Texas Railway Commission - please come back

[yeuxclairs + 8]

In the 1930's, the great State of Texas experienced a boom in oil production.  Realizing that rapid growth in production had pushed the price of oil to $0.05 per barrel from $0.75, the State was receiving very little in oil royalties.  The State decided to empower the Texas Railway Commission to restrict production in the interest of "conservation", so that the price of oil could return to $0.75'ish per barrel.  The Railway Commission then regulated oil production in Texas into the 1960's to try to ensure that the residents of Texas received fair royalties for the oil resource that was produced.  It was a job well done.

Why does the State of Texas now allow overproduction of oil in it's state, which is pushing down price, starving the State of precious oil revenues as well as bankrupting many drillers and oil companies?  There is free enterprise and there is populist stupidity.  As a resident of Texas, I would like to see oil production curtailment, allowing an increase in oil prices and an increase in revenue to the State. 

Texas oil belongs to the State not just the oil industry and a chosen few.  May the State control oil production so that it's production is in the State's interest as well as in the interest of the oil industry itself.  

[Old-Ruffneck + 1,177]

From Wikipedia, the free encyclopedia:

The Railroad Commission of Texas (RRC; also sometimes called the Texas Railroad Commission, TRC) is the state agency that regulates the oil and gas industry, gas utilities, pipeline safety, safety in the liquefied petroleum gas industry, and surface coal and uranium mining. Despite its name, it ceased regulating railroads in 2005.[1]

Established by the Texas Legislature in 1891, it is the state's oldest regulatory agency and began as part of the Efficiency Movement of the Progressive Era. From the 1930s to the 1960s it largely set world oil prices, but was displaced by OPEC (Organization of Petroleum Exporting Countries) after 1973. In 1984, the federal government took over transportation regulation for railroads, trucking and buses, but the Railroad Commission kept its name. With an annual budget of $79 million, it now focuses entirely on oil, gas, mining, propane, and pipelines, setting allocations for production each month.[2][3]

The three-member commission was initially appointed by the governor, but an amendment to the state's constitution in 1894 established the commissioners as elected officials who serve overlapping six-year terms, like the sequence in the U.S. Senate, elected statewide. No specific seat is designated as chairman; the commissioners choose the chairman from among themselves. Normally the commissioner who faces reelection is the chairman for the preceding two years. The current commissioners are Christi Craddick since December 17, 2012, Ryan Sitton since January 5, 2015, and Wayne Christian since January 9, 2017.[4][5]

I fail to see where production of oil in Texas is "over produced". It is a commodity like gold and silver, iron ore, and coal. Companies mine, drill, blast the earth for these commodities. It isn't the extra oil just from Texas, NM that caused this recent crash. Saudi Prince decided to flood the market because some in OPEC+ were cheating with extra, and the + (Russia) decided they weren't going to drop production because and man-child MBS decided he needs prices in excess of 80$ barrel instead of making his country actually work for money. The whole economy of KSA is OIL, and when you have only one bargaining chip in a world economy, sometimes the one product gets too high in price and self checks by means of a "market". He gambled before flooding the market and lost. This time he might really hurt relations with actual countries making their petro dollar worthless and dragging all markets down. Just my humble opinion.

[BLA + 1,666]

5 hours ago, yeuxclairs said:

In the 1930's, the great State of Texas experienced a boom in oil production.  Realizing that rapid growth in production had pushed the price of oil to $0.05 per barrel from $0.75, the State was receiving very little in oil royalties.  The State decided to empower the Texas Railway Commission to restrict production in the interest of "conservation", so that the price of oil could return to $0.75'ish per barrel.  The Railway Commission then regulated oil production in Texas into the 1960's to try to ensure that the residents of Texas received fair royalties for the oil resource that was produced.  It was a job well done.

