Commission rejects oil production cuts
The Texas Railroad Commission, the agency that regulates the oil and gas industry in the state, shut down a proposal Tuesday that would have enacted statewide oil production cuts while easing the way for new oil storage projects.
Chairman Wayne Christian and Commissioner Christi Craddick voted against holding a hearing on the proposed cuts, effectively putting an end to the issue. Commissioner Ryan Sitton voted to give the issue more discussion, particularly regarding the industry practice of burning excess natural gas.
Known as flaring, many view the practice as a waste of natural resources.
“I’m not disappointed that we didn’t proration,” Sitton said. “I’m disappointed that we didn’t do the work to really analyze how proration would have addressed waste.”
With an estimated 71 million barrels of oil storage available in Texas, the three commissioners voted to waive various fees and surcharges related to construction of new crude oil storage projects through the end of the year.
Christian said that temporarily eliminating the fees was “muchneeded regulatory relief” for the
industry, which has been faced with a shrinking amount of storage for oil during the pandemic. Sitton voted for the measure, but he said he was concerned about giving up revenue that totaled $1.8 million during fiscal year 2019.
“It’s easy for us to make cuts that are inconsequential to operators but meaningful for the agency to operate,” Sitton said.
The oil industry is facing an unprecedented crisis as the coronavirus pandemic slashes global demand and a shortlived price war between Saudi Arabia and Russia exacerbated a global supply glut that sent prices of West Texas Intermediate, the U.S. benchmark, to record lows that at one point last month, went below zero.
As prices tumbled, Irving oil company Pioneer Natural Resources and Austin oil company Parsley Energy asked the commission in March to consider ordering statewide production cuts for the first time since the 1970s.
The debate divided the industry, with smaller producers and environmentalists in favor of prorationing. Larger producers opposed mandatory cuts, saying economic forces would accomplish the same goal.
A proposed Railroad Commission order would have cut statewide oil production by 20 percent but Karr Ingham, a petroleum economist and executive vice president with the Texas Alliance of Energy Producers, said $20 per barrel oil prices made it a moot point.
“There has already been a response to market conditions,” Ingham said. “I wouldn’t be surprised if by the end of May, we’ve achieved a 20 percent production cut. Action is going to be taken by independent companies and independent operators, not an agency.”
Commissioner Craddick successfully introduced measures included giving oil companies more time to store waste in open pits and to plug abandoned wells. The motion passed unanimously.
Robin Schneider, executive director for Texas Campaign for the Environment, called the hearing “Christmas in May for the industry” as the Railroad Commission failed to take public comments before voting to waive fees and to ease regulations dealing with waste. The commission, she said, has a pattern of only adopting recommendations made by the industry and ignoring concerns by environmental groups and neighbors to projects.
“It’s appalling that these things were rushed through in a time of crisis,” Schneider said. “There was debate over proration but there was none over these issues.”