The U.S. was conspicuous as a hold-out on mandated cuts, instead leaving it up to individual companies to steer production decisions. That makes the Texas debate all the more significant: if the state was a sovereign nation, it would be the world’s fourth-largest source of crude.
Still, the probability of Texas reviving output limits that haven’t been instituted since the early 1970s is low, according to
“It’s a very small minority that wants to take action so it’s hard to imagine the commissioners” will impose limits, Mayor said. “It’d not only be un-American but unimaginably un-Texan.”
The unprecedented agreement by the OPEC+ alliance and the Group of 20 nations to curtail almost 10% of global oil output wasn’t enough to offset pessimism about the Covid-19 outbreak’s deleterious impact on energy demand. Brent crude, the international benchmark, was little changed at $31.47 a barrel in London.
In Texas, the stakes are high. The quota debate pits a pair of Permian Basin upstarts founded by a father and his
Most of the other prominent Texas shale explorers -- including EOG Resources Inc. and Diamondback Energy Inc. -- have lined up on the side of the giants, according to a trove of public commentary filed with the railroad commission.
In one of the only states that was once an independent nation, the heavy hand of government intervention has long been anathema. But the freefall in oil markets spurred by Covid-19 and a global oversupply has been so swift and severe that some in the Lone Star state are re-thinking their devotion to the doctrine of laissez faire.
The elected, three-person commission that until a few weeks ago kept a relatively low profile faces a daunting task in trying to find a way to discharge their duties and satisfy deeply divided stakeholders.
In the weeks since crude prices crashed to the lowest levels in decades, a motley assembly that includes a lame duck regulator and a third-generation crude driller has revived discussion of a heretofore unthinkable remedy: state-imposed supply quotas.
There has “never been a free market in oil,” Sheffield said in an interview. The commission exercised such powers before and after World War II, he noted. “If the commission doesn’t approve it we’re going to have $10 oil and a lot of my peers are going to go bankrupt.”
On Monday, Sitton appeared to soften
But calls for pro-rationing are running into some big obstacles. Chairman
“The chances of Texas agreeing to pro-rate are low,” said
Major industry groups, including the American Petroleum Institute and the Texas Oil and Gas Association, have said market forces should dictate who wins and loses in an era of catastrophically low crude prices.
“For the commission to get back into the game of market management, it would probably have to require a sea-change in how producers think of themselves,” said
It’s a split that’s playing out in Texas’s northern neighbor as well. An
In the Permian Basin, the sprawling oil deposit in West Texas and New Mexico, Concho Resources Inc. and other explorers already
“The industry is saying we know how to shut in wells in an orderly fashion, so let the market take care of it,” Mayor said.
(Updates with commissioner’s reservations in 14th paragraph.)
To contact the editors responsible for this story:
Joe Carroll, Joe Richter
© 2020 Bloomberg L.P. All rights reserved. Used with permission.