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The Texas RRC heard over ten hours of testimony concerning whether or not the agency should get involved in determining oil production due to the impact COVID-19 has had on the oil industry. Some producers testified that due to the large decrease in market demand, storage will be full in 4 to 5 weeks, the cost of production exceeds the current market, and proration is the preventative measure that needs to be taken in order to ensure hundreds of thousands of oil-industry jobs are not lost. Others cautioned the RRC on involvement instead they recommended allowing for the market to self-regulate over-production. This report covers part one and part 3 of the hearing. The list of all who testified, and their proration position letters to the RRC, can be found here. The hearing in its entirety can be found here.

Opening Statements:

  • Craddick – Is listening for proposed solutions on how commission will utilize resources
  • Sitton – Looking for help to stabilize the oil industry; Looking to answer if there is waste and if proration could solve that problem
  • Chairman Christian; COVID-19 has done harm to oil and gas industry; Trump Administration RRC has power to limit oil production; protect the foreign entity to control oil and gas in Texas; open to discussion

 

Part 1

Scott Sheffield, CEO and President Pioneer Natural Resources, For Proration

  • First time since 1973 Texas RRC has considered Proration
  • Wants stable prices that are prorated
  • Oil prices have historically been unstable; no one will buy on our stocks
  • Market disruption caused by the COVID-19 pandemic is too great for OPEC to solve alone
  • Texas oil could disappear from coal unless proration has occurred
  • Would prevents waste; a high amount of waste is occurring and going to occur
  • Supports recent actions by OPEC Plus; however, need more cuts
  • Storage is going to be full in the next four to five weeks; will create huge bottlenecks
  • Small and medium producers will be disadvantaged
  • 1.2 billion filing up storage from 30 to 60 days
  • Production is occurring above market demand; need to curtail
  • Do not have a free market in oil; are not efficient and causing economic waste
  • Companies are afraid of OPEC continuing and Texas RRC controlling their companies
  • Need to cut back until market demand returns; but, demand will not come rolling back
  • Texas RRC needs to get more involved in OPEC
  • Recommends a hefty proration rate in May and then the opportunity to review and change if need be in June
  • Reduce flaring and shut down everyone who is above 2%; will also reduce CO2 emissions
  • Sitton – Can you quantify that waste you speak of?
    • Mark Burg, VP of Pioneer Natural Resources, For Proration
    • Burg – Eco waste is production in spite of low market demand, some argue there is storage for this waste, market intelligence fir 20 to 30 million per day, world storage will be full in July
    • Burg – Need to prorate before storage is full; otherwise proration would be futile
    • Burg – All companies asked President to talk to OPEC to end the price war; 9.7 million per day; is constructive for pricing
    • Burg- If cuts in supply happen, prices will stabilize and reduce waste
  • Sitton – Burg, you said if we cut 1 million per day, 30 million per month, how would that prevent waste?
    • Burg – Supports pricing takes unneeded barrels off the market, increases storage, will avoid shut downs when storage is filled; reiterates that the commission must proactively work before storage fills up
  • Sitton – Can we use storage capacity, or lack thereof, as a way to calculate waste?
