The day after U.S. crude prices crashed into negative territory for the first time, two of three Texas oil and gas regulators on Tuesday delayed a controversial vote to force producers to curtail oil output, predicting the move would land the state in a years-long legal battle, as reported by Reuters.
Oil and gas companies have been gushing red ink and cutting tens of thousands of workers as prices tumble, prompting regulators in the largest U.S. oil-producing state to wade into global oil politics and consider some producers’ calls for cuts.
On Monday, the May futures contract for U.S. crude closed at a negative $37.63 a barrel as traders desperate to avoid owning oil paid others to take it. On Tuesday, the contract rebounded from negative territory and expired with a settlement price of $10.01, up $47.64. [O/R]
Two of the three commissioners of the Texas Railroad Commission, Chairman Wayne Christian and Christi Craddick, said they want the state attorney general to weigh in on the legality of production curbs.
The move promises to extend a heated battle in Texas over whether regulators should curb output for the first time in nearly five decades, with commissioners set to discuss the issue again at a May 5 meeting.
Commissioner Ryan Sitton said he would cut output by 1 million barrels per day, or 20%. “Taking weeks or even days right now to act is in itself a choice,” Sitton said.
The delay was disappointing, said Matt Gallagher, chief executive at Parsley Energy Inc , who with Pioneer Natural Resources Co, asked regulators for output curbs.
“The situation is urgent and further delays will cripple our state and the industry,” Gallagher said.
But the state could become tangled in years of legal battles over curtailments, said Craddick, an attorney. “I still have some questions I believe need to be answered,” she said at a meeting.
How can Texas regulate output? For an explainer, click here: tinyurl.com/y8o23sdf
No commissioners were willing to have Texas alone curb output. Christian spoke this week with the Canadian oil minister and officials in North Dakota, he said.
Oklahoma energy regulators are considering a proposal to curb output and in North Dakota, where about 20% of production has shut in already, regulators on Tuesday agreed to evaluate providing aid to producers that would allow them to restart shut-in wells in the future.
“It would be much more powerful to move in conjunction with other states,” Christian said.
While the federal government has little power to influence oil production, state regulators have powers that can include limiting output in their state.
Last week, the Texas commissioners held a 10-hour hearing on the idea, igniting a battle between those favoring free markets and others who worry that without intervention, small producers could get shut out of oil sales as storage fills next month. Some firms have already started closing wells.
Commissioners, though, should “focus on recovery not on creating a cartel,” said Todd Staples, head of the Texas Oil & Gas Association, an influential industry group.
Some of the state’s largest producers, Exxon Mobil Corp and Chevron Corp have opposed production limits.
Texas regulators set oil output limits starting with a price crash in the 1930s, but lifted them in the early 1970s when Texas production went into a long decline.
(This story has been refiled to fix link to story in paragraph 10.)
Reporting by Jennifer Hiller in Houston; editing by Marguerita Choy, Matthew Lewis and Richard Pullin
