Panel approves natural gas limit
Oklahoma's Corporation Commission approved a long-running limit on natural gas production rates from prolific wells on Tuesday, the same as they have every year for decades.
But this time, that limit only will stand for six months, as producers are asking for additional consideration on what is allowed, given that excess gas production continues to drive its price into the cellar.
The Petroleum Alliance of Oklahoma and Continental Resources in particular are asking for that additional consideration.
The alliance sent elected commissioners a letter reminding them of the agency's responsibility to “conserve natural resources” while promoting continued economic development.
“The Oklahoma Corporation Commission has the responsibility to weigh
the economic benefits of the state producing i ts resources during a challenging pricing environment for the upstream oil and gas industry ,” alliance Chairman David Le Norman said in the letter.
“Complexity is added when considering the potential loss of market share for Oklahoma production, coupled with the prospect of less capital being deployed to develop Oklahoma' s resources. These factors further complicate the commission's decision process."
Commissioners have set a statewide proration formula for production from unallocated wells since the 1930s.
In its earliest years, the formula covered both oil and natural gas production.
Over time, as oil production began to fall, the agency moved toward only approving a proration formula on unallocated natural gas wells, and reviewing and adjusting that formula every six months. Eventually, those reviews were move to annually.
Officials have said the last time a proration order truly limited production from gas wells was the early 1980s, given that today's production, while prolific, tends to rapidly decline.
The limit commissioners approved Tuesday requires operators to limit production from unallocated gas wells at either 65% of a well's open flow potential or 2 million cubic feet per day, whichever is greater. The l i mit i s unchanged from past restrictions the agency's elected commissioners have approved the past 20 years.
Duncan Woodliff, the agency's production and compliance manager in its
Oil and Gas Conservation Division, said Tuesday one benefit of reviewing the proration formula annually had been that it provided well operators certainty production limits wouldn't suddenly change.
However, he also told commissioners he wasn't opposed to reviewing them more often.
“If there is interest to support t his,” he said, “operators could get more informed about what we have, in terms of prices and those sorts of things.”
Woodliff said Oklahoma had about 434 wells in 2018 that produced more than 2 million cubic feet per day of natural gas on average, with
most of those in the STACK, Merge and SCOOP plays of the Anadarko Basin.
Nearly half of those, he said, were operated by Continental Resources Inc.
Jeff Hume, Continental's vice chairman of strategic growth initiatives, also addressed elected commissioners on Tuesday on the topic, urging involvement of all stakeholders in the process.
“Small operators are just being crushed out there,” Hume said, noting royalty owners also are being hurt by current prices.
“We are asking that we review how we handle proration in the state and whether some sort of cut should be made,” he said. "Thereare no easy answers. We need this addressed on a state level so it can be taken to a national forum.”
After listening to Hume's comments and discussing the alliance's letter, Commissioner Dana Murphy convinced other elected commissioners Tuesday to revisit the issue in six months.
“Staff should get together with members of the Petroleum Alliance and others, including mineral rights owners, to see if there should be something done differently,” Murphy said.