Texas regulator decides not to decide on crude production limits for two weeks

World Oil staff 4/21/2020

HOUSTON – One day after WTI crude closed at -$37.01, the Texas Railroad Commission declined to vote on a proposal to set limits on oil production in the state. In political parlance, the commission kicked the proverbial can down the road for two weeks.

Meanwhile, RRC Chairman Wayne Christian announced that the commission is establishing a Blue Ribbon Task Force. The task force will study the market situation for two weeks before the RRC holds a definitive vote on prorationing. The task force will be guided by six state associations: Texas Oil & Gas Association, Texas Alliance of Energy Producers, Texas Independent Producers & Royalty Owners Association, Permian Basin Producers Association, Panhandle Producers & Royalty Owners Association, and Texas Pipeline Association. Members of this special panel will make recommendations to the RRC about potential courses of action and potential ramifications.

Commissioner Ryan Sitton expressed a desire to go ahead and vote on prorationing immediately, because the situation is already dire enough. “I just don’t think we have the luxury of time,” said Sitton. However, Commissioner Christi Craddick opposed a vote on the measure at the Tuesday hearing, citing legal concerns around mandating production limits. “If we have to do something that isn’t legal, it shouldn’t be done,” Craddick said, adding “litigation for the next four to six years” won’t benefit anyone.

Christian agreed that further legal study was necessary, and he wanted to involve the state’s attorney general as part of the Blue Ribbon Task Force, to determine the legality of any decision ultimately made by the commission.

Christian further wanted to include regulators from North Dakota and Oklahoma, and even mentioned exploring working with Canada on a plan, saying “it’s more powerful to move with other states.

Ultimately, no motion to vote on implementing proration was offered, and no decision was made on Sitton’s production curtailment program.

The plan, as proposed by Sitton, would see Texas oil production reduced by 1 MMbpd, or approximately 10% of the average rate from the fourth quarter of 2019. The rule would only apply to wells producing more than 1,000 bpd, and would be enforced on an operator basis, not a lease basis. Sitton intended the proration to remain in effect until global oil production reached 85 MMbpd, or 15% less than worldwide market demand 60 days prior.

Sitton stipulated that the 1 MMbpd commitment from Texas producers would be contingent on a broader, worldwide agreement to prorate an additional 4 MMbpd in cooperation.

The next opportunity for further movement on proration will come when the commission next meets on May 5.

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