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Texas oil and gas regulators dismiss production cut proposal

Austin American-Statesman logo Austin American-Statesman 5/5/2020 Asher Price
a machine on the field: Kendale Quarles pumps gas at a station at West Howard Lane and South Heatherwilde Boulevard in April. [RICARDO B. BRAZZIELL/AMERICAN-STATESMAN] © RICARDO B. BRAZZIELL / AMERICAN- Kendale Quarles pumps gas at a station at West Howard Lane and South Heatherwilde Boulevard in April. [RICARDO B. BRAZZIELL/AMERICAN-STATESMAN]

Even as oil prices remain low, state regulators decided Tuesday to dismiss a proposal to limit oil production as a way to prop up struggling producers.

By a 2-1 margin, the Texas Railroad Commission turned away the prospect of production cuts, which had been requested by some independent oil producers.

"By allowing the free market to work, producers can determine for themselves what level of production is economical," said Wayne Christian, chairman of the Texas Railroad Commission, the agency that regulates the oil and gas industry.

Amid a global glut of oil, exacerbated by the COVID-19 crisis, which has led to a severe drop in demand, crude prices have nosedived to record lows. Tens of thousands of Texas oil workers have lost their jobs.

a person riding on the back of a car: Oil pumps work in West Texas near Midland. The Texas Railroad Commission, which regulates the state’s oil and gas industry, decided against limiting production Tuesday as a way to prop up struggling producers. [McClatchy-Tribune News Service/File] © Provided by Austin American-Statesman Oil pumps work in West Texas near Midland. The Texas Railroad Commission, which regulates the state’s oil and gas industry, decided against limiting production Tuesday as a way to prop up struggling producers. [McClatchy-Tribune News Service/File]

"The cold hard truth of this situation is the price of oil is not going to stabilize until the pandemic is behind us and world is once again open for business," Christian said Tuesday. "This problem is 90% demand."

While oil-producing nations globally have agreed to orchestrate production cuts, some companies — including Austin-based Parsley Energy — had pressed the Railroad Commission to intervene.

But the proposal went against free-market instincts of the agency's three elected commissioners — all Republicans — as well as the wishes of the big oil and gas trade associations, who worried government intervention could lead to further meddling.

a group of people in a room: In this 2018 photo, Commissioner Wayne Christian, from left, Chairwoman Christi Craddick and Commissioner Ryan Sitton preside over a meeting of the Texas Railroad Commission. (Christian is now the agency chairman.) [JAY JANNER AMERICAN-STATESMAN] © Jay Janner In this 2018 photo, Commissioner Wayne Christian, from left, Chairwoman Christi Craddick and Commissioner Ryan Sitton preside over a meeting of the Texas Railroad Commission. (Christian is now the agency chairman.) [JAY JANNER AMERICAN-STATESMAN]

The idea of cutting production to reduce supplies and boost prices had been promoted by the agency's third commissioner, Ryan Sitton, who lost his reelection bid in the Republican primary in March and now has a long lame-duck stint through the end of the year.

Last month, he proposed a temporary 20% oil production cut, contingent on similar action by other states and foreign countries.

Under his proposal, Texas would have cut production by 1 million barrels a day starting June 1 if other states and other countries agreed to cut their production by 4 million barrels a day.

"Right now, to not act is in itself a choice," he said at the time. "We're seeing a level of demand destruction and oil industry downturn that in the past happened in the course of years, happening in the course of days."

On Tuesday, Railroad Commissioner Christi Craddick joined Christian in turning away Parsley's request for the commission to "determine reasonable market demand for oil" — an antecedent to pressing forward with production cuts.

To the question posed by Parsley, "I would have like to have had a more analytical answer than a philosophical one," Sitton said as the one vote against the dismissal.

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