The Texas Railroad Commission held a hearing this week with global leaders in the oil industry to hear opposing testimonies for the proration on oil in response to the multi-dimensional pandemic of the Coronavirus.
The Texas Railroad Commission is made up of three elected officials Commissioner Ryan Sitton, Commissioner Christi Craddick and Chairman Wayne Christian.
"This weekend, the Organization of the Petroleum Exporting Countries (OPEC) and additional countries reached a historic agreement to pull 9.7 million barrels of oil out of the market. When you add the 1.5 million barrels that the US, Canada, and Brazil have already cut, the world’s supplies will have dropped over 11 million barrels from a week ago. The question remains, should the Texas Railroad Commission do anything?" stated Texas Railroad Commissioner Ryan Sitton.
The oil industry has not faced a surplus of oil and lack of demand since the late 1970's early 80's and has reigned in the free-market for the past half-century. The Texas Railroad Commission is considering using their authority for the proration on oil to help stabilize the market.
"I believe that any argument that the Railroad Commission should not even consider proration is simply misinformed. The fact is we are charged with this duty in Texas’ state laws," stated Sitton.
"Much has been made of the Texas Railroad Commission’s consideration of proration of oil. As the Coronavirus has presented some of the most extraordinary challenges in our history, we are not only faced with trying to stave off a global pandemic, but now likely facing down the next great depression. Because of the extraordinary challenges and extraordinary measures that governments are taking around the world to deal with the crisis, the options and actions have a heightened impact, and therefore heightened drama. The fact is, while our state and federal governments have taken extreme actions that clearly step outside of precedent and test the bounds of their actual constitutional power – imposed lock-downs, shuttered business, and borrowed and spent trillions of dollars in subsidies and handouts – we will be evaluating the application of a system that is specifically identified in our state laws, and has decades of precedent," stated Commissioner Sitton. "I have not advocated for Texas to prorate. I have advocated that we consider it. I felt that we should be open to evaluating any path that helps to bring the international oil community together in a global deal. While I have been public about my thoughts that Texas should take a lead role in this conversation. None of us likes the idea of government control of private enterprise, but we also acknowledge that these unprecedented times require us to consider all options to bring stability to the industry that we regulate."
"The argument against proration has merits," said NeoChem President Jeremy Wynegar. "It’s true that the big corporations would swoop in and purchase distressed assets in the cheap. What happens to the lenders that funded the smaller drillers? They won’t get their return on investment and that would in turn reduce their ability to lend in the future or even put some banks or investment firms out of business. The ripple effects can be huge and unknown."
"The major oil producers of the world, OPEC and others, recognize the need for limiting production at times. It stabilizes the market and is good for the whole. It’s hubris for Texas not to recognize that. When oil collapsed in the 1980’s Texans prayed for another chance and promised they would not screw it up again. They forget the lessons of history at their own peril," said Wynegar.
The Texas Railroad Commission will be making a decision in the near future.