Oil regulator officially closes the door on production cuts in Texas

By World Oil staff on 5/5/2020

HOUSTON – The Railroad Commission of Texas (RRC) on Tuesday, May 5, voted against limiting oil production in the state, closing the book on a closely-watched proposal. The plan had been proposed to ensure the economic future of smaller operators, as they face unprecedented volatility in commodity prices.

A meeting of the regulatory body on April 14 invited commentary and feedback from across the Texas oil and gas industry, generating enthusiasm both for, and against, a prorationing plan. RRC Chairman Wayne Christian called the nearly 11-hour-long public meeting “historic,” during which time more than 50 witnesses shared their positions on an up-to-20% cap on crude production. At a subsequent April 21 meeting, Christian established what he called a “blue ribbon task force” to recommend options, other than a production cap, to help keep the oil industry at work. Thus, Christian, along with fellow Commissioners Christi Craddick and Ryan Sitton, appeared to defer a decision until the May 5 meeting.

However, in the early evening on Wednesday, April 29, Christian posted an op-ed piece at the Houston Chronicle’s website, taking a position against prorationing. With Commissioner Craddick already expected to be against the plan, this move all but sealed the prorationing’s fate in the days before the final vote.

Regulators in Oklahoma and North Dakota, along with energy ministers in Canada and Mexico, watched the progress of the debate closely in its early days, thinking it might be a potential starting point for a broader North American production agreement. Commissioner Sitton also discussed the potential for a coordinated production target with energy ministers in Russia and Saudi Arabia, as they prepared for their OPEC+ agreement to take effect May 1.   

Meanwhile, the task force, comprised of eight Texas industry associations, ultimately recommended that the state implement a slate of permit, royalty and fee waivers, all aimed at reducing the financial burden on smaller producers.

The task force also recommended assessing the amount of available crude storage among Texas refiners, common carriers, and other unconventional storage options, and identify methods to assist smaller producers in accessing these storage options.

During the meeting, Chairman Christian presented a motion to dismiss Pioneer Natural Resources’ and Parsley Energy's verified complaint to determine reasonable market demand for oil in State of Texas. The motion passed 2-1, with Commissioner Sitton voting “no.”

Christian further asked the task force to evaluate options for reducing gas flaring in the state, with a report on their findings to be presented at the Commission’s next meeting in June.

To view the full slate of production relief recommendations presented by the blue ribbon task force, access their nine-page report here: http://freepdfhosting.com/783dce9154.pdf

 

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