Why does the State of Texas now allow overproduction of oil in it's state, which is pushing down price, starving the State of precious oil revenues as well as bankrupting many drillers and oil companies?  There is free enterprise and there is populist stupidity.  As a resident of Texas, I would like to see oil production curtailment, allowing an increase in oil prices and an increase in revenue to the State. 

Texas oil belongs to the State not just the oil industry and a chosen few.  May the State control oil production so that it's production is in the State's interest as well as in the interest of the oil industry itself.  

Believe in market forces

Edited March 20, 2020 by BLA

[yeuxclairs + 8]

Old-Ruffneck, if you are a consumer of oil and gas, not employed in the oil industry, or not a taxpayer in Texas or NM, your point is self-serving and makes sense for you.

But if you are an economist, live and pay taxes in Texas, own bonds or equities issued by drillers or oil companies, or are concerned about the welfare of people working in the oil and gas industry or your neighbors,  then your perspective is naive.  The Texas Railway Commission played a fantastic role in managing prices for a commodity that faces inelastic supply and demand curves bringing stability to companies and families in the oil industry and allowed companies such as airlines plan in a more stable environment.  That means a small increase or decrease in either supply or demand will result in massive moves in price.  This results in all sorts of instabilities which cost the economy massively, in either lost tax revenues, social costs for people who lose their jobs, bankruptcies, etc.  That is not the kind of world I want to live in.    

[surrept33 + 609]

People in the Texas Railroad Commission have indeed been talking with OPEC:

https://www.ft.com/content/cbc4d022-6ae4-11ea-a3c9-1fe6fedcca75

Quote

Opec discusses output cuts with US producers

Texas regulator and shale executives try to find solution to falling oil demand and prices

 

Opec has held talks with a Texas state energy regulator and US shale producers about coordinated cuts to oil output — an unprecedented move by some of the world’s biggest producers to counter the impact of the spread of coronavirus on fuel demand. The approach came as President Donald Trump’s administration explores multiple avenues to stabilise oil markets domestically and as part of foreign policy efforts with counterparts in Saudi Arabia, the world’s biggest exporter. Mohammed Barkindo, Opec’s secretary-general, held discussions with Ryan Sitton, one of three commissioners at the Texas Railroad Commission, on Friday, which followed separate talks with executives in the shale patch.

 

 

The commission, founded in 1891, no longer oversees railways but regulates the oil and gas industry in Texas. In decades past it also set oil production rates in the state. Mr Sitton told the Financial Times that Texas could offer to reduce supply as “a bargaining chip we can bring to the table” in discussions between the US, Saudi Arabia and Russia. “I’m as ardent a free-marketeer as you’ll meet,” the commissioner said. However, the coronavirus outbreak and the collapse of oil demand meant that emergency measures were necessary, he added. “I’m not going to negotiate with Opec in a vacuum, in the end it’s up to President Trump,” Mr Sitton said. “What I’m offering him is that if he wants to get a deal done . . . Texans will get around the table.”

 

Mr Barkindo has also talked to executives at leading shale producers including Pioneer Natural Resources, sources said. Pioneer did not respond to requests for comment. Not all US producers — or members of the commission — were on board with Mr Sitton’s proposal. In a statement, the Railroad Commission’s chairman, Wayne Christian, said: “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.” The commission had not enforced proportional supply cuts in 40 years, he said, and lacked the technological capabilities to handle the process. The idea was also blasted by the American Petroleum Institute, the biggest US oil lobby group, whose membership includes supermajors such as ExxonMobil as well as smaller independent producers. “We think imitating Opec is the wrong direction. Ultimately we believe quotas end up penalising efficient production,” said Frank Macchiarola, an API senior vice-president. He urged diplomacy from the US instead.