    • Burg – It is one mechanism, RRC does not have to calculate waste, but you need to identify waste; how much as demand dropped; most are saying 20 to 30 million in demand loss due to the virus
  • Sitton – (prev. number) How does Texas’ proration bring a balance to the market
    • Sheffield -10 to 30 million per day will; G-20 countries need to create real cuts, cutting 1 million is not going to be enough; 4 to 5 million barrels per day need to be cut
  • Sitton – Why $30 per barrel?
    • Sheffield- Need $30 to survive and to continue operations
  • Craddick – Sheffield, EIA, 20% is the number you are looking at for proration?
    • Sheffield- yes, and be reevaluated month per month; how fast demand comes back
  • Craddick – RRC’s January numbers are 3 months behind; had already declined 17% on those companies who have done production cuts; what is our starting point?
    • Sheffield – Use fourth quarter data from 2019, but if you want to be more aggressive, use more recent quarter data
  • Craddick – Do we take into account that some operators have already taken cuts?
    • We are already cutting; proration is about fairness
  • Craddick – Forced cuts by us and forced market cuts are not the same; what could forced cuts do to fields and reservoirs?
    • Wells that have been shut down for 6 months are not damaged; think it is best to give operator a choice by shutting in leases or time-clock
  • Craddick – You envision it is 20% across the board?
    • Sheffield – Yes and exemptions for smaller producers
  • Craddick – What about joint ventures?
    • Sheffield – Mention a joint venture with a Chinese company; would be cut evenly
  • Craddick – Month-to-month proration; what does under-control mean? How long would we be prorating?
    • Sheffield – Had a board meeting yesterday; treatment for COVID-19, assuming 50% capacity for airlines at the end of the year, no treatment at the end of the year… less than 10% until 2021. May have to prorate longer
  • Craddick – What if other states do not prorate? Will it disadvantage Texas?
    • Sheffield – Need a global deal; maybe Texas participates in global second cut
  • Craddick – If someone is cheating the system, how would we penalize those operators?
    • Sheffield – Back in 1973 there were penalties, you need to install
  • Craddick – Historically, purchasers give data, who else would we get good data from?
    • Sheffield – Market Intelligence groups, big gatherers, will research and make recommendations
  • Craddick – Do we need to be concerned about anti-trust?
    • Burg – Producers cannot orchestrate cuts, part of anti- trust, why relying on RRC
  • Craddick – Flaring, any other tools we can look at?
    • Sheffield – Flaring reduction will hurt small producers; will need exemptions
    • Schef – Want more strict when giving flaring permits; mismatch between operator, downstream and another group
  • Christian – Market has already forced cuts, why do we need to make additional regulations?
    • Sheffield- EIA data is showing a very small drop in Permian Basin; reason to cut is to open up storage
    • Sheffield – Will lose 6 million barrels by the end of 2021; storage will continue to fill up and price will continue to drop; is happening slowly
    • Sheffield – G-20, OPEC, OPEC Plus or other states
  • Christian – Texas is 40% of the US production; do this contingent upon other states?
    • Sheffield – Want more G-20 or OPEC cuts; OPEC 9.7 agreement did not create “real” cuts.
  • Christian – Contingent upon another series of OPEC cuts?
    • Sheffield – Yes, including G-20 and OPEC Plus
  • Christian – What kind of penalties do you suggest?
    • Burg – Bryan Sullivan has done research on that, recommend you ask him that question
    • Burg – The producer could owe a penalty

