As West Texas Crude Falls, State Regulators Weigh Restricting Oil Production

By Mitch Borden

A day after West Texas Intermediate dropped into negative prices, the Texas Railroad Commission, the state’s oil and gas regulator, debated capping oil production in the state for the first time in nearly 50 years. 

This is the second time the commission gathered to discuss the subject this month.  Last week, commissioners sat for over 10 hours listening to testimony from oil industry representatives, analysts and historians debating the proposal made by the two companies Pioneer Resources and Parsley Energy.

While Tuesday’s meeting didn’t reach a marathon-length, commissioners laid out some of their views of what the proposal could mean for Texas and its producers. 

A pump jack works quietly in the Alpine High Play. (Mitch Borden/ Marfa Public Radio)

During the meeting, Commissioner Ryan Sitton was quick to state he was in favor of curtailing production by about one million barrels of oil a day — and that there’s no time to wait.

“We are seeing a level of demand destruction, and a downturn that in the past happened over the course of years,” but now only takes a couple of days, said Sitton.

There doesn’t seem to be much doubt in his mind that even though the oil industry has seen prices drop like never before, it will bounce back. But what isn’t assured, Sitton said, is the health and wealth of the oil industry in Texas.

If companies lay off thousands of oil field workers in the Lone Star State, Sitton worries those jobs may never return. 

“Eventually, those jobs will come back,” said Sitton, but “they may never come back in the state of Texas or the United States.”

This week has been hard on oil producers across the country— especially those in West Texas. For the last month, a bust has seemed all but certain. The coronavirus pandemic caused the demand for oil to drop off and a price war between Russia and Saudi Arabia flooded the market with cheap oil. And now, this week, many oil producers have had to pay their would-be buyers to take and store their oil because the American industry is nearing its storage capacity causing the price of crude to fall below -$37.

The instability brought on by the global pandemic is what drove Parlsely Energy and Pioneer Resources to request that the railroad commission limit the quantity of oil produced across the state. The two companies hope the move will help stabilize the free-falling price of crude, but doing this would force the regulatory agency to take on responsibilities it hasn’t dealt with in decades.

That concerns Commissioner Christi Craddick. She’s not convinced the railroad commission is ready to restrict oil production across the state’s oil fields — or if it’s even legal.

Before she agrees to the proposal, she wants to make sure the commission can carry out such a broad mandate while also staying in line with the law. 

“Anything we do will probably end up in court,” according to Craddick who is an attorney.

From her perspective, it will not help anyone if the commission gets bogged down with a lawsuit. Specifically, she wants to know what procedures need to be in place to make production limits work.

“We need to make sure that we have the legal grounds to do what’s appropriate. If we have to do something now that isn’t legal then it shouldn’t be done.”

Sitton, later on, countered: “I don’t believe inaction on our part is acceptable.”

But cutting oil production in the state shouldn’t happen out right, according to Sitton. He recommends the limits should be temporary and depend on other oil-producing states and countries, including OPEC +, cutting their production altogether by 4 million barrels of oil a day.

He would like to see Texas’s new restrictions on oil production go into effect by June 1st, on the condition other oil-producing areas agree to his proposed reductions. Also, under Sitton’s recommendations, Texas oil companies producing less than 1,000 barrels a day would be exempt from any production curtailments.

“This is not a time to be timid,” said Wayne Christian, the chairman of the commission.

But, the chairman believes more time is needed to learn from other oil-producing regions and to coordinate a larger effort to reduce oil production so Texas isn’t alone in issuing these kinds of restrictions.

By the end of Tuesday’s meeting, commissioners tabled a vote to curtail oil production across the state. 

The next possible time the commission could decide on the proposed cuts is its next open meeting on May 5th.


About Mitch Borden

Mitch Borden is Marfa Public Radio's Permian Basin Reporter. If you have any questions about West Texas' energy industry or the Permian Basin email him at mitch@marfapublicradio.org.
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