POLICY

Texas RRC meets online to mull product cuts

THE Texas Railroad Commission, which controls the state’s oil production, held an all-day online meeting debating whether or not to mandate the first cut to the state’s prolific production since 1973.

 Close to 60 testify for, against, govt intervention in Lone Star state

Close to 60 testify for, against, govt intervention in Lone Star state

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Close to 60 industry leaders spoke for or against proration, and findings will likely take some time. So far two of the three who sit on the RRC have spoken against enforced cuts as a matter of general principle.
 
Parsley Energy and Pioneer Energy had earlier sent a petition suggesting cuts should be implemented to balance the market.
 
 "When you have an oversupplied market, if you cut supply it stabilises and improves price," Pioneer executive vice president Mark Berg said to the commission.
 
Despite Berg's suggestion it is simple economic sense, other producers disagree. 
 
The world is facing somewhere between 25 million to 30 million barrels a day of demand destruction, and many in Texas believe cuts will hurt them first before helping balance the precarious market.
 
There RRC had also suggested this as something of a sop to aggrieved OPEC members forced into cuts the US - until the oil price the world's largest producer - did not have to adhere to.
 
Yesterday the US Energy Information Administration warned the nation's most prolific basins including the Permian which spans Texas and New Mexico and the Texan Eagle Ford would see (not-forced) production cuts through this and next months.
 
The EIA sees a drop of 194,000bopd this month, with US shale output to be around 8.7 million barrels which will fall to 8.53MMbopd come May.  
 
The largest fall will come from the Permian Basin, with a drop off of 86,500bopd this month and another 76,000bopd next month, taking full production to 4.51MMbopd. 
 
This will be followed by the Eagle Ford which will fall 35,000bopd to 1.3MMbopd.
 
Production from the Bakken shale will fall 28,000bopd to 1.36MMbopd in May.
 
"Do they want to argue that government action by you gives them the opportunity to get out of some of their obligations?" Enterprise Products Partners Co-CEO Jim Teague said.
 
There is also the argument allowing the market to simply work will disadvantage smaller companies.
 
Noted commentator and contrarian Anas Alhajji writing in Forbes suggests the issue isn't whether free market friendly Texas involves itself in private business or not, but that the RRC is ill-equipped and under-resourced to manage such a mandate.
 
"Proration requires up-to-date production data, a large number of employees with technical knowledge, a large budget, and the will to enforce the policy aggressively. The RRC does not have any of these requirements," he wrote.
 
For it to be successful it would need full production data from producers over recent months, which in itself takes months and would, he argues "deem any proration efforts useless".
 
Right now, some producers are already shutting in less economic production without being forced and once tanks are full producers will have to shut in production anyway. You can't just vent oil, after all.
 
 
 
 
 

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