 

Matt Gallagher, President and CEO of Parsley Energy, For Proration

  • For proration based on market demand
  • Seen a larger deviation from historic supply and demand imbalances than ever before
  • Operators must reduce production, federal government must temporarily limit crude imports and state governments must temporarily adjust production to prevent waste
  • RRC is instructed to act when excess production occurs or is eminent
  • Already small operators are already having purchasing contracts cancelled and storages nearning capacity
  • 6 trillion has been injected into the economy
  • Not a bailout, but regulatory actions
  • Recommends a 30 million barrel per day cut
  • OPEC has made 9.7 million barrel per day cut- 20 million in surplus supply
  • Proration is pragmatic; will prevent waste and gridlock
  • At stake; industry stability
  • Need small operators to remain; should be exempt from proration
  • Domestic heads of service companies are hanging by a thread
  • 100,000 jobs are expected to be cut in Texas and hundreds of thousands more will as be
  • Temporary proration will help domestic capacity and bring industry back online sooner
  • Texas could lose 2.5 million barrels per day if proration does not occur
  • Would take 5+ months for proration to naturally decline to 20%
  • If Texas makes this step, others will follow
  • Craddick – Contracts being cancelled, is it our job as a regulatory agency to be involved in contracts?
    • Gallagher – Does not believe they should get involved in contracts, was attempting to make the argument that waste is occurring as proven by those cancelled contracts
  • Sitton – Can we quantify the waste?
    • Gallagher – Difficult to quantify; demand versus supply (global waste 20 million per day)
    • Not safe to go over 80% of storage capacity; could was that number as a tool
  • Sitton – Over 80% total storage volume would be considered waste?
    • Gallagher – Yes, physical waste conditions would be proven by over 80% capacity
  • Sitton – How do you
    • Gallagher – Local market pricing; have seen single digit pricing in Midland
  • Sitton – Discounted price is the measure of the waste?
    • Gallagher – Yes, Rusty Brazil’s report states cost per barrel would be $21
  • Sitton – Provides an example of how to calculate economic waste based upon that $21 production cost
  • Sitton – How do Texas’ cuts effect the OPEC cuts?
    • Gallagher – Likens proration effects as mitigation, but would be the first step
    • Gallagher – Texas’ part to “flatten the curve”
  • Sitton – How does proration prevent waste?
    • Gallagher – See a stabilization into the mid-20s equalizing near cash cost; would be breaking even and would no longer have economic waste
    • Gallagher – 30 day
  • Sitton – Storage filling up in a couple weeks; where is the wall for you?
    • Gallagher – We see Sheffield’s numbers as well
    • Gallagher – Oil purchased from Saudi Arabia will speed up that process; a week or two sooner than those projections
  • Christian – Earlier, proration would be contingent upon other forces; concern would be if Texas alone prorated, they would make themselves uncompetitive in the market
    • Gallagher – Texas taking a stance would allow Governor and President to continue diplomatic efforts
    • Gallagher – Does not believe it needs to be contingent initially; if no response is seen from other states, countries or OPEC, Texas should potentially pull away from proration after 30 days
  • Christian – Under 4 to 5 weeks to reach capacity; would we not rather let that happen?
    • Gallagher – Max capacity wipes out the industry and especially the service sector; jobs lost would mean more months of shutdown
    • Gallagher – Can predict outcomes would be better if we prevent reaching max capacity
  • Christian – Concerned about smaller producers; any comments on how we can address these concerns?
    • Gallagher – Over 90 to 95% of production is top operators, the smaller would be immaterial to the cut so, they should be exempt
    • Gallagher – Exemption should be based upon daily numbers of production
  • Craddick – Are there other tools we could use other than proration?
    • Gallagher – Have had talks with heads of businesses; one recommendation would be to limit allowables on early tied in line wells to 500 barrels a day
  • Craddick – Should we treat horizontals versus verticals different on how we prorate them?
    • Gallagher – Apply it by operator basis on who to administer the 20%
    • Gallagher – Those who produce less than 10,000 would be exempt
  • Christian – How would we see the effects of proration in a month’s time?
    • Gallagher – We started our efforts about 4 weeks ago; many have shut-in non-economic wells
  • Christian – Would this take longer at a traditional hearing?
    • Gallagher – Yes
  • Sitton – What do you think about restrictions on flaring?
    • Gallagher – Dovetails into what the commission has been evaluating; would be logical to tie-in if it would accelerate the reduction of waste

 

Lee Tillman, Chairman, President and CEO of Marathon Oil and Gas, Against Proration

