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RRC Chaiman Wayne Christian Comments on Oil Markets, Proration and Filling SPR: RRC

By Wayne Christian, Chairman of the Railroad Commission of Texas

 

March 20 2020

As Saudi Arabia and Russia flood the international energy market with a glut of crude oil, prices have dropped to unsustainable levels that threaten the future of the Texas oil and gas industry, its associated benefits to the state economy, and American energy dominance.

The United States recently became the largest producer of oil and natural gas in the world, producing a record 12.4 million barrels in August 2019. Texas is responsible for about 40% of this production. The industry directly employs more than 361,271 Texans and exceeded $116 billion in taxes and royalty payments over the last decade, including a record $16.3 billion in 2019.

None of this is temporary, as the U.S. Geologic Survey assessed a recent oil discovery in the West Texas to be 46 billion barrels of oil. RS Energy Group estimates this find could actually be as large as 230 billion barrels. This is the largest oil find in the history of the world. To put this in perspective, proven reserves in the U.S. from Alaska to Brownsville were estimated to be 36.4 billion barrels in 2014.

In order to stabilize markets, a few oil and gas producers have suggested that the Railroad Commission of Texas resume prorating the production of oil.

“I am very concerned about the impact the international oil market instability has on the Texas economy, state budget, and the hundreds of thousands of Texans who rely on the oil and gas industry for a paycheck,” said RRC Chairman Wayne Christian. “A couple of operators have suggested pro-rationing oil as a solution. While I am open to any and all ideas to protect the Texas Miracle, as a free-market conservative I have a number of reservations about this approach.”

“First, Texas does not operate in a vacuum. If we prorate our oil, there is no guarantee other nations, or even states will follow suit,” continued Christian. “From a practical standpoint, the Railroad Commission has not prorated oil in over forty years; we do not have staff at the agency with experience in this process and our IT capabilities to handle this process are limited at best.”

Earlier this morning, Chairman Christian had a conference call with the Department of Energy (DOE) to discuss what the United States can do to stabilize the oil market. On the call, the DOE asked Christian to notify Texas operators that they have initiated an initial solicitation for 30 million barrels to begin filling the Strategic Petroleum Reserve (SPR).

Christian instructed staff to put out a notice to operators to ensure the Texas industry is aware of this opportunity. You can read the notice to operators on the RRC website at https://rrc.texas.gov/media/56836/nto_chairmanchristian_og.pdf.
 

Oil Exporters Increase Production While Demand Declines

By Alex Mills

 

March 20, 2020

Sometimes it is difficult to understand the actions of world leaders. A perfect example is the recent decision by Russia to not agree with a proposal by Saudi Arabia to cut oil production further while inventories were increasing. Saudi Arabia responded that it will not decrease production, as it had proposed, but would increase production even though the coronavirus was causing large declines in demand worldwide.

Saudi Arabia said it will increase production by 250,000 b/d to 12.3 million b/d, and Russia said it will add another 300,000 b/d taking its production up to 11.5 million b/d.

Crude oil markets reacted by driving down U.S. oil prices to $20 per barrel this week on the New York Mercantile Exchange and $26 for Brent crude in London.

Crude oil prices began a sharp price decline in 2015 as an oversupply of oil developed worldwide. OPEC members, led by Saudi Arabia, decided to implement production cuts and convinced Russia to cut production, too.

It is important to note that all the oil produced by OPEC members is owned by each country and controlled by government officials. Russia, which is not a member of OPEC, also controls the companies and production that operate in Russia. However, independent companies operate in the U.S. without edicts from the federal government…..
 

Deep Cuts In Oilfield Service Markets Are Coming: Rystad

“5,800 horizontal wells could be cut in 2020…Shale industry would carry…as much as $65 billion of the $100 billion spending reduction expected globally.”

 

March 17, 2020

The oil and gas markets are in turmoil, looking for a bottom price with a volume war in the offing as we await the next OPEC+ meeting, but in the meantime there is a potential for 2 million barrels per day in second quarter surplus while E&Ps slash billions from their budgets……
 

What does a fluctuating market mean for Texas oil and natural gas? — TXOGA

In the midst of Coronavirus and intense market fluctuations, we are facing challenging and uncertain times. But time and time again, Texas oil and natural gas companies have proven nimble and innovative in difficult times.

As oil and natural gas companies navigate the challenges of the marketplace, we need to do all that we can to maintain the stabilizing force that Texas has become not only for our state, but the world. We can do that by holding fast to a science-based approach to regulation and policies that encourage responsible energy production, expanding pipeline infrastructure to foster growth and tax revenue and encouraging continued investment in innovations that have made the US the world leader in energy production and environmental progress.

Watch TXOGA President Todd Staples detail the status of the oil and natural gas industry in the midst of a fluctuating market below!

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As industry supporters, we know that this industry is well-positioned to face times like these head on in order to continue to provide safe, reliable, affordable and cleaner energy! Help us spread the word about how this industry is committed to doing so!