 

 

Asked who was pushing for supply restrictions, Mr Macchiarola said: “It appears driven by individual producers as opposed to the broader industry.” Crude prices have more than halved since January and are now trading around $30 a barrel, a level analysts say will lead to a sharp contraction in US supply and trigger bankruptcies across the shale patch. It will also cause widespread pain in Opec producer economies. Mr Barkindo has taken it upon himself to engage with shale producers since the 2014 price crash, but he mostly has a ceremonial role and no authority to compel Opec producers to cut their output. Saudi Arabia is prepared to oversee extra supply cuts of several million barrels a day, according to several people familiar with the matter, but only if non-Opec producers including Russia take on their share of the burden — a point of contention at the most recent meeting of ministers. The kingdom is preparing for an extended period of low oil prices as it persists with the price war that took Brent crude to a 17-year low this week. The government has told state energy giant Saudi Aramco to prepare for at least a year of production at maximum levels, of around 12m barrels a day. Under pressure from oil executives and congressional representatives from oil-producing states, officials from Mr Trump’s administration have tried to persuade Riyadh to hold back supplies as it had done for the previous three years. The president said on Thursday that he would “get involved” in the Saudi price war with Russia “at the appropriate time”.

 

Mike Pompeo, US secretary of state, will hold a conversation with his Saudi counterpart in the coming days and urge him to call off the kingdom’s oil-price war with Russia, according to people familiar with the matter. Dan Brouillette, the energy secretary, has already held conversations with Prince Abdalaziz bin Salman, Saudi Arabia’s energy minister, to discuss the price collapse, according to an official in the Department of Energy. This week the US said it would buy 77m barrels of domestic crude oil for government stockpiles, with the Trump administration seeking congressional approval to spend $3bn buying these barrels.

 

 

Despite the coordinated effort to lift oil prices, analysts doubted it would work, suggesting the politics remained tricky and the sheer scale of the demand shock could wash out even large-scale cuts. “Even if the US succeeded in pressuring Riyadh to ratchet back its crude production from all-time highs, given the unprecedented demand implosion it would only delay rather than prevent oil prices from diving toward curtailment levels that threaten US producers,” said Bob McNally, head of Rapidan Energy and a former adviser to the White House.

 

 

 

Additional reporting by Katrina Manson in Washington

[Old-Ruffneck + 1,177]

20 hours ago, yeuxclairs said:

Old-Ruffneck, if you are a consumer of oil and gas, not employed in the oil industry, or not a taxpayer in Texas or NM, your point is self-serving and makes sense for you.

But if you are an economist, live and pay taxes in Texas, own bonds or equities issued by drillers or oil companies, or are concerned about the welfare of people working in the oil and gas industry or your neighbors,  then your perspective is naive.  The Texas Railway Commission played a fantastic role in managing prices for a commodity that faces inelastic supply and demand curves bringing stability to companies and families in the oil industry and allowed companies such as airlines plan in a more stable environment.  That means a small increase or decrease in either supply or demand will result in massive moves in price.  This results in all sorts of instabilities which cost the economy massively, in either lost tax revenues, social costs for people who lose their jobs, bankruptcies, etc.  That is not the kind of world I want to live in.    

Yes, I am a consumer of oil and gas, retired roughneck, and yes I pay taxes in Texas, not NM anymore as I moved outta socialist state. The Texas Railroad Commission had a useful hand in the 30's thru the mid 60's. When OPEC formed it made the RRC obsolete outdated and putting a self tariff on how to regulate how much oil can be pumped to keep prices in check. Problem is, Texas can't produce enough oil to run this here U.S.of A. by a long shot. So other nations sell us "their" commodity. If Texas had enough oil to keep the market in check, then the RRC would be still viable. The Yates field surrounding Irran, TX has produced 1.4 "billion" barrels since the late 20's.  It was this field that got the RRC into action as the gushers literally spewed so much oil onto the ground in into the Pecos River they needed a way to control the wells and piping it out. In other words, the cart was put before the horse. 

