History Tells Proration Would Cause Chaos In The Texas Oil Patch

[Tom Kirkman + 8,860]

Reading this article provoked a hodge podge of mixed feelings.  While I certainly don't have an answer, this article has some points to mull over.

History Tells Proration Would Cause Chaos In The Texas Oil Patch

The Railroad Commission of Texas (RRC) will hold a hearing tomorrow morning to discuss the possibility of prorationing Texas oil production after receiving a petition from Pioneer and Parsley. The hearing comes as the COVID-19 pandemic has reduced national and global oil demand and significantly lowered crude prices.

While the RRC undoubtedly has the authority to regulate production, it does not have the resources. Proration requires up-to-date production data, a large number of employees with technical knowledge, a large budget, and the will to enforce the policy aggressively. The RRC does not have any of these requirements.  ...

 

... What does the data tell us?

For the RRC to impose production prorationing, it needs to know the production of each producer in recent months. For various technical and legal reasons, the RRC gets only partial production information in the short run. It takes months to get full production data. 

Lack of complete and timely data will deem any proration efforts useless. Producers who want to ignore RRC orders will find many loopholes and avoid cutting production.

The U.S. Energy Information Administration (EIA), the independent statistical arm of the U.S. Department of Energy (DOE), realized the data limitation of the RRC. It then hired consultants to build mathematical models to estimate the true oil production in Texas. 

The chart below shows the difference between the RRC estimates of Texas oil production and the EIA’s estimates in 2019. These estimates merge as more data became available to the RRC.

The chart illustrates the wide discrepancy in accounting. Without agreeance on crude production in numbers, efforts to prorate oil in Texas will be difficult at best, and, at worse an impossible bureaucratic nightmare. (For more info on EIA production calculation, see page 5:

https://www.eia.gov/petroleum/production/pdf/eia914methodology.pdf

 

Other Issues

In addition to enforcement and monitoring issues, the following issues should also be considered before implementing proration policies.

     The “Market Demand” Issues:  ...

     The “Waste” Issue:  ...

     Crude Quality Issues:  ...

     Refinery Issues:  ...

 

...  Without reliable data on Texas production and without state monitoring and enforcement capabilities, proration policies are farfetched and unreasonable.

Shale producers have long prided themselves as independents who brought in one of the largest energy revolutions in history. The petition to the RRC brought forth by Pioneer and Parsley would set a dangerous precedent making Texas producers dependent on the whims of a state regulator.

Let free markets do their work.

 

[Prometheus1354 + 178]

Tom;  the articles are an interesting read.  Both answering yet also inducing questions. My question is on the chart. For Jan-Mar 19 the EIA & RRC data tracks nominally. Then a slight divergence ensues.  Then in the June/July time frame it begins too amplify.  For the remainder of the 2019 reporting period the data is askew.  EIA has Texas continuing a solid growth track of production. Where as the RRC has production in decline month over month with a real fall off Nov-Dec.  

What gives?  Sorry, maybe I missed the answer too my question in what I read.  I'm a Radar/Wastewater guy, not an oil man.   Look forward too your input...

[Refman + 207]

5 hours ago, Tom Kirkman said:

While the RRC undoubtedly has the authority to regulate production, it does not have the resources. Proration requires up-to-date production data, a large number of employees with technical knowledge, a large budget, and the will to enforce the policy aggressively. The RRC does not have any of these requirements.  ...

Tom I agree they do not have the resources, however that could be said about many (if not all) regulatory bodies. We rely on the honor system, with some spot checking to hopefully keep people honest.

[Gerry Maddoux + 3,627]

6 hours ago, Tom Kirkman said:

Let free markets do their work.

Tom, I agree, except a free market system does not work when up against a sovereign that has been given carte blanche to maraud across the very oil industry that is trying to operate under the rules of a free market system--the market is two-tiered. And also, I know you wouldn't overlook the fact that oil security and energy independence continues to be our Achilles Heel in any war.

War is coming. I don't know when, but if our oil industry is in shambles when it comes, we're in trouble. It has been a long time since I looked at the period of time our SPR would last us during a shooting war but it wasn't long--we could blow through an awful lot of oil when that happens. 