  • Oppose actions that aim to prorate domestic production of oil and gas
  • Should have the freedom to react to market conditions
  • Operators are always shutting in non-economic wells
  • Global markets are interconnected; easier to move to other markets with lesser regulations
  • Supply demand and balances, some will succeed and some will fail; goes against free market principals
  • Proration has not been proven to help to
  • Best solution is to get the world healthy and back to work without abandoning free market principals
  • Craddick – Is the industry already decreasing production?
    • Tillman – Capitol budget cuts have already occurred
    • Tillman – Current EIA estimates already show production already falling by millions
  • Craddick – Are other states/markets you are working in considering proration?
    • Tillman – Those who signed the petition are solely Texas producers
    • Tillman – Many companies are multi-basin; Marathon Texas barrels are most economic barrels in their portfolio
    • Tillman – Operators exercising free market principals is the only way we can respond to this; global markets are too complicated
  • Sitton – Is there waste in the market?
    • Tillman – There are always supply and demand fluctuations
  • Sitton – Is that a yes?
    • Tillman – Today there is global over-supply, but to say it is only happening in Texas would be untrue
  • Sitton – First two presentations, $100 million a day in discount due to oversupply; what do you say about that?
    • Tillman – Those economics occur all the time, like in 2015 or 2008; we did not try to manipulate the free market then
  • Sitton – You think we should ignore the economics?
    • Tillman – Companies are arbiters of the free market; challenge for regulators to be fair
    • Tillman – Production is already going down, do not need regulations
    • Tillman – OPEC + has cut production of 10 million barrels,
  • Sitton – The statue we work under … Economics should be left to businesses?
    • Tillman – Yes; could argue Texas has been overproducing into a well-supplied market for 5 to 7 years; regulator has not been asked to intercede
  • Sitton – Received comments from Wood-McKinsey, Rystad, Rapidand and IHS; one mentioned disparity between WTI and Brent; at 40% premium; how does that speak to local oversupply or global oversupply?
    • Tillman – Storage limitations and other things are all elements and risks of global marketplace; the most well-prepared will survive
  • Sitton – Seems there is a consensus that storage will fill up in 4 to 5 weeks; do you agree?
    • Tillman – There is a lot of variability of that number; demand timing is challenging
    • Tillman – China is one of those where demand is returning
    • Tillman – Need to use capacity most efficiently; DOE is looking for above-ground storage opportunities
    • Tillman – More broad regulatory action would be helpful at a federal level
  • Sitton – What kinds of actions? Like tariffs on imports of foreign crudes?
    • Tillman – No, more like flexibility that companies have on production, leases, automatic lease extensions, etc.
    • Tillman – Extension of SPRSP and potential direct purchases
  • Sitton – Do you believe the US should work with other countries to curtail production?
    • Tillman – Discussion between Saudi Arabia and Russia did not include the US supply; good first step
  • Sitton – We should continue to produce while urging other countries to cut?
    • Tillman – President ensured large global players to not manipulate the market; damage will be done the the industry due to that correction
    • Tillman – Does not see how temporary prorations will curtail issues
  • Christian – In your letter, what is the difference between regulating leases versus prorations?
    • Tillman – Will be challenging for the RRC to be fair in prorations; already talking about exceptions


Doug Suttles, President and CEO of Ovintiv, Against Proration

  • The market is always unbalanced; many events have caused low prices, but industry still grew
  • Government should not intervene in private businesses
  • Market is realigning to the current circumstances
  • Craddick – Could you elaborate on mitigation of waste?
    • Suttles – The DOE estimated that production is already down; our company will continue to shut-in production
    • Suttles – The market will deal with this
  • Craddick – Could you elaborate on regulatory certainty you mentioned in your letter?
    • Suttles – Oil succeeds in the US due to stable regulatory environment; lead to the Texas miracle
  • Craddick – What is the difference between Alberta and what is going on around here?
    • Suttles – Canada put regulations on heavy oil; had more time to put the program in place; producers are performing poorer as they cannot control which to shut in and cannot identify most economic barrel
  • Sitton – Do you think there is waste?
    • Suttles – There is always waste and we often have over-supplied the market responds to it; does not believe definition of waste
    • Suttles – Demand problem now, cannot determine when demand will return
    • Suttles – Each company needs to make their own production decisions
    • Suttles – Texas should not get involved in OPEC
  • Sitton – What about recommendations about regulating flaring?
    • Suttles – Our company does not flare, but supports the concept; cannot be developed fast enough to solve our current problems
  • Christian – If we implemented proration, how would it have an effect on those who want to/do invest in Texas?
    • Suttles – There is took much risk if there is too much regulation; would make Texas less competative

 

Harry Pothonis, President and CCO of Plains All Ameircan Pipeline, Neutral on Proration

