Texas Oil Regulators to Consider Production Cuts

(CN) — Texas regulators will meet later this month to consider the possibility of forcing oil companies to cut production to help stabilize prices, a prospect of direct government intervention that was unimaginable in the oil-friendly state just weeks ago.

The Texas Railroad Commission on Thursday announced it would hold a market demand hearing on April 14 at the request of two of the state’s top oil producers. The commission regulates the state’s oil and gas industry and has nothing to do with railroads.

Pioneer Natural Resources and Parsley Energy, major players in the state’s sprawling Permian Basin oilfield, had asked the commission this week for the hearing to address what the firms called an “extraordinary, unforeseeable crisis” brought on by the coronavirus pandemic and a Saudi-Russian oil price war. The confluence of economic disruptions has pushed prices to lows not seen since around the turn of the century.

With global oil demand in the tank from the pandemic and U.S. producers already running out of room to store their oil, Pioneer and Parsley have pushed regulators to enact statewide production cuts that the companies argue would stave off further damage to the industry.

“Large-scale production interruptions appear inevitable and imminent,” the companies wrote to the regulators on Monday. “Without commission action, operators will shut-in wells in an ad hoc and haphazard manner that will heighten industry disruption and cause economic waste.”

Oil prices rallied Friday on news that the Saudi Arabia had called a meeting of oil producing nations that could even include the U.S., Canada and Mexico. President Donald Trump was meanwhile set to meet with oil executives to discuss possible remedies to the industry’s crash, a day after claiming on Twitter that Saudi Arabia and Russia had reached a deal on their own production cuts.

Jim Krane, an energy researcher at Houston’s Rice University, said in an interview that in the U.S., states tend to have more tangible influence over the nation’s oil and gas industry than the federal government.

But, he noted, Texas regulators haven’t strongly controlled the state’s energy market since the 1970s.

“They’re basically a cheerleader, they don’t do any sort of regulation anymore,” Krane said. “I think they spend 95% of their time promoting it and close to 0% regulating it.”

Still, at least one regulator on the three-member commission has appeared open to the idea of limiting oil production.

Outgoing commissioner Ryan Sitton, a Republican who was defeated by primary challenger Jim Wright in March, has raised concerns about the global oversupply of oil and advocated for a hearing on the production cuts idea as soon as possible. But Sitton has also suggested Texas should not act alone.

“Need global cooperation to make limits meaningful,” Sitton said on Twitter this week.

Wayne Christian, another member of the commission, has expressed concern about the idea of forcibly limiting production, known as “prorationing” in regulatory jargon.

“I have many reservations about prorationing crude oil production in Texas, particularly without enforceable commitments from other states and nations to limit their production by a similar amount,” Christian wrote in an op-ed for an industry trade magazine late last month.

The influential trade group Texas Oil and Gas Association opposes the idea, saying it would “disadvantage Texas, its producers, mineral owners and taxing entities.”

According to Krane, tackling the U.S. industry’s practice of burning off or releasing excess natural gas into the air would be an easy place for regulators to start.

“If the railroad commission just 100% stopped flaring and venting, like its regulations already say it should be doing, then we’d already have a production drop,” he said. “And you’d be shutting in the least efficient and most environmentally damaging production.”

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