And if this latest fiasco has shown us anything, it is that we can't trust the Saudis as far as we can throw them. We need a free market for oil, alright, but practiced within a nationalistic framework, basically excluding a sovereign power that has tried over and over to destroy us. 

[Dan Clemmensen + 1,011]

As the article states, without accurate data proration (or any other regulatory approach) is unworkable. But something has to give, because there is not enough physical consumption to absorb the production, and there is not enough storage to make up the difference. I suspect the physical "market" (i.e., the actual physical movement of crude oil) will react to allocate the required physical reduction in production.  A refinery cannot produce more gasoline if its gasoline storage is full, so its crude oil tanks will fill and it must decline to accept any additional crude. The pipeline operator must quit delivering that crude and must therefore quit accepting oil from the wells/trucks/whatever. The wells must stop producing. End of story. Any contractual commitments that are broken due to this are pretty much null and void based on whatever the equivalent of Force Majeure is in each contract. At the global level this is estimated to happen before the end of May, but  it does not happen all at once and it does not happen everywhere at same time. Therefore there is a narrow opportunity to develop an orderly market to allocate the production cuts in the short term, as each acceptor in the chain can allow its own providers to bid on an acceptance allocation. This "should" permit an efficient allocation of production opportunity to the producers that "need" it most. I realize that I am a hopelessly ignorant outsider looking at an immense and complex system, and that this model of the physical system and magical solution is grossly oversimplified to the point of fantasy, but if you don't quickly create a reasonably orderly market (or other) allocation system, then you will be forced by physical lack of capacity to stop pumping crude in a chaotic fashion instead.

[wrs + 893]

3 hours ago, Prometheus1354 said:

Tom;  the articles are an interesting read.  Both answering yet also inducing questions. My question is on the chart. For Jan-Mar 19 the EIA & RRC data tracks nominally. Then a slight divergence ensues.  Then in the June/July time frame it begins too amplify.  For the remainder of the 2019 reporting period the data is askew.  EIA has Texas continuing a solid growth track of production. Where as the RRC has production in decline month over month with a real fall off Nov-Dec.  

What gives?  Sorry, maybe I missed the answer too my question in what I read.  I'm a Radar/Wastewater guy, not an oil man.   Look forward too your input...

Yes, you missed the gist of the first sentence describing the chart.  The chart diverges as the real data and the model become further apart in time.  That is to say, the data from the RRC are the most accurate but they come out 60 days in arrears.  Even then, those data are updated with adjustments later too.  Kind of like GDP and employment are generally updated on a retroactive basis from the original monthly or quarterly estimates made by the govt.

 

7 hours ago, Tom Kirkman said:

The chart below shows the difference between the RRC estimates of Texas oil production and the EIA’s estimates in 2019. These estimates merge as more data became available to the RRC.

 

[wrs + 893]

4 minutes ago, Dan Clemmensen said:

As the article states, without accurate data proration (or any other regulatory approach) is unworkable. But something has to give, because there is not enough physical consumption to absorb the production, and there is not enough storage to make up the difference. I suspect the physical "market" (i.e., the actual physical movement of crude oil) will react to allocate the required physical reduction in production.  A refinery cannot produce more gasoline if its gasoline storage is full, so its crude oil tanks will fill and it must decline to accept any additional crude. The pipeline operator must quit delivering that crude and must therefore quit accepting oil from the wells/trucks/whatever. The wells must stop producing. End of story. Any contractual commitments that are broken due to this are pretty much null and void based on whatever the equivalent of Force Majeure is in each contract. At the global level this is estimated to happen before the end of May, but  it does not happen all at once and it does not happen everywhere at same time. Therefore there is a narrow opportunity to develop an orderly market to allocate the production cuts in the short term, as each acceptor in the chain can allow its own providers to bid on an acceptance allocation. This "should" permit an efficient allocation of production opportunity to the producers that "need" it most. I realize that I am a hopelessly ignorant outsider looking at an immense and complex system, and that this model of the physical system and magical solution is grossly oversimplified to the point of fantasy, but if you don't quickly create a reasonably orderly market (or other) allocation system, then you will be forced by physical lack of capacity to stop pumping crude in a chaotic fashion instead.

How is it chaotic to shut in?

[Dan Clemmensen + 1,011]

2 minutes ago, wrs said:

How is it chaotic to shut in?