  • March 24th communicated to producers that demand was not equal to supply
  • Told producers storage was going to be full in May.
  • Have monitored what has happened with storage; have seen producers who have made changes that would push back that May date
  • Brent and WTI about a $2 differential
  • Craddick – Would proration allow for companies to have additional opportunities to get their product to market?
    • Pothonis – At the permian basin, more pipe capacity than production, depends on purchaser
  • Sitton – Storage will become an issue mid-May?
    • Pothonis – Yes; if you look at Cushing they will full up soon
  • Sitton – Once storage fills up, what will the pipline do to curtail production?
    • Pothonis – We have told shippers they need to have proof of a market at the destination before we would accept nominations
    • Pothonis – Will depend on who can take the crude; is operationally difficult could end up backing up production at the wellhead
  • Sitton – How much crude did plains move per day?
    • Pothonis – About 6.5 million barrels per day
  • Sitton – If we continue on this path, how many barrels would you be moving in May?
    • Pothonis – 3 to 4 million in the US
    • Pothonis – With suppliers and producers, we warned them there was a wall coming and told them to be proactive in curtailing production
  • Sitton – Have you seen a noticeable drop in production?
    • Pothonis – Texas buy-ins have been flat; have heard from some producers on their plans to curtail this month, but have not occurred yet
  • Sitton – You have not seen the market responding yet?
    • Pothonis – Have seen a little; May would be when we see the larger market impact
  • Sitton – Would proration improve the supply chain?
    • Pothonis – Have not dug into that; hard to imagine a scenario where some type of production curtailments do not occur

 

Jim Tigue, Enterprise Products Partners, Against Proration

  • The virus has destroyed about 25 million barrels per day and have seen some barrels being sold for $0.25
  • These are global issues, not just a Texas issue
  • Proration would make Texas less competitive
  • Questions agenda of those who are pro-proration
  • OPEC+ already agreed to an almost 10 million barrel per day cut
  • This is a demand issue; free markets will balance this equation
  • We have had to make difficult decisions and made them based on our own economics
  • Craddick – What kinds of decisions have you had to make?
    • Tigue – As refineries cut, they do not have what we want to buy and vice-versa
    • Tigue – Seeing cuts in production
  • Craddick – What about proation’s effect on rich gasses?
    • Tigue – Given the richness of the gas, there will be less LPGs
  • Sitton – Do you agree that we should ignore economics and leave it up to businesses?
    • Tigue – I define waste as inefficient producers who continue to produce
    • Tigue – Producer has to cut production based upon demands; does not believe storage would fill up
  • Sitton and Tigue discuss whether or not storage could fill up

 

Part 3

Kent Hance, Self, For Proration

  • Are living in a rare circumstances; proration is the tool we should use
  • The free market died in when regulatory bodies were charged with regulating oil production
  • You must prevent waste and conserve our resources; low oil prices does not reflect a conservation of our resources
  • Recommends; lagging one month behind of OPEC’s cuts
  • Commissioners need to talk to regulators in other states
  • COVID-19 is not going away anytime soon; situation needs to be fixed as we depend on the energy industry in Texas
  • Christian – Do you see a dangerous precedent in us prorating?
    • Hance – I think the lag would allow the commissioners to have control
    • Hance – If others are not participating, other states or internationally, Texas proration would not be significant
  • Christian – You said Texas should not do this alone?
    • Connection was lost with Hance

 

Edward Hirs, Self, Against Proration

  • The price of oil has dropped due to an increase in supply and a decrease of demand due to COVID-19
  • Texas oil producers compete globally and reducing production in Texas would do nothing to recover the price of oil; will hurt low cost producers
  • Producers can choose to shut-in production of non-profitable wells
  • Texas will be left behind in the industry if proration is approved
  • Producers should not to rely on government regulation to remain afloat
  • Solution is to let market recover itself
  • Sitton – Do you oppose federal regulation, like with Saudi Arabia and Russia?
    • Hirs – Yes
  • Sitton – So they flood the market, and put us out of business, we should let that happen?
    • Hirs – Yes, that is the market determining who will succeed
  • Christian – How does proration effect the low-cost producer?
    • Hirs – It would harm them by not allowing them to choose where they will curtail production
  • Christian – So you are saying this would hurt us long-term?
    • Hirs – If proration increased the price, it would make Texas less competitive in the market

 

Kenneth Medlock, Rice University, Against Proration

  • Using the “free market” is not reality; everything done in the US is done in a competitive market
  • The government should not regulate capitol upstream; regulation does not reward competition and efficiency
  • Not seeing economic waste; seeing an oversupply that is priced into the market
  • Price is a signal in markets to reward efficiency and signal action to producers
  • Sitton – Discusses monopolies flooding the market, is there not a role for the government to play in breaking those up?
    • Medlock – the government has many tools to break up monopolies
    • Medlock – COVID-19 is the cause of the decrease in demand; need to focus on solving that first
  • Christian – Are we to sit back and do nothing?
    • Medlock – I do not know if that is the answer; you could auction the proration allocations

