EnergyStatewide NewsTexas Railroad Commission Pulls Motion to Artificially Limit Oil Production

The Texas Railroad Commission declined to institute oil production limits and will look to other ways to cushion the financial blow coronavirus has delivered.
May 5, 2020
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Weeks removed from the first hearing on prorationing that was virtually attended by tens of thousands of people from around the world, the Texas Railroad Commission (RRC) has foregone the motion to limit the state’s oil production.

Stakeholders from all different persuasions conveyed their positions to the three-member body of energy regulators.

The RRC was asked to consider the issue by two independent oil producers — Parsley Energy and Pioneer Natural Resources. In support of proration, those two producers were joined by a medley of stakeholders such as other producers, a former RRC member, and numerous environmental groups.

The first thought of the option occurred after the price of oil initially dropped as a tiff between the Organization of the Petroleum Exporting Countries (OPEC) members Saudi Arabia and Russia caused a sharp increase in global supply levels.

That, coupled with the drastic plunge in demand as consumers forego ground and air travel alike, has created a market riven with uncertainty. Two weeks ago, the world watched aghast as the West Texas Crude May futures contract price plummeted to historic lows, even reaching negative $40 per bbl.

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The main reason for the drop was the nearing end of the trading period on a storage contract and with storage capacities near full due to consumption cratering, traders had nowhere to put the oil. This caused a fire sale, essentially, paying to unload the physical burden of the oil.

The current tradable price of WTI crude oil now sits above $23 per bbl — around where it was before the chaotic day of historic lows.

But, ultimately, the body relented after commissioning a task force to examine the issue.

Commissioner Ryan Sitton — who’s in a lame-duck term after a shocking primary upset — had been the most receptive to the idea of proration. In a post on his website, Sitton expressed his frustration with choosing not to prorate. Sitton had been adamant about the commission’s “responsibility to limit waste” in the market.

Taking aim at his opposition, he stated, “The same ‘free market’ politicians arguing against proration want the federal government to turn Saudi oil tankers around. And they want special loans for the oil industry. And certain oil companies want the government to provide storage and waive rules and help keeping leases, and to stop paying royalties.”

He concluded, “In short, I am not disappointed that we did not prorate. I am disappointed that we didn’t do our job.”

In an editorial last week, RRC chairman Wayne Christian announced his opposition to prorationing.

He stated, “Some critics…have called on our agency to make ‘bold decisions’ such as proration in these tough times. But the truly bold decision in governance is to not give in to pressure and to say no. Implementing an antiquated policy simply because it exists is not bold. I refuse to do something just to say I took action, because taking the wrong action can actually make things worse.”

Christian added that he is turning his attention to more closely regulating flaring as a way to mitigate waste.

The third commissioner, Christi Craddick, has played the issue close to her vest throughout the debate. While asking questions during the proceedings, she had avoided making public statements like her two colleagues have. She ultimately opposed the proposal.

Sitton pulled his motion to vote on proration after it became clear it wouldn’t pass with the other two commissioners in opposition.

In a statement to The Texan, Craddick said, “My focus is and has been on jobs and the strength of Texas producers. The Railroad Commission continues to provide operators regulatory certainty in uncertain times. We have done this by reducing regulatory burdens, extending deadlines and having an open door, albeit digitally, to work with operators to resolve challenges they are facing.”

“That work is ongoing. Individual operators have moved swiftly to respond and have done so better than any top-down control of the market that some have called for. I will not support proration. All producing states, including the federal government, have a role to play and I have not seen concrete action to do more than what the market is already doing,” she concluded.

Having declined the option to prorate — something which hasn’t been done in Texas since the 1970s — the RRC and oil industry alike will look to other options to weather the storm brought on by coronavirus.

The brunt of the economic blow to the energy industry has already been felt by the industry and its workers, and nobody can be sure when the light at the end of the tunnel will appear.

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Brad Johnson

Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad watching and quoting Monty Python productions.