Seeing An Industry 'Under Attack,' Texas Officials Debate Oil Production Cuts

Apr 21, 2020

A meeting of Texas oil and gas officials started Tuesday with a prayer both ominous and inscrutable.  

“Father, we come to you this morning recognizing an attack upon us as a country, as an industry,” Railroad Commission Chair Wayne Christian intoned.

Despite its name, the Railroad Commission regulates fossil fuel extraction in Texas. But it was not immediately clear what “attack” Christian was referring to.

Was it COVID-19? A disease that has quenched the world’s previously insatiable thirst for oil? Was it the specter of negative oil prices, which, for the first time in history, have started haunting Texas? Was it something more literal?

While his audience had to wait for an answer, the prayer set the tone for a revealing and often tense debate among Railroad Commissioners on how to save an industry in free fall.

Delay Is 'In Itself A Choice'

Oil prices collapsed this year because of a one-two punch: COVID-19 destroyed demand right as oil-producing countries like Russia and Saudi Arabia increased supply. It was such a devastating double whammy that, at first, it seemed like there was no playbook to respond to it.

But, under Texas law, the Railroad Commission has the authority to limit the amount of oil companies can pump from the ground. It's a power that has not been used in nearly 50 years, but some voices in industry and government now believe production limits may reduce supply enough to stabilize prices.

The loudest voice on the Railroad Commission for such cuts, known as “prorationing,” is outgoing Commissioner Ryan Sitton, who pushed for a vote at the meeting.

“We are seeing a level of demand destruction and a level of oil industry downturn that, in the past, happened over a course of years, now happening over a course of days,” he said. “Taking weeks, even days, right now to act is in itself a choice.”

He proposed a 20% cut to oil production for companies that produce more than 1,000 barrels a day. He said the caps would be based on a company's recent highest monthly production number and would be enacted only if other states and countries agreed to cut another 4 million barrels.

Pushback

Of the other two commissioners, Christi Craddick seemed most strongly opposed. Production limits have been in discussion for weeks, but Craddick argued for more time. She said the commission needed to consult with staff lawyers and the state attorney general to determine what it was legally allowed to do.

If the agency moves ahead with prorationing, companies that oppose the regulation are expected to sue.

Craddick also suggested a representative from a company in favor of production cuts should not give testimony at the meeting because it would be unfair to companies that oppose the move.

Once he was allowed to speak, Brian Sullivan, a lawyer from Pioneer Natural Resources, agreed there could be litigation but added that "there could be litigation on either side" of the issue.

'A War On Our Industry By Foreign Adversaries'

Christian agreed the vote should be pushed back a week. Then he gave a hint of what he meant with his opening prayer.

“Frankly, there’s a flotilla from Saudi Arabia with a lot of oil coming to the U.S. as we speak,” he said. “We need to visit with our senators and federal administration regarding the intent that they had when OPEC made its [oil cut] agreement.”

He was referring to Saudi Arabian oil tankers that are heading to deliver crude to the already over-saturated refineries of the Gulf Coast. Analysts say that delivery would further reduce already record-low crude prices in the U.S.

Christian said he’s spoken with his counterpart in Alberta, Canada, and planned on meeting with oil officials in North Dakota and Oklahoma before voting on production cuts next week.

"This is clearly a war on our industry by foreign adversaries," said Christian, who argued he needed the extra week to “coordinate an action.”

Got a tip? Email Mose Buchele at mbuchele@kut.org. Follow him on Twitter @mosebuchele

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