Texas energy regulators listened as top executives on Tuesday debated whether the state should cut oil output by 1 million barrels per day, but did not indicate how they might vote after more than 10 hours of sometimes dire testimony.
Oil and gas companies are gushing red ink and cutting tens of thousands of workers as oil prices tumble, prompting regulators in the largest U.S. oil-producing state to wade into global oil politics and consider the calls for cuts. U.S. crude oil prices CLc1 fell during the hearing to under $20 a barrel at one point, a nearly 18-year low.
While the federal government has little power to influence oil production, many state regulators like the Texas Railroad Commission have powers that can include limiting production across the state.
The hearing, based on a request by executives from shale producers Pioneer Natural Resources Co (PXD.N) and Parsley Energy Inc (PE.N), ignited a debate between those who favor free markets and those who worry that without intervention, small producers could get shut out of oil sales as storage fills next month. Some firms have already started closing wells, several executives said.
The industry is facing a historic economic collapse with $3 per barrel to $10 per barrel oil in coming weeks, Pioneer Chief Executive Scott Sheffield warned commissioners on Tuesday.
“Demand is not going to come roaring back,” he said.
Kirk Edwards, president of small producer Latigo Petroleum, argued uniform cuts could help thousands of firms like his continue to sell some of their oil production.
But producers have reduced spending as much as 50% and output has started falling already, said Lee Tillman, CEO of Marathon Oil Corp (MRO.N), who opposed state-mandated cuts, arguing the market is taking care of the glut.
The commissioners are expected to vote on the oil companies’ motion on April 21.
The hearing was held days after the Organization of the Petroleum Exporting Countries and allies agreed to reduce their output by 9.7 million barrels per day (bpd) in May and June.
However, U.S. crude futures CLc1 continued to fall this week as traders bet the historic OPEC deal was not large enough to counter oil demand destruction caused by coronavirus-related travel restrictions and business halts.
At least two votes on the three-member Texas Railroad Commission are needed to pass the proposal. Commissioner Ryan Sitton has pushed for evaluating statewide cuts. Wayne Christian and Christi Craddick, have been careful not to reveal how they might vote, though Christian said Tuesday, “the hardest thing I think in my life is to sit back and do nothing, and yet that is sometimes” what is needed.
“What if other states don’t do this?” Craddick asked at one point during the hearing, suggesting Texas could send oil revenue to nearby states.
Some of the state’s largest and most influential oil companies, Exxon Mobil Corp (XOM.N), Chevron Corp (CVX.N) and Occidental Petroleum Corp (OXY.N), have opposed imposing limits, along with some of the largest trade organizations.
The idea, however, has gained proponents elsewhere. A group of Oklahoma oil producers filed a request with that state for a hearing to consider production curbs. It is set to take place May 11.
The executive chairman of Oklahoma-based Continental Resources Inc(CLR.N) , Harold Hamm, said at the Texas hearing that he would “not oppose” Oklahoma cuts and urged Texas regulators to consider cutting output 25%.