Production from the field peaked in 1929, with a total production of 41 million barrels (6,500,000 m³) of oil. That year also saw the spudding of well Yates 30-A, which blew out with the spectacular flow of 8,528 barrels (1,355.8 m³) per hour, and over 200,000 in a day, setting the world record; even the Lakeview Gusher at the Midway-Sunset field in California, which spewed a total of approximately 9 million barrels (1,400,000 m³) in its 18-month uncontrolled run, only attained half of that daily flow rate. Because of the high production rate from the field and lack of storage and transport, the State of Texas Railroad Commission – the entity that oversees petroleum production – required a proration of the field for the first time in Texas history. Under this rule, all operators were given an equal share in the pipeline outlet based on what their wells could produce, based on the total field production. Additionally, operators were restricted in the depth they could drill into the prolific reservoir, to give each an equal advantage.

By your reasoning the oil should solely be kept in Texas. It's in the ground under it's borders. Well the steel in you car surely didn't come from Texas nor the Gold wedding ring if yer married or have any other gold. Got any diamonds? Bet they weren't found and made in Texas either. So the next time you jump in your auto, think where all the parts come from. Just sayin'. 

[Gerry Maddoux + 3,627]

^

In a free market system, it doesn't seem right to tell a man or woman that he or she must curtail production . . . of anything. 

Companies will go bankrupt, properties and wells and rigs will be acquired by others, and domestic production can go on as it will. 

One of the former finance guys for the Saudis famously said that if the 2014 massacre were allowed to proceed, the kingdom would be bankrupt in 3 years. At $10 oil, the Aramco offering will collapse inward. The whole House of Saud would fail. 

The pain in the US oil field is getting grave, and those workers should receive relief the same as restaurant and hotel and airlines workers--these are, after all, double-whammy victims, of not only coronavirus but a psychopathic young Saudi prince. 

In the long run, MbS would be better off falling on his sword.

[wrs + 893]

My guess is that the OP has no oil productive land and no clue how the RRC limits production.  If he studied that, he would find out that it's an arcane and not very workable system for the vertical conventional wells and fields.  Now if he tried to extrapolate that to shale he would find that it's going to take an entirely different structure to do it. 

So I am going to ask the OP, how will the RRC do it?  Any idea?  Don't just say no more flaring permits because that won't do it.  Another thing, the massive production from the Wolfcamp and Eagleford has made more money for the Texas govt than all of the oil pumped prior to it.

Finally, the oil that belongs to the state is that which is on state lands, other than that, we private land and mineral owners hold title to the rest of the oil in Texas.  The OP is ignorant.

Edited March 21, 2020 by wrs

[Mike Shellman + 548]

The Railroad Commission of Texas has the authority, set forth in the Texas Constitution, to regulate the oil and gas industry, according to law, not how its three commissioners want, or need so as to be re-elected and certainly not how mineral owners want for their personal check books. Laws in Texas designed to protect our natural resources, to prevent waste and to conserve resources for future generations are well established and statutory. 

In Commission v. Shell, the operators argued that the Commission had no authority to enter the order to shut in its wells, and the trial court agreed. The Commission then appealed directly to the Supreme Court. The only issue before the Court was the Commission’s authority to order the field shut in until the oil could be produced without flaring the gas. Citing the Texas Constitution, Article XVI section 59a, adopted in 1917, which states that the conservation and development of natural resources in Texas is a public right and directs the legislature to pass laws to protect natural resources, and the statutes defining and prohibiting “waste” and authorizing the Commission to prohibit waste, the court unanimously held that the Commission had authority to issue its order. The law cited by the court is now in Chapter 85 of the Texas Natural Resources Code. Section 85.045 says “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.” Section 85.046 then lists a non-exclusive set of practices that constitute waste. [...] 

 If the prevention of waste of natural resources such as gas is to await the time when direct and immediate profits can be realized from the operation, there would have been little need for the people of Texas to have amended their Constitution by declaring that the preservation and conservation of natural resources of the State are public rights and duties and directing that the Legislature pass such laws as may be appropriate thereto (Sec. 59a, Art. 16, Tex. Constitution, Vernon’s Ann.St.), for private enterprise would not need the compulsion of law to conserve these resources if the practice were financially profitable.

