Texas Oil Regulators Expected to Reject Forced Production Cuts

A member of the three-person regulatory commission who has voiced support for oil-production cuts seemed to acknowledge the proposal’s defeat.

A pump jack is pictured near Imperial, Texas, in 2017. (Courthouse News photo/Travis Bubenik)

(CN) — A hotly debated proposal in Texas for government-mandated oil production cuts is unlikely to move forward after a key regulator on Monday described the proposal as “dead.”

Some industry voices have in recent weeks promoted production cuts, known as “proration” in regulatory jargon, as a way to help stabilize oil prices that have been decimated by a global oil glut and the huge drop in global demand brought on by the coronavirus pandemic.

“I think at this point, we are not going to prorate tomorrow,” Texas Railroad Commissioner Ryan Sitton said during an interview with Bloomberg TV.

The three-member commission, which regulates the state’s oil and gas industry, is still set to consider a detailed proposal on the idea Tuesday after previously delaying a vote. But during the Bloomberg interview, Sitton suggested regulators had missed their chance to have a meaningful impact on oil markets as the industry is already “bottoming out” and Texas companies are shutting down wells. He also expressed frustration with his fellow regulators over the process of vetting the idea.

“We have not done any calculations about how proration could positively effect economics, it’s been purely a political discussion,” Sitton said. “There is no proposal to make, I think that proration is now dead.”

The comments amounted to an acknowledgment of defeat: Sitton is the only member of the commission who has voiced support for the idea in recent weeks.

Wayne Christian, the commission’s chair, said recently he would vote against the proposal at Tuesday’s meeting, in part because of how production has already dropped without action from regulators.

“By allowing the free market to work, producers can determine for themselves what level of production is economical,” Christian wrote last week in a Houston Chronicle op-ed. “I refuse to do something just to say I took action, because taking the wrong action can actually make things worse.”

U.S. oil production has indeed fallen some without government mandates in recent weeks as companies have scaled back drilling and laid off thousands of workers. Weekly U.S. production has dropped by about 1 million barrels per day since early March, according to the Energy Information Administration.

Major oil and gas trade groups and larger oil and gas producers have come out against the production cuts proposal, but some smaller producers argue that government-orchestrated cuts would distribute the burden of the industry’s crash more equally across the playing field.

Sitton continued his jabs at production cuts opponents on Twitter after Monday’s interview.

“I wish I could explain why so many Texans will lose their jobs while oil production drops in the US worse than anywhere else, but politics beats data, so there are no answers,” he wrote. “Just ‘free market.’”  

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