 

Jon Olson, Self, For Proration

  • Oil prices have been historically unstable
  • Shows a chart in which BS petroleum engineering enrollment increases and decreases with oil prices; currently very low
  • Regulatory engagement is expected during this unprecedented time; short-term proration would be effective
  • Pandemic will end and economy will rebound
  • Sitton – Is your concern, to help get more petroleum engineering students? If I were a free-market guy, I would say maybe we only need as much as the market determines
    • Olson – No, more enrollment would reflect stable oil prices and we need a stable workforce for the future of the energy industry
  • Christian – Do you see your chart as a projection of enrollment?
    • Yes; if production is not curtailed, workforce will continue to decrease

 

Scott Anderson, Environmental Defense Fund, Neutral

  • Proration under statue must be based upon waste
  • If the RRC does decide to prorate it needs to be done in a way that reduces flaring in a substantial way
  • Other entities have made similar
  • Texas has flared over a trillion cubic feet of natural gas; is most obvious way waste is occurring
  • RRC has the power to curtail flaring

 

Robin Schneider, Texas Campaign for the Environment, For Proration

  • Texas RRC needs to curtail production in order to protect the environmental, community and economic health
  • Need to prioritize production proration for companies who engage in excessive flaring
  • Crisis should be used to put Texas on a stable path

 

Emma Papste, Environment Texas, For Proration

  • Need to prioritize production proration for companies who engage in excessive flaring
  • Waste happening in the oil industry is not just a COVID-19 issue
  • RRC would be improving environmental and community health

 

Adrian Shelly, Public Citizen, For Proration

  • Global markets are oversupplied due to COVID-19 due to a decrease in demand
  • Recommend cuts to: companies who engage in excessive flaring, the fracking industry and  those who drill near environmentally or culturally important cites
  • Hopes this will be a shift away from the fossil fuel industry to the clean energy industry
  • Have heard fossil fuel jobs that have recently been lost will not come back after COVID-19
  • Sitton – At the end of the day, people are working for these companies and people want job security; you discussed a transition from fossil fuels, are you concerned job security after demand comes back?
    • Shelly – Not sure about where demand will be in the future, but have heard from producers that there are shifts that are likely to be irreversible; need to manage demand in the current day

 

Cyrus Reed, Sierra Club and the Western Environmental Law Center, Neutral

  • For eliminating waste; are other tools the RRC can use to decrease production
  • Need to reduce excess, or illegal, flaring and venting
  • Need to prioritize inspections of storage facilities to insure over pressure does not lead to spills or venting
  • Need to use the power of severance to cut production for operators not following the rules
  • Consider requiring operators to file infrastructure and storage reports
  • Look at Broad Flaring and Methane Capture Rule by beginning stakeholder meetings in conjunction with TCEQ

 

Bradford Moody, Self, Against Proration

  • ​This is not a storage or pipeline issue, this is a price issue
  • Texas does not have the ability to affect price if they cut production
  • I have not heard anything from other states that they are interested in cuts
  • The RRC should not deliver the arbitrary prices some companies are asking for
  • A reduction in flaring may be a consideration for the RRC

 

Alex Kranburg, Self, For Proration

  • A lack of action would affect millions of jobs in the oil industry
  • Need an abrupt decrease in production; need to flatten to storage curve
  • Want to prevent oil and economic waste
  • This is a Texas problem first, producers in the Permian Basin are disproportionately economically hurting
  • There are Brent and WTI disparities
  • If the market returns, proration can be taken away
  • Sitton – Can you expand upon what is going on with Brent and WTI?
    • Kranburg – Explains the economic impacts of the disparities between Brent and WTI; there is too much oil in the Texas market

 

Dan Everheart, Canary LLC, Against Proration

  • ​In favor of the free market determining price and supply; US should not abandon these chaotic principles
  • Would make Texas less competitive
  • Proration would penalize efficient producers and support less-efficient companies

 