Selling oil below its extraction costs meets every definition of waste in the dictionary, as does the flaring of associated gas. Exporting Texas oil at below extraction costs, giving it away, is also against Texas law. Don't take my word for it, and for God's sake don't take the world of royalty owners getting free checks every month, google it. Start with the Texas Natural Resource Code. 

The re-implementation of oil well "allowables" to reduce light tight oil oversupply in Texas, and in the world  (I am unclear how anyone could not believe there is not a gross oversupply of both in Texas at the moment) and to restrict the waste of associated gas is easily accomplished from a regulatory standpoint; the TRRC did that for over 40 years, successfully, and Texas controlled the worldwide price of oil, accordingly. It has not forgotten how to prorate production. It prorates gas production in the Panhandle now.

Texas is the 3rd largest producing "nation" on the planet and it should be cooperating with the rest of the world to raise and stabilize oil prices. It can do that legally and does not need the authority of the Federal government. The TRRC can accomplish that by curtailing oil output and/or slowing the rate of drilling by returning to Statewide field rules. Doing so would raise prices, raise tax revenue for the State, ensure employment stability, prevent waste, preserve gas pressure, increase recovery rates of oil in place, conserve oil for our children and most importantly, ensure the long term energy security of our country. If we wait for all that "free-market" crap to kick in there won't be anything left of the American oil industry. 

And for those that think its the obligation of OPEC + to cut its production so America can keep growing its, on credit, it has been doing that for a number of years, much to the shale oil industry's benefit, and its had a belly full. 

 

 

 

 

 

 

Edited March 21, 2020 by Mike Shellman

[surrept33 + 609]

2 hours ago, wrs said:

My guess is that the OP has no oil productive land and no clue how the RRC limits production.  If he studied that, he would find out that it's an arcane and not very workable system for the vertical conventional wells and fields.  Now if he tried to extrapolate that to shale he would find that it's going to take an entirely different structure to do it. 

So I am going to ask the OP, how will the RRC do it?  Any idea?  Don't just say no more flaring permits because that won't do it.  Another thing, the massive production from the Wolfcamp and Eagleford has made more money for the Texas govt than all of the oil pumped prior to it.

Finally, the oil that belongs to the state is that which is on state lands, other than that, we private land and mineral owners hold title to the rest of the oil in Texas.  The OP is ignorant.

Didn't the RRC have to modify a lot of allowables rules circa 2011-2012 to deal with horizontal wells?

Why couldn't they just reinstitute proration of production in the permian and eagleford? I've heard various oil/gas lawyers call for this recently, so I'm guessing it's statutorily possible.

[surrept33 + 609]

More comments from the RRC about reinsitution of prorationing:

http://www.worldoil.com/news/2020/3/20/texas-rrc-chairman-wayne-christian-comments-on-oil-markets-proration-and-spr

 

Quote

 

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."

 

 

 

http://www.worldoil.com/news/2020/3/20/texas-regulator-considers-oil-output-cuts-for-the-first-time-in-decades

 

Quote

Texas regulator considers oil output cuts for the first time in decades

 

HOUSTON (Bloomberg) --Texas’s main oil regulator is weighing for the first time in nearly half a century whether the state should curb crude production, a move that would have an enormous economic and political impact.

The idea, still in preliminary discussions among the staff at the Texas Railroad Commission -- which despite its name regulates the oil industry -- comes after prices plunged to levels last seen 18 years ago. It shows that a policy once considered unthinkable is now being mulled as companies slash spending.

As a first step, the staff is reviewing how implementing the reduction of output via what’s known as pro-rationing would look like in practice, according to people who have discussed the issue. On first review, the staff believes it’s legally possible to mandate pro-rationing, one of the people said.