Not a Clue. However, I've been told on these forums that shutting incurs  a direct cost and a probability that a particular well cannot be restarted that varies by well, so at the global level it is better to pick  which wells to shut in based on an economic decision, not an arbitrary decision. It is also possible to choke certain wells down to a lower flow rate. An allocation market would allow the Texas oil patch as a whole to decide which action to take for each of the 173,000 active wells in Texas.

[Gerry Maddoux + 3,627]

9 minutes ago, Dan Clemmensen said:

An allocation market would allow the Texas oil patch as a whole to decide which action to take for each of the 173,000 active wells in Texas.

No, it really wouldn't. I have an old well in Texas--it comes immediately to mind--and would likely be one that was targeted. Yet it pays me about $2,000 per month. It was a complicated well to begin with and then surprised us all, but I wonder about a second life for it. 

It was pointed out a couple of days ago that there are whole fields of stripper wells across Texas. That's correct, and many of them don't produce much, but it costs upwards of $20-30,000 per well to plug them. Are we going to force the plugging of thousands of wells during the worst downturn in our history? 

Last I checked, this was America, where we don't just demand that a business be shut down permanently, or even transiently unless the welfare of people visiting that business and running it are in jeopardy. We shouldn't have state agencies saying which wells can be produced and which can't. I get the plugging of 10% end-of-life wells per year, but not this wholesale proration. It will get political, just like everything else, and corruption will possibly (probably) sink in. 

The fellow in the Wall Street Journal this morning was correct: Some of these wells are never coming back, once stopped. 

[Tom Kirkman + 8,860]

3 hours ago, Prometheus1354 said:

Tom;  the articles are an interesting read.  Both answering yet also inducing questions. My question is on the chart. For Jan-Mar 19 the EIA & RRC data tracks nominally. Then a slight divergence ensues.  Then in the June/July time frame it begins too amplify.  For the remainder of the 2019 reporting period the data is askew.  EIA has Texas continuing a solid growth track of production. Where as the RRC has production in decline month over month with a real fall off Nov-Dec.  

What gives?  Sorry, maybe I missed the answer too my question in what I read.  I'm a Radar/Wastewater guy, not an oil man.   Look forward too your input...

 

20 minutes ago, wrs said:

Yes, you missed the gist of the first sentence describing the chart.  The chart diverges as the real data and the model become further apart in time.  That is to say, the data from the RRC are the most accurate but they come out 60 days in arrears.  Even then, those data are updated with adjustments later too.  Kind of like GDP and employment are generally updated on a retroactive basis from the original monthly or quarterly estimates made by the govt.

 

Prometheus, the answer by wrs is bang on.

Another example, think of the models used to project the deaths from Covid-19.

The models get adjusted as actual numbers replace the model's predictions.

The further into the future the models project, the more haywire wrong the models are likely to be.

[Dan Clemmensen + 1,011]

1 minute ago, Gerry Maddoux said:

No, it really wouldn't. I have an old well in Texas--it comes immediately to mind--and would likely be one that was targeted. Yet it pays me about $2,000 per month. It was a complicated well to begin with and then surprised us all, but I wonder about a second life for it. 

It was pointed out a couple of days ago that there are whole fields of stripper wells across Texas. That's correct, and many of them don't produce much, but it costs upwards of $20-30,000 per well to plug them. Are we going to force the plugging of thousands of wells during the worst downturn in our history? 

Last I checked, this was America, where we don't just demand that a business be shut down permanently, or even transiently unless the welfare of people visiting that business and running it are in jeopardy. We shouldn't have state agencies saying which wells can be produced and which can't. I get the plugging of 10% end-of-life wells per year, but not this wholesale proration. It will get political, just like everything else, and corruption will possibly (probably) sink in. 

The fellow in the Wall Street Journal this morning was correct: Some of these wells are never coming back, once stopped. 

Thanks, Gerry. These are real-life examples of what I was talking about. If you don't want to shut in, you need to find someone to take tha oil. But you are competing with everybody else for that takeaway capacity. So, if you want to keep that stripper pumping to keep it alive, then somebody else somewhere in Texas will have to quit pumping. It is not physically possible fro all of you to keep pumping because there is nowhere to put the oil. Nobody is "demanding" anything.  My fantasy "allocation market" solution is a possible way to keep the state out of this entirely.

