The Texas Railroad Commission met on April 21 for their monthly meeting to take up a number of items. This report will cover items 309 and 310 of the agenda relating to whether or not the commissioners should temporarily prorate oil production, or take any other regulatory action, in order to remedy the effects COVID-19 has had on the oil and gas industry.  A video of the meeting can be found here.
This report is intended to give you an overview and highlight of the discussions on the various topics discussed. This report is not a verbatim transcript; it is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening statements

  • Chairman Christian addressed the historic drop in price of oil on April 20
    • West Texas Intermediate traded as low as -$40 on April 20
    • Was in the positive this morning
  • Christian Addressed the reduction in the production of oil and gas, and the reduction in jobs, due to COVID-19
    • In the last 5 weeks, the rig count was down 33%, fracking (audio blip) jobs are down 50%

 

  1. Consideration of and possible action on potential waiver or suspension of applicable statutes, rules, final orders, or other regulatory requirements due to the COVID-19 pandemic.
  • RRC has been working on providing relief and flexibility to operators during this pandemic like deadline extensions and wavier considerations

Wei Wanes, Executive Director RRC

  • Have released guidance for the industry on RRC regulatory changes
    • Operators may issue a request for extension
    • Made an extension for all permits until September 30
    • Extensions for certain violations not related to public safety and health
    • Recommended cost-tracking to operators
    • Started online training platform, document management and public portal
  • Majority of employees working from home, but a number of operations in the agency are running as normal
  • Christian – Resources can be found on the RRC website
  • Christian – Discusses the low producing well tax credit; aims to help the smaller producer
  • Christian – Has been and will continue to compile information on common carriers’ storage capacity
  • Christian – A Blue Ribbon Task Force has been created for oil and gas economic recovery
  • Christian –  Task force has been tasked with finding solutions that could aid the industry at this time
    • Task force includes: Texas Oil and Gas Association, Texas Alliance of Energy Producers, Texas Independent Producers and Royalty Owners Association, Permian Basin Petroleum Association, Panhandle Producers & Royalty Owners Association and The Pipeline Association
  • Christian – Will get recommendations from the task force by May 5

No action was taken on this motion

 

  1. In Re: Motion for Commission Called Hearing on the Verified Complaint of Pioneer Natural Resources USA Inc. and Parsley Energy Inc. to Determine Reasonable Market Demand for Oil in the State of Texas.
  • Craddick – Hopes the task force will look into expanding the 24-hour period for severance tax and reducing the amount of said tax; something that was rejected by the Comptroller two weeks ago
  • Craddick – Discusses the stakeholder hearing last week; need to have further conversation with other states or the federal government
  • Craddick – Staff should look at all options and look at actions with legal grounds; will receive counsel from the Attorney General; need to look into the following questions
    • Need to look into changes in law since last time proration occurred in Texas
    • Can we legally prorate statewide or will it have to be done field by field?
    • Do we need an evidentiary hearing before the order?
    • Are marginal wells or small operators going to be left out?
    • Do we need a data or date of call to determine markets?
  • Sitton – Taking weeks or days to act is a choice due to the speed of change in the market
    • Drop in production over 30 years is going to happen in 2 months
  • Sitton – Energy independence is being threatened right now; the market is not normal and is not acting normally
  • Sitton – If things continue without intervention, jobs will be lost and  many may not come back in Texas
    • The RRC needs to take some sort of action
  • Sittion – Is ready to vote on proration
    • Prorate 20% starting June 1 if another 4 million barrels per day is brought offline by other states Canadian and OPEC
    • Proration should be tied to market demand; 85 million per day
    • Should apply to producers that produce more than 1,000
    • Done by operator, not by lease
    • Basis for new allowable should be the maximum of their production in October, November, December; 20% of that
    • Should be able to adjust allowables
    • Should evaluate this monthly
    • This is not comfortable for the RRC, but is bigger than production numbers and corporate industry
    • Waste is occurring due to market supply
    • If neither is ready to vote, will instruct staff to write these down
  • Christian – Have been in conversations with Sen. Ted Cruz, Sen. John Coryn, North Dakota and Oklahoma
    • ND and OK and considering implementing proration
    • Will get back to ND on Texas’s action today
    • Has spoken to Canada’s oil minister; they have been capping supply and have offered to help
    • This is not a time to be timid, but I believe that we need to get information first before we make a decision
  • Sitton – There is not enough time to wait on that information; agree it needs to be in a group; why our motion is contingent
  • Sitton – If there is no vote today, I will get this motion ready to be voted on by May 5
  • Craddick – I would like staff to come back, I am not sure some of what you are proposing is legal; I want other options and legal counsels weigh-in on this
  • Craddick – The US, Canada and Mexico should all be a part of this conversation and the a part of the solution
  • Chrsitian – Saudi Arabian oil is coming to the state right now; the war on the industry by foreign adversaries
  • Christian – Agrees with Craddick; would like the AG to review this so when we draft the motion that it fits legal requirements
    • Have seen motions caught up in the courts and would delay it past two weeks
    • Need to continue to negotiate with other states
    • Move that we need to work towards a motion
  • Sittion – Brian Sullivan, attorney for Pioneer Natural Resources is on the phone for questions
  • Craddick – I think we need to hear from the AG and other options from staff
    • May not be appropriate for us to hear from Brian since there is only one perspective being represented right now
  • Discussion is had whether or not Brian Sullivan should answer questions
  • Christian recognizes Brian Sullivan
  • Sitton – Wants you to answer the questions Craddick posed earlier
  • Sullivan – The commission is allowed to make a motion to address excess waste; field by field is not required
    • There will be litigation regardless; the order would be effective until some court ruled against you down the road
  • Sitton – Is there anything we should be looking into for this motion?
  • Sullivan – No problem legal problems with your contingencies (only cutting production if 4 million barrels are taken off per day by other states, countries or OPEC)

No vote was held on Sittion’s vote for proration

The Commission did not hold an executive session