will lose their jobs while oil production drops in the U.S worse than anywhere else, but politics beats data, so there are no answers. Just “free market.” And then, after the May 5 vote, Sitton commented further, “Politics didn’t prevent (the RRC) from prorating. Politics prevented us from doing our job.” And to that we would add, the RRC chose to forego leadership for the comfort of certainty.
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