—Wants Time To Assess Legal Risks, Potential Industry Impact
By Brai Odion-Esene, SW4 Insight, for Mace News
WASHINGTON (MaceNews) – A divided Texas Railroad Commission Tuesday postponed its vote on limiting oil production in the nation’s largest oil-producing state, with the majority preferring to conduct additional due diligence and avoid potential legal minefields.
“We need to get information correct before we make a move,” TRRC Chairman Wayne Christian said, a stance backed by fellow commissioner Christi Craddick.
The third member of the group disagreed. “I believe it is incumbent upon us to take action,” Commissioner Ryan Sitton said, calling for a formal motion to begin the pro-rationing process if other oil-producing regions will follow suit.
The adverse effects of shelter-in-place orders and the collapse of oil prices last month has put enormous additional pressure on the state’s energy producers as well as the broader economy. Data shows the state’s nonfarm employment fell by 50,900 in March, the sharpest monthly decline since April 2009 during the Great Recession.
The meeting also occurred at the same time as OPEC reported several energy ministers from member nations, as well as non-OPEC producing countries, held an informal teleconference “to brainstorm the current dramatic oil market situation.”
“They reiterated their commitment to the oil production adjustment reached” during the April 12 videoconference, when participants agreed to cut oil production collectively by 9.7 million barrels per day.
Christian indicated his preference for holding off on a vote to allow for conversations with lawmakers, his counterparts in other oil-producing states such as North Dakota and Oklahoma and for TRRC staff to collect additional information.
TRRC staff should research how the order would be implemented “so it doesn’t get turned around in some court, get delayed even beyond the time we can do anything,” he said. “We need to make darn sure that when we make the motion, it fits legal requirements.”
“We need to have conversations with other states and the federal government” on the best approach going forward, Commissioner Christi Craddick said, adding, “I still have some questions that I believe need to be answered.”
For one thing, there is the risk of litigation from oil companies opposed to mandatory production limits, she said, and being tied up in lawsuits for years.
“We need to make sure that we have the legal grounds to do what’s appropriate,” Craddick argued, calling for TRRC staff to consult with the Texas Attorney General to preemptively identify legal issues.
Craddick also wants to know how federal laws, such as the statues under the Administrative Procedures Act, might apply to the TRRC’s rulemaking. The APA is the U.S. federal statute governing how federal agencies may propose and establish regulations, and grants U.S. federal courts oversight over all agency actions.
She also questioned if the TRRC could impose statewide production limits or would it have to be done “field by field,” among many other procedural concerns.
The TRRC needs a “broad-based understanding of what we need to do going down the road with proration, all options should be on the table not just one perspective, and we need to make sure our legal counsel is up to date,” Craddick said.
Commissioner Sitton has been vocal in his push for limiting Texas oil production, and he was critical of the regulator’s unhurried march towards a decision.
“Taking days, even weeks, to act is in itself a choice,” he warned, even as the oil market is experiencing a level of demand destruction and industry downturn over a matter of days that would usually take years to occur.
The rapid rate at which the environment is evolving should inject greater urgency into the TRRC’s response, he argued, as if the oil industry drops further, and thousands are laid off, some of those jobs might not come back to Texas.
“I don’t believe inaction on our part is acceptable, I believe that we have to step up,” Sitton said. “This is much bigger than simply the oil industry, its much bigger than production numbers, its much bigger than corporate interests,” he added.
In terms of what proration would look like, Sitton said it should be contingent upon actions taken by other oil producing regions. He proposed limiting 20% of Texas oil production (1 million barrels per day) starting June 1 “if another 4 million barrels per day is brought offline by other U.S., Canadian, and OPEC-plus producers.”
Christian said he has reached out to Canada’s energy minister, noting that “it would be much more powerful to move in conjunction with other states and other countries.”
“She has offered to help us if we decide to [probate oil production],” he said. Craddick also agreed that all North American countries must be part of production limits.
The decision should also be temporary and tied to market demand, Sitton said, and the order should lift when market demand returns to 85 million bpd. He argued that designing it this way would set a high threshold for future market interventions by the TRRC.
The proration order should only apply to Texas oil companies whose output exceeds 100,000 bpd, Sitton added, and it should be evaluated on a monthly basis – with additional meetings scheduled between now and June 1 to make adjustments if needed.
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Contact this reporter: brai@macenews.com