In an open meeting virtually conducted yesterday morning, the Railroad Commission of Texas seemed to indicate that prorationing may be a real possibility in the near future. Commissioner Ryan Sitton, citing the need for prompt action, moved that the Commission immediately consider a prorationing order, designed to curtail 20% (approximately 1 million barrels per day) of oil production by Texas producers. Commissioner Sitton further outlined his vision of a proposed order, which would have an effective date of June 1st and would be contingent on other oil producing states and nations also agreeing to reduce production by 4 million barrels per day. As proposed by Commissioner Sitton, the order would apply to all Texas producers producing over 1,000 barrels per day, with allowables set for individual producers based on the producer’s production in October, November, and December 2019.
The proposal comes on the heels of a verified complaint from producers Pioneer Natural Resources and Parsley Energy, requesting that the Commission institute prorationing, and an associated hearing conducted on April 14, 2020, in which the Commission heard an unprecedented 10 plus hours of testimony. At a high level, proponents of prorationing argue that, with current oil prices, unchecked production constitutes waste, which must be regulated by the Commission under Tex. Nat. Res. Code § 85.051, while opponents argue that the free market is the best regulator of over supply and that governmental interference may have unintended consequences that have not been fully assessed.
Despite Commissioner Sitton’s urging, the Commission ultimately decided to postpone considering the motion until the next open meeting, currently scheduled for May 5th. Commissioners Christian and Craddick pointed to ongoing coordination efforts with other oil and gas producing states, such as North Dakota and Oklahoma, and a concern that proceeding with the motion without the benefit of a thorough review by staff and the Attorney General might lead to extended litigation as reasons to support the delay.
A recording of the full meeting is available on the Commission’s website at the following link. http://www.adminmonitor.com/tx/rrc/open_meeting/. For those wanting to cut to the heart of the matter, the proposal on prorationing is item 309 on the agenda, and the relevant discussion begins about 43 minutes into the recording.
Thompson & Knight LLP
