Texas Railroad Commission Weighs Production Cuts

The Texas Railroad Commission (state agency that regulates the Texas oil and gas industry) has held two hearings to discuss production demand and proration.

The Railroad Commission (RCC) announced formation of a task force to look at every aspect of what can be done at the state level to protect jobs including permitting timelines, tax policy, storage capacity, pipeline capacity, etc. The task force will be led by several associations including TXOGA, Alliance of Energy Producers, PBPA, TIPRO, TPA. The RRC asked for industry recommendations before the next hearing schedule for May 5th.

Commissioner Ryan Sitton proposed a vote to cap oil production by 20% effective June 1st contingent upon reductions made by other states/nations and listed the following criteria to apply as a framework:

1. Be conditioned on other oil producing regions agreeing to restrain enough production to make the action effective in eliminating waste (pull 4mbpd off in addition to Texas’ approximately 1mbpd).
2. Be temporary and only in place for so long as necessary or until COVID-19 artificially depressed global demand rises above 85mbpd;
3. Only apply to Texas producers generating over 1,000bpd;
4. Be an across the board cut of 20% by operator, not by lease;
5. Start from fourth quarter 2019 production levels (highest month);
6. Be reevaluated on no less than a monthly basis to ensure it is effective and that commitments are kept; and
7. Be flexible enough to ensure that it is not punitive for producers acting in good faith to restrain production but have clear and effective enforcement mechanisms for any producers that would willfully ignore Commission Orders.

Given the lack of a second to his motion today, Sitton stated his intention to direct staff to draft an order for consideration at the next meeting.

Commissioner Christi Craddick stated concern that any decision on proration made by the Commission would likely end up in court. She questioned the Commission’s legal authority to prorate statewide or by field and asked if they would need an evidentiary hearing. She also stated the potential need for an industry wide data call to more accurately determine the market. She called for RRC staff to consult with Texas Attorney General Ken Paxton to help answer some of these looming legal questions and echoed that any action needs to be in coordination with other states and countries.

Chairman Wayne Christian called for more effective coordinated action with other out of state regulators. He noted North Dakota and Oklahoma are considering waste reduction and said he reached out to Canada’s Energy Minister who has offered to help if the RRC decides to prorate. The Chairman voiced fear that acting too soon could further delay the effects of any motion they make. He stated that the Commission is working towards a vote and does not want anyone to walk away from this meeting thinking the Commission is hesitant or not taking action.

Despite Commissioner Craddick’s objection to additional witness testimony, Brian Sullivan, an attorney representing Pioneer Natural Resources, was the only public witness recognized for comments. Sullivan stated the Commission can issue any order that is reasonably required to lessen the waste and he does not see a legal impediment to the order. In response to concerns the motion could be tied up in court, he stated there could be litigation on either side. Sullivan also stated the order would be effective until a court ruled against it down the road.

The Commission declined to vote on production cuts proposed by Sitton and will now seek legal counsel from General Paxton prior to the next hearing on May 5th.

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