THREAD: Watching @txrrc meeting today at 9:30 CT to discuss prorationing #oil production. Here's some background on the request, which the RRC hasn't granted since 1973: law360.com/articles/12597…
The meeting comes 2 days after OPEC+ announced historic production cuts, and it'll be interesting to see how that colors the RRC's discussion and potential actions: law360.com/articles/12631…
And @APIenergy just put out its statement opposing any production cuts. The group will be one of 55(!) scheduled speakers at today's meeting.
Meeting is underway.
RRC commissioner @ChristiCraddick on #oil curtailment: "I want to hear how this will hinder or help all Texas producers."
If you want to follow along yourself: adminmonitor.com/tx/rrc/open_me…
RRC Chairman @ChristianForTX: "Despite my reservations on this limiting, I'm open to discussion."
Scott Sheffield of Pioneer Natural Resources, which has petitioned for proration with Parsley Energy: "Our industry has created so much economic waste that nobody will buy our stocks or own our stocks."
Scott Sheffield on OPEC+ cuts: "We need more."
Scott Sheffield of Pioneer: "If anyone thinks we have a free market...you have to be joking. In my 35 years as a CEO, I've never seen a free market."
Scott Sheffield recommends @txrrc cut production by 1 million bpd in May and consider further cuts, including by 10% in June.
RRC commissioner @RyanSitton asks Mark Berg of Pioneer about a 1 million bpd cut that creates additional storage: "How would that prevent waste?"
Berg said the @txrrc can't wait until storage capacity is filled before deciding to prorate, said that would be pointless.
@RyanSitton to Scott Sheffield of Pioneer: "If the world is oversupplied 20-30 million bpd per day, how does our proration bring balance to that market?"
Scott Sheffield of Pioneer says other states and G-20 must act on #oil cuts: "The breakeven costs of most independents today, including finding costs, is about $25-26 [a barrel], we need $30 a barrel to survive."
Scott Sheffield of Pioneer says most producers are going to report production increases in 1Q of 2020 compared to 4Q of 2019.
@ChristiCraddick on shut-ins: "I want to make sure we're not damaging reservoirs in the short or long term, because that creates waste." Scott Sheffield of Pioneer says they've shut-in wells for several months without damage.
Scott Sheffield of Pioneer says production cuts should be shared equally among joint venture partners.
@ChristiCraddick: "What if other states don't do this? Others may just move across the border to New Mexico...or up to North Dakota."
Scott Sheffield of Pioneer said the company isn't asking Texas to go it alone and it can wait to see what other states/ nations are thinking, but "the market is saying" there need to be more cuts.
Scott Sheffield of Pioneer said @txrrc should penalize producers who don't comply with any proration order.
Mark Berg of Pioneer on @ChristiCraddick antitrust concerns, says producers would never enter into an agreement amongst themselves to cut production, that's why they're appealing to the @txrrc.
@ChristianForTX: "Why is it necessary we have additional regulations if the market itself is already limiting production?"
Scott Sheffield of Pioneer said most drillers have price hedges in place: "At current prices we're going to lose 3-6 million bpd by the end of 2021, the problem is most of that occurs next year."
Scott Sheffield of Pioneer said OPEC is probably going to have to consider another round of production cuts.
Next up, co-petitioner Parsley Energy's CEO Matt Gallagher, who says prorationing "shouldn't even be an argument."
Matt Gallagher of Parsley Energy said his company hasn't had any contracts cancelled, but smaller producers have.
Matt Gallagher of @Parsley_Energy said #oil prices have been in single digits in the Midland Basin and some producers are producing volumes lower than their operating costs.
@RyanSitton to @Parsley_Energy's Matt Gallagher: "If we cut the 20 percent or 1 million bpd, how does that prevent waste?" Gallagher likens it to flattening the COVID019 curve: "This would alleviate, not mitigate the situation."
To @RyanSitton, Matt Gallagher of @Parsley_Energy says indications are that #oil storage hub at Cushing is projected to fill up within 4-5 weeks.
Matt Gallagher of @Parsley_Energy to @ChristianForTX on just letting storage fill up to bring production cuts: "If you slam into max capacity with these peaks, it really wipes out the industry in a dramatic fashion, especially the service sector."
@ChristianForTX said he's worried about small producers being wiped out by any proration, Matt Gallagher of @Parsley_Energy said there can be exemptions for smaller/marginal producers.
@ChristiCraddick said someone suggested to her that @txrrc just not issue any new drilling permits. "I don't think it's the best option either," she said.
@ChristianForTX questions whether @txrrc can put proration into effect before storage limits get hit within weeks.
@RyanSitton to Matt Gallagher of @Parsley_Energy: "What do you think about the idea about us getting more strict about flaring and restricting flaring permits and flaring volumes?" Gallagher said that dovetails with moves to prevent waste.
@MarathonOil CEO Lee Tillman is now up, he opposes proration.
