This weekend, OPEC and additional countries reached a historic agreement to pull 9.7 million barrels of oil out of the market.  

When you add the 1.5 million barrels that the U.S., Canada, and Brazil have already cut, the world’s supplies will have dropped over 11 million barrels from a week ago.  

The question remains, should the Texas Railroad Commission do anything?

Much has been made of the Texas Railroad Commission’s consideration of proration of oil. As Coronavirus has presented some of the most extraordinary challenges in our history, we are not only faced with trying to stave off a global pandemic, but now likely facing down the next great depression.    

Because of the extraordinary challenges and extraordinary measures that governments are taking around the world to deal with the crisis, the options and actions have a heightened impact, and therefore heightened drama.  

The fact is, while our state and federal governments have taken extreme actions that clearly step outside of precedent and test the bounds of their actual constitutional power –  imposed lockdowns, shuttered business, and borrowed and spent trillions of dollars in subsidies and handouts – tomorrow we will be evaluating the application of a system that is specifically identified in our state laws, and has decades of precedent.

I have not advocated for Texas to prorate. I have advocated that we consider it. I felt that we should be open to evaluating any path that helps to bring the international oil community together in a global deal.   

While I have been public about my thoughts that Texas should take a lead role in this conversation, I still have many reservations, and I will be examining heavily if and how proration could be done.  

On that note, I want to give credit to my fellow commissioner Wayne Christian who I believe has publicly taken largely the same position. Yes, the three commissioners have disagreed in the past – even vehemently. But despite media framing to the contrary, I believe that our three opinions are more similar than different. None of us likes the idea of government control of private enterprise, but we also acknowledge that these unprecedented times require us to consider all options to bring stability to the industry that we regulate.

As far as tomorrow goes, I believe that any argument that the Railroad Commission should not even consider proration is simply misinformed. The fact is we are CHARGED with this duty in Texas’ state laws. Here are key excerpts from the Texas Natural Resources Code:   

Sec. 85.045.  WASTE ILLEGAL AND PROHIBITED.  The production, storage, or transportation of oil or gas in a manner, in an amount, or under conditions that constitute waste is unlawful and is prohibited.

Sec. 85.046.  WASTE.  (a)  The term “waste,” among other things, specifically includes:

(10)  production of oil in excess of transportation or market facilities or reasonable market demand, and the commission may determine when excess production exists or is imminent and ascertain the reasonable market demand.

Sec. 85.049.  HEARING.  (a)  On verified complaint of any person interested in the subject matter that waste of oil or gas is taking place in this state or is reasonably imminent, or on its own initiative, the commission, after proper notice, may hold a hearing to determine whether or not waste is taking place or is reasonably imminent and if any rule or order should be adopted or if any other action should be taken to correct, prevent, or lessen the waste.

Sec. 85.051.  ADOPTION OF RULE OR ORDER.  If the commission finds at the hearing that waste is taking place or is reasonably imminent, it shall adopt a rule or order in the manner provided by law as it considers reasonably required to correct, prevent, or lessen the waste.

Some say that this duty doesn’t make sense, that the Railroad Commission should never do this, and just let the market play out. That is a point worth considering, but not on Tuesday. If someone believes that this statutory framework is wrong, then they should take that up with the Texas legislature, and amend our state laws.

For now, we have a duty to follow the law and consider the request in front of us (remember, the Commission didn’t call this hearing on its own motion). On that point, here are the questions that we should be weighing on Tuesday:

1.       Is waste occurring?

2.       If so, is that waste due to production in excess of market demand?

3.       If so, can that waste be effectively reduced by the RRC systematically prorating Texas production?

As I consider the testimony, I will be working to find the answers to these three questions. If the answer to any of these is “no”, then I will vote against proration. If the answers are all “yes”, then I may vote for it. 

I look forward to the testimony from all those who have come forth willing to provide insight on these issues, and I look forward to discussing this issue with my fellow commissioners.”