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Energy & Environment

State Regulators Decline To Cap Oil Production

In an expected outcome heading into Tuesday’s Railroad Commission meeting, commissioners voted 2-1 to dismiss the initial motion from exploration and production companies Pioneer Natural Resources and Parsley Energy.


The president of the Texas Oil and Gas Association acknowledged Tuesday that fossil fuels contribute to global warming.

State oil and gas regulators said they would not restrict how much oil companies can produce amid crashing oil prices.

It was the expected outcome heading into Tuesday's Railroad Commission meeting, and the three commissioners didn't even vote on the proposal. Instead, they voted 2-1 to dismiss the initial motion from exploration and production companies Pioneer Natural Resources and Parsley Energy.

The companies asked the commission to respond to the drop in oil demand by mandating all companies cut oil production. The companies argued it would help stabilize the plunging price of oil.

Ryan Sitton, a lame duck member of the commission, was the holdout vote. He supported the idea from Pioneer and Parsley, and he had put forth a proposal that the Railroad Commission could have voted on Tuesday.

In a post published on his personal website Monday, Sitton said the other members of the commission were playing politics with their vote.

“I worked to focus on the data, follow the law, and quantify the reality of hundreds of thousands of Texas energy workers losing their jobs and businesses,” Sitton wrote. “Political groups, representing oil interests from all over the world worked to keep the debate from even happening.”

The proposed order would have required some companies to restrict their production in an effort to cut statewide production by 20% each month. People who violated the proposed order would have faced a $1,000 fine for each barrel produced over the limit. Small companies producing less than 1,000 barrels per day would have been exempt.

State regulators haven't enacted such restrictions since the 1970s, and commissioners Christi Craddick and Wayne Christian wanted to keep it that way.

At Tuesday's meeting, Christian criticized the idea that the commission was responding to politics in their decision not to go through with production cuts.

“There's been some controversy in the press of, we've involved politics in some of our decisions here," Christian said. "I really question that."

Craddick had joined Christian in opposing proration — the process of requiring producers to bring down production at a certain rate — ahead of Tuesday's meeting.

"I will not support proration," read a statement from Craddick to Houston Public Media. "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."

In the last month major oil and gas companies have posted billions in losses for the first quarter of 2020. Most have said they'll slash spending moving forward. Meanwhile, more than 4,000 workers in Houston have been furloughed or laid off.

On April 14 the commissioners held their first ever virtual public hearing to get input on state mandated oil production cuts. It garnered around 10 hours of testimony.

"Is waste occurring? Yes. No one disputes that production in Texas and globally vastly exceeds demand," said Scott Sheffield, CEO of Pioneer, who brought the original motion.

He argued the Commission is compelled to act when supply of oil outpaces market demand.

But some didn't buy that argument, like Jim Teague, CEO of Houston-based Enterprise Products.

He called out Parsley and Pioneer during his testimony.

"Asking for you to take this action makes me wonder about the true agenda," Teague said. "Are they really trying to fix a problem or did they want to argue that government action by you gives them the opportunity to get out of some of their obligations?"

Some small companies testified the mandated cuts would help them become more competitive. They said purchasers were already canceling contracts. That was before oil dropped to a historic low, with West Texas Crude trading in negative territory for the first time ever on April 20.

The commission met the next day. Sitton said at that meeting he was ready to vote in favor of proration, but Craddick and Christian had concerns about the motion. They did not move forward with a vote.

That's when Sitton drafted the proposed order based on the original request from Pioneer and Parsley. It was that proposal that could have come up for a vote Tuesday.

Sitton said he was disappointed in the process. He said the commission was tasked with preventing waste and looking into if proration could help do so.

"My disappointment is that we never really did that," he said Tuesday.

Industry groups like the American Petroleum Institute and Texas Oil and Gas Association had continually come out against state-required production cuts.

"The market is a much better arbiter of production than artificial government mandates," TXOGA said in a statement following Tuesday's Railroad Commission meeting.

Energy experts and economists had also questioned the idea, saying it likely wouldn't help historically low oil prices.

Commissioners did waive some storage and permit fees at Tuesday's meeting in an effort to help companies during the pandemic. Chairman Wayne Christian also gave an update on the newly formed Blue Ribbon task force created to respond to the oil crisis.