Ryan Sitton, one of three commissioners at the regulator, wrote in a Bloomberg Opinion piece Friday that the federal government could coordinate output cuts with Saudi Arabia and Russia to calm the market. Such an approach could stabilize prices in the mid-$30s, Sitton wrote, which would “stave off a total oil industry meltdown.”

 “In theory, Texas could cut production by 10%, and if Saudi Arabia is willing to cut production by 10% from its pre-pandemic levels and Russia is willing to do the same, it would return the market to pre-crisis levels (and only somewhat oversupplied),” he wrote. “With other governments manipulating oil markets, it’s fair to ask: Why shouldn’t our government step in?”

Oil has lost almost half its value in the two weeks since the producer alliance led by Saudi Arabia and Russia unraveled. West Texas Intermediate crude, the U.S. benchmark, rallied by the most on record Thursday after U.S. President Donald Trump said he may intervene in the spat. Futures extended gains on Friday by as much as 9% to $27.49 a barrel.

The oil price war between Saudi Arabia and Russia has dragged the U.S. into the conflict. Thanks to the American shale revolution, the U.S. is now the world’s largest oil producer, and the economies of states like Texas, New Mexico and North Dakota suffer when petroleum prices drop.

“We have a lot of power over the situation, and we’re trying to find some kind of a medium ground,” Trump said, adding that he would wade into the dispute at an unspecified “appropriate time.”

With WTI and Brent crude plunging earlier this week to levels last seen in 2002, Trump said both Riyadh and Moscow were losing.

“It’s very devastating to Russia, because the whole economy is based on that, and they have the lowest prices in decades,” the U.S. president said. “I would say it’s very bad for Saudi Arabia,” he added. “But they’re in a fight, they’re in a fight on price, they’re in a fight on output.”

Any action by Texas could be ineffective as other shale states don’t have similar regulatory bodies to the Railroad Commission. The Permian basin, the most prolific shale region in the U.S., straddles West Texas and southeast New Mexico. Texas nonetheless is the largest state in the U.S. by production, pumping more than 40% of the country’s crude oil.

The state agency began looking at pro-rationing after multiple independent shale producers reached out to see what a state response would look like, according to separate people familiar with the situation. No policy has been formally drafted, and a response from the commission isn’t guaranteed, the people said. The Wall Street Journal first reported that the commission was considering curtailments.

Historically, the commission allowed producers to pump to a percentage of the so-called maximum efficient rate of each well. The commission last imposed limits on Texas oil production in March 1972, when it allowed all wells in the state to flow at 100% of their rate for the first time since soon after the end of the Second World War.

Despite the rise in oil prices on the back of hopes of a deal between Saudi Arabia, Russia and perhaps Texas, oil analysts remained skeptical.

“I hardly see RRC implementing statewide production allowable rules for 1,000s of individual producers in a short time frame,” said Artem Abramov, head of shale research at consultant Rystad Energy A/S.

 

Edited March 21, 2020 by surrept33

[wrs + 893]

11 minutes ago, surrept33 said:

Didn't the RRC have to modify a lot of allowables rules circa 2011-2012 to deal with horizontal wells?

Why couldn't they just reinstitute proration of production in the permian and eagleford? I've heard various oil/gas lawyers call for this recently, so I'm guessing it's statutorily possible.

The field rules set the proration unit size and the allowables.  In the case of the Phantom Wolfcamp field for example the allowable is 13 barrels per day per acre.  So a 640 acre proration unit would allow a well to produce 8320 barrels per day.  That is way more than any single well on my tract produces.  In fact, all of the 12 currently producing wells together only produce between 3000 and 3500 barrels per day or around 100kbbl/mo.  So in fact, my operator is complying with the current allowables for the field.  He has assigned 53 acres to each well and is producing below the allowable for each well.  

So then you get into the problem of how are those allowables set?  That's where it gets trickier.  Anyway, it's not an issue of allowables at this point but if you change the allowables, it has to be fair to all the producers.  I don't know how they came up with the 13 barrels per acre but I know it used to be 9 and they raised it.