Texas and Oklahoma are both looking at cutting production of crude oil and natural gas because of low prices tied to the coronavirus pandemic and the oil price rout.
On Tuesday, the Texas Railroad Commission held a 10-hour video hearing with 55 witnesses including energy companies and trade groups on a possible 20% cut in production within the state, Kallanish Energy reports.
No decision was reached by the three-member commission that oversees oil and natural gas operations in the state.
There has been no indication on when a decision might be reached.
It is an issue that finds some energy companies supporting the mandatory Opec-style cuts and others totally opposed.
The lengthy Texas debate came only days after Opec+ finalized a deal to reduce oil production by 9.7 million barrels per day.
Officials said the Texas virtual hearing was viewed by more than 20,000 people from 49 states and 86 countries.
Cutting Texas production was officially requested by two companies: Parsley Energy and Pioneer Natural Resources, both active drillers in the Permian Basin of West Texas and New Mexico.
They said temporary supply cuts would protect oil and gas companies from a major crash.
Continental Resources founder Harold Hamm supported the cuts in a letter, while ExxonMobil was opposed to the move, as were Marathon Oil and Ovintiv (formerly Encana).
One company, Houston-based Diamondback Energy, told the commission that it would cease all drilling activity immediately if forced to cut production, and that would impact nearly 3,000 workers, the Texas Tribune reported. The company has already cut 2020 drilling by 30%, it said.
Opponents including Enterprise Products Partners co-CEO Jim Teague and Marathon Oil’s Lee Tillman both suggested that such cuts were being supported by some selfish energy companies as a way to void contractual obligations.
It is presumed that a state order to cut production would provide drillers with the justification to declare force majeure or the act of God provision in contracts that relieves parties of liability for events outside of their control.
A production cut in Texas would hurt companies with operations in other states, executives testified.
Prior to the meeting, Texas Railroad Commissioner Ryan Sitton said in a statement: “I have not advocated for Texas to prorate. I have advocated that we consider it. I felt that we should be open to evaluating any path that helps to bring the international oil community together in a global deal.”
He added, “While I have been public about my thoughts that Texas should take a lead role in this conversation, I still have many reservations and I will be examining heavily if and how the proration could be done.”
Commissioner Christi Craddick said she was unsure how the commission could implement such an order to cut production.
An estimated 360,000 Texas jobs in 2019 were tied to oil and natural gas. It is the No. 1 drilling states in the U.S.
Texas has not cut production of oil since the early 1970s.
In Oklahoma, a hearing has been set from 9:30 a.m. May 11 by the Oklahoma Corporation Commission that oversees drilling in the state.
The request for prorationing of crude oil was filed on April 10 by the Oklahoma Energy Producers Alliance with 500 member companies.
Earlier, the alliance had submitted a letter, complaining that Oklahoma-produced crude oil was being wasted because of low commodity prices, to state officials.
The state has the obligation to ensure that crude oil is not sold below its actual value, the alliance said.