@MarathonOil CEO Lee Tillman: "We do not believe proration in Texas will have the desired effect or any meaningful effect on global supply."
@MarathonOil CEO Lee Tillman said using proration "opens a Pandora's box" that allows it to be used in the future to restrict oil production for reasons other than preventing waste.
@MarathonOil CEO Lee Tillman: "I think this notion that the US isn't taking action is simply false. The US is well ahead of the curve, even OPEC+" actions.
@MarathonOil CEO Lee Tillman notes that @Parsley_Energy and Pioneer Natural Resources primarily operate in TX Permian Basin, while it and other proration opponents operate in multiple states/basins.
@MarathonOil CEO Lee Tillman on @RyanSitton question if there is currently waste: "If we're going to ascribe waste to all of those fluctuations where we have a deviation between supply and demand, the @txrrc is going to be very busy."
@MarathonOil CEO Lee Tillman: "We are not going to solve the current commodity supply issue until demand returns. This has become a demand-driven correction."
@MarathonOil CEO Lee Tillman says "there is no amount of supply cut" that will mitigate the impacts of #COVID19-depressed demand.
@ChristianForTX suggests fellow commissioners speed up their questioning, noting that first 3 speakers took about 2 hours including Q&A.
@ovintiv CEO Doug Suttles is up next, also opposes proration.
@ovintiv CEO Doug Suttles notes that Alberta has had trouble unwinding its prorationing of oil production.
@RyanSitton keeps asking this question to all the speakers: "Do you think there's waste?"
@RyanSitton to @ovintiv CEO Doug Suttles: "You're saying we're oversupplied, but that's not waste?"
Asked by @RyanSitton about reducing flaring as a way to reduce waste, @ovintiv CEO Doug Suttles said his company supports tighter flaring restrictions but "I don't think it's the right tool to manage the supply-demand issue today."
First #midstream speaker is up, Plains All American Pipeline President Harry Pefanis. Said company isn't taking a position on proration, but said commercial #oil storage would likely fill by sometime in mid-May and encouraged their upstream partners to manage production.
Harry Pefanis of PAA: "I would say if you look at the Permian Basin in general, there's more pipeline capacity than production."
Harry Pefanis of PAA: "We're only taking crude into the pipe that has a home at the other end."
Harry Pefanis of PAA said company has told its shippers: "There's a wall coming. You have a chance to be proactive." But said actual production reductions have been modest so far and meaningful curtailments haven't occurred yet.
Harry Pefanis of PAA repeats that company takes no position on proration, but that "curtailments are going to be required."
Next up, @EProd_Careers co-CEO Jim Teague, another #pipeline operator. His company opposes proration.
@EProd_Careers co-CEO Jim Teague questions whether pro-prorationers have other motivations such as getting out of certain obligations. "I don't see the rationale of those pushing for this. Do you really think a cut by Texas can fill a 25 million barrel demand hole?"
Just a note of emphasis here, @txrrc will NOT be voting today on any proration order, the meeting is just to hear comments on the issue.
@EProd_Careers co-CEO Jim Teague: "I'd define waste as inefficient producers continuing to produce in a time like this."
First royalty owner speaker of the day, University Lands office CEO Mark Houser, whose office oversees lands whose oil and gas royalties flow to the Univ. of Texas and Texas A&M systems.
Mark Houser said @txrrc could do prorationing as part of a broader, US-wide effort to reduce production, as well as a way to reduce excessive flaring.
Mark Houser said reducing flaring could be another tool, but is less impactful. Any prorationing should be part of a broader effort in order to be effective, he said.
The meeting has broken for lunch.
Questions that @txrrc commissioners seem to be wrestling with so far:
Does the current supply-demand imbalance constitute "waste" that could necessitate proration?
How would smaller/marginal producers be impacted by prorationing?
Is cracking down on flaring a solution?
Does the current supply-demand imbalance constitute "waste" that could necessitate proration?
How would smaller/marginal producers be impacted by prorationing?
Is cracking down on flaring a solution?
TX Oil and Gas Association President Todd Staples is up, says the group opposes proration. "It is government intervention itself that would cause haphazard curtailment and waste."
Todd Staples of TXOGA said production reductions can be seen through public companies announcing capex reductions.
Todd Staples of TXOGA: "We think the market can respond more rapidly and effectively."
Todd Staples of TXOGA: "The commission's decision will treat royalty owners differently just based on their operators."
@RyanSitton: "How do we consider economics in the flaring issue but ignore it in the issue of market overproduction?"
Karr Ingham of @TexasAllianceEP said the group opposes proration.
Ed Longanecker of @T_I_P_R_O said group's members "overwhelmingly" oppose mandatory proration.
Ed Longanecker of @T_I_P_R_O: "Many royalty owners I've heard from have flat-out told producers not to operate in this environment. They would rather shut in those wells or not drill any more than drill at such low commodity prices."
Handing coverage off to my @Law360 colleague Jack Queen. Our full recap of the meeting TK.