Allen Blocksum, Fort. Apache Energy, For Proration

  • US needs to cut 4 million barrels a day, Texas needs to be a part of this
  • Those who are against proration are self-serving
  • If Texas does not prorate, there will be an economic mess and Texas will “go blue”
  • Need a 25% reduction in oil and gas by operator, not field, for a 90 day period starting May 1 based on 4th quarter production
  • No new flaring for METS or renewals
  • Need an executive order of declaration force reserve for oil and gas contracts
  • Need an overproduction fine at $25 a barrel after the 90-day period
  • Estimates it will take 9-18 months of cuts to reach 2019 volumes
  • Craddick – I do not want small operators to be double hit; are you concerned about that?
    • Blocksum – Why I recommend them using their fourth quarter 2019 data
  • Christian – If Texas is the only one cutting, would that be sufficient?
    • Blocksum – It creates fairness for smaller producers in the state; provides us access to the market

 

Harold Hamm, Continental Resources, For Proration

  • Is encouraged by the cuts by Russia and Saudi Arabia, need more in Texas
  • Tarrifs of 25-30% could  be enforced
  • Could have an overall ban on oil from Russia and Saudi Arabia
  • Those who are against proration in this hearing were against Russia and Saudi Arabia dumping oil into the market

 

Mark Stanger, Banner Resources, For Proration

  • Need to share the market; some producers should not be allowed to produce at 100%
  • Partial or intermittent shut-ins should occur; long-term shut ins would damage wells
  • Afraid of producers losing leases
  • Due to the current economic environment, purchasers are doing away with contracts with producers and cutting newer, more unfair, contracts
  • Substantial cuts need to be made to protect storage and increase prices

 

Kenny Stein, Institute for Energy Research, Against Proration 

  • These short term factors should not be a cause to do away with principles that led to economic boom in the first place
  • Government mandated proration will harm Texas by propping up weaker producers and harm efficient producers
  • Texas is not a big enough player for proration to have any impact; would not cover demand loss
  • Commission should adjust their definition of waste to modern standards

 

Josiah Neely, R Street Institute, Against Proration

  • Is not the first or last time Texas will consider proration; is not necessary
  • Price will determine production
  • Proration would not achieve its goals as Texas is 5% of the market
  • Unlikely other countries will not follow and Texas would be disadvantaged

 

Michael Collier, Self, Against Proration 

  • Do not want to partner with OPEC
  • We export about a million less than we import
  • We have to wait until the economy comes back
  • Need to address the import equation and supply the US with their own oil; need to drill more

 

Benjamin Zyker, Self, Against Proration

  • Proration would have negligible effects on price
  • OPEC Plus agreement; industry is harmed by artificial market manipulation
  • If proration occurs, prices will go up and tariffs will be put in place permanently
  • Defense of free market principles outweighs temporary economic pain

 

Bill Edwards, Edwards Energy Consultants, Against Proration

  • Presents an oil price forecasting chart from 2014
  • Have a problem with too much storage capacity; production capacity in 2014 was based on expectations of higher prices
  • Problems started not with COVID-19, but two years ago with expectations of higher prices
  • Commission should come up with short term plan to get the oil out of the system
  • System is missing a pricing mechanism

 

William Osborne, Sinclair Oil and Gas, Neutral

  • In a month, the RRC will have a better idea of what do to
  • An order or declaration of emergency is needed by the RRC to tell producers; it needs to state that operators must make a decision to reduce production in order to not create waste
  • Many contracts have emergency provisions if the RRC took this action
  • Christian – You mentioned an emergency declration, how would that help
    • Osborne – It would help producers have something to point to as to why they are curtailing production; current declaration exempts the oil industries
    • Osborne – Emergency provisions are in producer’s contracts, would allow for more flexibility

 

Bill Graham, Incline Energy, For Proration

  • I am a small producer and I am hurting
  • Proration is a solution to the current over-production and low demand
  • Texas should act with other states, but have to get an anti-trust exemption from the federal government
  • A reduction in flaring would reduce the amount of waste
  • I have not seen any additional action from the federal government to curtail overproduction

 

RRC Chairman Wayne Christian wrapped up the hearing by saying the commissioners will “deliberate and reconvene in the near future”.