Texas shale producers ask state to cut oil output as demand plummets during coronavirus pandemic

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Texas TribuneTwo Texas oil companies with large footprints in the West Texas oil patch sent a letter Monday to state regulators formally requesting an emergency meeting to consider reducing oil production as demand for oil around the world has collapsed during the new coronavirus pandemic.

The presidents of Pioneer Natural Resources, based in Irving, and Parsley Energy, based in Austin, urged the Texas Railroad Commission — the state’s oil and gas regulatory body — to hold a virtual meeting no later than April 13 “for the purposes of determining the reasonable market demand for oil, whether wasteful production either is occurring or is reasonably imminent, and, if so, the necessary and appropriate proration order to prevent such waste,” the letter read.

Scott D. Sheffield, president of Pioneer Natural Resources, and Matt Gallagher, president of Parsley Energy, said a move to limit oil production in Texas “would be a responsible measure in the public interest.” Also copied to receive the letter were Gov. Greg Abbott, Lt. Gov. Dan Patrick, and U.S. Sens. John Cornyn and Ted Cruz.

A move to curtail oil output in Texas has not happened in decades and according to the letter is “not warranted except in extraordinary circumstances.” The spread of COVID-19, the disease caused by the novel coronavirus, could be an exception. Pipeline operators have informed some companies to cut production, too, but railroad commissioners have the final say. They’ve been weighing the issue since some companies raised the possibility earlier in March.

It is unclear whether the three elected commissioners are likely to limit production, but one, Ryan Sitton, has publicly supported the prospect.

“We can’t wait another 20 days,” Sitton tweeted Monday.

Sitton, who will depart the commission after this year following a Republican primary defeat in March, also said the body should hold a meeting as soon as possible.

Sitton’s two colleagues, Chairman Wayne Christian and Commissioner Christi Craddick, have not publicly said yes or no to reducing production.

“Stabilizing the international crude oil market is essential for the Texas economy, as well as our future energy sovereignty and national security,” a spokesman for Christian said in a statement. “Chairman Christian looks forward to continuing discussing stabilization efforts, including tools like proration, to ensure we are doing everything we can to get Texans back to work. As he stated in a recent editorial in WorldOil, he believes we should act in collaboration with other states and the federal government, not unilaterally.“

Shortly after discussions about the possibility of production cuts were made public in March, Christian said in a statement, “A couple of operators have suggested pro-rationing oil as a solution. While I am open to any and all ideas to protect the Texas Miracle, as a free-market conservative I have a number of reservations about this approach.”

Todd Staples, president of the Texas Oil and Gas Association, has also opposed the idea.

“Proration is not a remedy TXOGA members are seeking, as it would disadvantage Texas, its producers, mineral owners and taxing entities,” Staples said in a recent statement. “Regulatory certainty and stability are essential elements in managing during these difficult times.”

Sheffield and Gallagher, the letter’s authors, took a different view on solving the oil crisis.

“To the contrary, Texas is well-positioned to jump-start an international solution,” the letter read. “What Texas does will be heard around the world.”

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