Texas postpones vote on oil production cuts

Texas regulators postponed a vote on a proposal to cut the state's oil output by 1mn b/d, saying they want to further explore legal issues.

But the Texas Railroad Commission, the top oil and gas regulator in the state, seemed open to some kind of proration plan in conjunction with cuts by other states and countries. A vote could come in two weeks.

Commission chairman Wayne Christian said he has been meeting with state officials in North Dakota, Oklahoma and Canada on how to address the current crisis in the oil and gas industry. The matter has become even more urgent after WTI Nymex benchmark crude futures tumbled yesterday to settle at -$37.63/bl, a historic first, as rapidly filling US storage created a panic, prompting traders to unwind their positions.

Commissioner Ryan Sitton was seeking a vote today on a proration plan to cut 20pc of Texas production, or 1mn b/d, starting in May. Cuts would be contingent on other states and countries, including members of Opec, curtailing a combined total of 4mn b/d. "I don't believe that inaction on our part is acceptable," he said.

Sitton said his plan would cut production by operator, not by lease, with a base set at the highest producing month from October to December. The plan would be temporary and end when global market demand rises above 85mn b/d. He also said cuts would only apply to producers with output exceeding 1,000 b/d.

Sitton said he would direct staff to prepare his plan for a vote at a 5 May commission hearing.

The call for Texas to force cuts across the board is supported primarily by smaller producers that are in more precarious financial positions. The commission held a 10.5-hour hearing on the issue last week, in response to a petition from Pioneer Natural Resources and Parsley Energy.

Commissioner Christi Craddick said today that more consultation is needed on the legality of a proration plan so it will not be mired in years of litigation. She suggested more discussions with legal staff and with the Texas attorney general who would be defending any proration ruling in court. "Litigation for the next four to six years doesn't help anyone," she said.

The Railroad Commission is setting up a blue ribbon task force that will include heads of oil and gas trade associations to help come up with solutions to the current crisis.

Texas in the late 1920s began to use prorationing to restrict state oil output to stabilize markets and prices. But the commission dropped the approach decades ago and allowed the state's producers to decide when to drill, an approach that has enabled Texas production to increase to more than 5.3mn b/d at the end of last year.

Oklahoma regulators are planning a hearing next month to discuss possible output cuts in that state at the request of the Oklahoma Energy Producers Alliance.

New Mexico is considering an emergency rule that would allow producers to shut in oil and gas wells on state trust lands without penalty because of low prices.

By Eunice Bridges