HOUSTON (Reuters) – Texas energy regulators listened as top energy executives on Tuesday backed a plan to cut the state’s output by 1 million barrels per day without tipping their hands through more than five 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.
The hearing, based on a request by executives from shale producers Pioneer Natural Resources Co (PXD.N) and Parsley Energy Inc (PE.N), stirred up anger at the Texas Railroad Commission, the state’s oil and gas regulator, for considering cutbacks, and fury that livelihoods are disappearing.
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.
But opponents offered equally gloomy forecasts. If shale producer Diamondback Energy Inc (FANG.O) is required to cut production, it would “let all of our service providers go,” said Kaes Van’t Hof, the company’s finance chief.
The commissioners, which queried executives on the state of the oil markets, did not signal their leanings. Members are expected to vote on the oil companies’ motion on April 21.
Producers have reduced spending as much as 50% and output has started falling, 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 hearing revealed a split between some of the state’s largest producers and their smaller rivals, which could lose access to pipelines and export markets next month as storage fills and well shut ins are widely anticipated.
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.
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. Other non-OPEC countries and government reserve purchases could lift the total reduction to 19 million bpd, analysts said.
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, the commission’s chairman, and Christi Craddick, the third commissioner, rebuked Sitton on Twitter for suggesting he spoke for the board.
“What if other states don’t do this?” Craddick asked at one point during the hearing, suggesting Texas could 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.
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