[wrs + 893]

9 minutes ago, Dan Clemmensen said:

Not a Clue. However, I've been told on these forums that shutting incurs  a direct cost and a probability that a particular well cannot be restarted that varies by well, so at the global level it is better to pick  which wells to shut in based on an economic decision, not an arbitrary decision. It is also possible to choke certain wells down to a lower flow rate. An allocation market would allow the Texas oil patch as a whole to decide which action to take for each of the 173,000 active wells in Texas.

I think I have responded to you in the past by explaining that shutting in a shale well or choking it down isn't a problem.  For the old stripper wells, it probably is.  The oldest wells wouldn't need to be prorated, it would only be new wells that should be prorated.  Old wells are down their decline curve and shouldn't be constrained but new wells bleed more formation pressure and would need restricting the most.

The old geology was based on permeable reservoirs with shared formation pressure at much shallower depths.  That no longer applies with shale so all the old measuring sticks for proration won't work on shale geology.  Formation pressure is only reduced locally with shale so proration won't work.  I challenge you to come up with a yardstick for proration that is objective to a large number of wells such as formation pressure.

The producers are already aware of the local nature of formation pressure and that moderating production from the outset is key to a greater EUR.  That is what everyone needs to be more focused on but it's not something that can be mandated because no two wells are the same nor are any two producers.  Finally, shale could be profitable in a stable price environment but free markets don't lend themselves to anything like stable pricing. 

[Gerry Maddoux + 3,627]

21 minutes ago, Dan Clemmensen said:

My fantasy "allocation market" solution is a possible way to keep the state out of this entirely.

And I appreciate that. 

I have looked at this many times (possibly through rose-colored glasses) and the only solution to this mess is to keep out unneeded Saudi oil and use our own. 

I was under the impression that we no longer produced enough heavy sour in this country to mix with our LTO for smooth refinery runs. It was pointed out to me that about 2 M bod in America still comes from stripper wells, many (maybe most) of which produce heavier oil. 

Tariff. 25%, at least. 

Churchill used to say that you could always count on America to do the right thing, but only after every other possibility had been exhausted. Well, this is going to have to run its course, I suppose, but MbS is going to keep pushing. There is no other way but to slap an indefinite 25% on his oil. Why? Because that's the only way to save the American oil industry. 

[Gerry Maddoux + 3,627]

8 hours ago, Tom Kirkman said:

The Railroad Commission of Texas (RRC) will hold a hearing tomorrow morning to discuss the possibility of prorationing Texas oil production after receiving a petition from Pioneer and Parsley.

Everyone should realize that this is father and son. I am not sure where the Holy Ghost stands in this deal.

[Dan Clemmensen + 1,011]

36 minutes ago, wrs said:

I think I have responded to you in the past by explaining that shutting in a shale well or choking it down isn't a problem.  For the old stripper wells, it probably is.  The oldest wells wouldn't need to be prorated, it would only be new wells that should be prorated.  Old wells are down their decline curve and shouldn't be constrained but new wells bleed more formation pressure and would need restricting the most.

The old geology was based on permeable reservoirs with shared formation pressure at much shallower depths.  That no longer applies with shale so all the old measuring sticks for proration won't work on shale geology.  Formation pressure is only reduced locally with shale so proration won't work.  I challenge you to come up with a yardstick for proration that is objective to a large number of wells such as formation pressure.

The producers are already aware of the local nature of formation pressure and that moderating production from the outset is key to a greater EUR.  That is what everyone needs to be more focused on but it's not something that can be mandated because no two wells are the same nor are any two producers.  Finally, shale could be profitable in a stable price environment but free markets don't lend themselves to anything like stable pricing. 

You probably did explain it, but I did not catch the distinction between the shale and non-shale wells. But my fantasy of an allocation market would accommodate this without requiring some state official somewhere to try to impose per-well or even per-producer restraints or metrics. The individual producers would make these decisions via the allocation market. In essence, all the little stripper wells would end up paying a small amount each in reduced royalties to induce the high-production wells to reduce their output, all via the market.

