We read the comments and listened in on portions of the historic April 14 hearing on the proposal that the Commission order market demand prorationing of Texas oil and gas production. Of the 120+ written comments, 51 supported, 59 opposed, 12 were neutral, and several were not clear.
Here is our summary of the comments.* To read them for yourself, go to: https://www.rrc.state.tx.us/general-counsel/open-meetings/comments-received-re-the-rrcs-april-14-2020-open-meeting/
Some are insightful, others not so much. One writer said the proposal was “plangossian”.
Proponents generally asserted:
- State-mandated cuts in production of, say 20 percent, applied uniformly, are necessary to avoid even more price disruption that will lead to widespread industry carnage in the form of failed businesses, lost jobs, and sharply falling state and local tax revenues.
- Some small producers are seeing their markets disappear altogether as purchasers cancel their contracts, thus favoring larger producers.
Opponents generally asserted:
- Texas does not have the market power to affect global crude oil prices like it did from the 1930’s to the early ‘70’s. Global oil production is 100 million +/- BOPD, Texas production is 5+/- million. A 20 percent cut of 1 million BOPD will not affect the price of this global commodity.
- Individual producers are themselves deferring drilling and completion of wells, shutting in or choking back production, and lowering expenses. All of these efforts together will bring supply closer to demand.
- Market forces work faster and reach a sustainable solution much better than regulatory intervention. Prorationing takes control of operators’ decisions away from them to decide which barrels to produce and which barrels not to produce.
What does flaring have to do with it?
A big surprise was the support among producers and other industry players for tighter rules on flaring, especially including a reduction in Rule 32 exceptions in the Permian Basin. This was a universal theme among environmental organizations. The Commission should pay attention to these complaints.
What concerned the Commissioners?
Among other questions, Commissioner Sitton wondered whether this current demand/supply imbalance fits the statutory definition of waste. There were disagreements among the contestants. For example, XTO and Ovintiv argue that the current situation is not waste as defined by the statute. Pioneer, Parsley and others assert that it is.
Commissioner Craddick focused more on process and procedure, noting that the Commission hasn’t employed market-demand prorationing since the early 1970’s and no longer has the expertise to implement such a regime. Former Commission Executive Director John Tinterro cautioned against implementing such a plan hastily, without adequate study, funding, and technology improvements. He warns that implementation would take Commission funds away from other important agency responsibilities.
Chairman Christian posed questions about practical effects of the proposal. For example, should Texas go it alone or implement proration only if other producing states join in?
*Notes about our summaries:
- We didn’t capture every comment in detail and don’t represent that each summary is complete.
- We did our best to be accurate; any errors are unintentional and must be Rusty’s fault.
- Comments from community organizations on all sides of the debate (there are more than two) are at the end of the RRC list. They are mostly collections of virtually identical, brief emails and are not summarized.
Wow! Who knew Armageddon and such has been so compelling for so many songwriters. Listen. It’s not all a downer.