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Law360 (May 4, 2020, 5:31 PM EDT) -- A proposal to curtail oil production in Texas for the first time in nearly five decades amid a coronavirus-fueled crash in oil prices is dead, with two of the three members of the Railroad Commission of Texas vowing not to support any cuts.
Commissioner Christi Craddick said Monday that she opposed statewide proration of oil production in which Lone Star state drillers would have to reduce a percentage of their total production in order to align it with market demand. She joins RRC Chairman Wayne Christian, who published an op-ed in the Houston Chronicle last week in which he said he opposed proration.
Commissioner Ryan Sitton favored proration, but said in a Monday television interview that he believed the idea was dead and the RRC might not even vote on a proposal at its next meeting on Tuesday.
"Individual operators have moved swiftly to respond and have done so better than any top down control of the market that some have called for," Craddick said in a statement Monday. "All producing states, including the federal government, have a role to play and I have not seen concrete action to do more than what the market is already doing."
Craddick had expressed reservations about proration at both the RRC's previous meeting and an earlier public hearing on the issue.
Representatives for Christian and Sitton could not be immediately reached for comment Monday.
Texas shale giants Pioneer Natural Resources USA Inc. and Parsley Energy Inc. had petitioned the RRC to start a statewide proration of oil production, a move the commission hasn't ordered since 1973. Supporters argued a curtailment was necessary in light of the crash in global energy demand due to the COVID-19 pandemic and a growing supply glut that's sent oil prices tumbling to historic lows, including a brief dip into negative territory for the first time ever.
But the issue was divisive from the start. Many larger drillers and industry groups fiercely opposed prorationing, saying that low oil prices would force producers to throttle back their production and that government intervention was unnecessary.
Among the questions the RRC grappled with were whether the current supply-demand imbalance fueled by the COVID-19 pandemic constitutes a "waste" of oil that necessitates prorationing, whether smaller oil producers would be disproportionately hurt by prorationing and whether cracking down on excessive gas flaring from wells could accomplish sufficient production cuts without resorting to prorationing.
At the RRC's previous meeting April 21, Sitton said he was ready to vote on and approve cuts of 1 million barrels of oil per day — 20% of the state's output — starting in June. But Christian and Craddick said the RRC needed to take more time to examine the issue, including a consultation with the Texas attorney general's office to determine whether a move would hold up in court.
Eight days later, Christian's Houston Chronicle op-ed was published, in which he said he would "to stick to my free market principles and oppose proration in Texas." With Craddick confirming her opposition Monday, the idea of proration heads to the regulatory graveyard.
Sitton said in a Monday interview with Bloomberg TV that with producers in Texas already starting to shut in their wells, the RRC missed its chance to proactively manage curtailment. He said there wasn't enough political will to make it happen and took a swipe at prorationing opponents for throwing sand in the regulatory gears.
"The major players, the political organizations, slowed the process down so much, that we missed our opportunity," Sitton said in the interview. "We got to a point where we could no longer make a difference."
Parsley CEO Matt Gallagher said in a statement Monday that it's clear that Texas producers are still wasting oil.
"The Texas Railroad Commission had an opportunity to lead and bring a level of stability to the market chaos and is choosing not to act," Gallagher said. "While I am disappointed, I am thankful that Chairman Christian and his fellow commissioners took a thoughtful look at the issue by hearing from all market participants."
A Pioneer representative could not be immediately reached for comment Monday.
--Editing by Abbie Sarfo.
Update: This story was updated with comment from RRC Commissioner Craddick.
For a reprint of this article, please contact reprints@law360.com.