 

[Jan van Eck + 7,558]

I would mention that the US truck-building industry has historically been sheltered behind a 25% tariff wall.  That has been in place for time immemorial.  Notwithstanding the tariff, the US industry has still had to consolidate considerably, so that today there are a few players left that build what are known as "Class 8 tractors," the big rigs that pull the trailers over the Interstates. You have Freightliner, with the commanding share, then Peterbilt/Kenworth, and Mack Trucks, and other labels that are actually built by one of the players.  In order to get into the vast US/Canada market, Volvo Trucks ended up building a gigantic new plant in Dublin, Virginia, for over $400 million, and now employs thousands at that plant for its Volvo-branded tractors.  [A "tractor" is the part of a big truck that contains the motor and drivetrain, plus that cab where the driver sits, plus a coupling onto which the trailer is hooked where the cargo goes; it is not the thing you see on farms pulling a disc harrow around.]   Meanwhile, Volvo made some arrangement with Mack Trucks to build its truck engines, in yet another massive plant nearby. 

The point is that there is precedent for a restrictive tariff.  The USA has done this with other goods, specifically in the public transit bus and traincar sectors, where if you want to sell into the transit market and that customer gets Federal funding (which is just about all the customers) then you have to build the product inside the USA with minimum US content.  So you have the situation of these big bus bodies coming out of Winnipeg, Canada to a "finishing plant" just over the US Border, in Pembina, North Dakota, perhaps six miles off the Border, where the bus body shell is off-loaded by cranes, and the axles, wheels, body glass, and interiors are fitted.  

Now if you apply the same logic to oil wells and crude production, there is precedent for the US to either fully embargo offshore oil, with a quota of some percentage of US consumption, which is now done with Canadian softwood construction lumber  (33% of the US market is the allocation to Canada),  or with some tariff number, which can be whatever the US Government chooses. Personally, I don't think 25% does the trick; you would likely have to go to a 100% tariff, or a quota allocation of 10% of the US market, or some combination of restrictive measures. 

Is any of this likely to happen?  I doubt it.  

 

[Dan Clemmensen + 1,011]

22 minutes ago, Gerry Maddoux said:

And I appreciate that. 

I have looked at this many times (possibly through rose-colored glasses) and the only solution to this mess is to keep out unneeded Saudi oil and use our own. 

I was under the impression that we no longer produced enough heavy sour in this country to mix with our LTO for smooth refinery runs. It was pointed out to me that about 2 M bod in America still comes from stripper wells, many (maybe most) of which produce heavier oil. 

Tariff. 25%, at least. 

Churchill used to say that you could always count on America to do the right thing, but only after every other possibility had been exhausted. Well, this is going to have to run its course, I suppose, but MbS is going to keep pushing. There is no other way but to slap an indefinite 25% on his oil. Why? Because that's the only way to save the American oil industry. 

Gerry, I agree that we should keep the Saudi oil out, and replace it with Canadian heavy oil where possible. We can also allow one-for-one trades of US oil for imported oil if that's what it takes to get an acceptable input mix for the refineries,at least until they can be reconfigured (which apparently takes years). But all of this in in the future, after consumption recovers. We have an immediate problem to solve in the next six weeks: how to avoid filling up all of the available storage in the country and globally. Six weeks is not a lot of time.

[Jan van Eck + 7,558]

10 minutes ago, Dan Clemmensen said:

We have an immediate problem to solve in the next six weeks: how to avoid filling up all of the available storage in the country and globally

You have to wonder how many railroad tank cars are out there, sitting empty in storage on rail sidings.  My guess:  a lot. 

I would suggest filling those up with heating oil, or diesel, products that can sit without quality deterioration. 

[Gerry Maddoux + 3,627]

Good point, but it's logistically not very feasible, is it?

My rallying cry is to keep Saudi oil out, top off the SPR to unplug the chokepoints, then use our own oil. 

It seems to be the only rational solution.

[Dan Clemmensen + 1,011]

6 minutes ago, Jan van Eck said:

You have to wonder how many railroad tank cars are out there, sitting empty in storage on rail sidings.  My guess:  a lot. 

I would suggest filling those up with heating oil, or diesel, products that can sit without quality deterioration. 

There are about 78,500 tank cars, and each can carry about 717 barrels of oil, for a total of 56 million barrels. But a great many half?) of these are in use, either full or going back to get more. 12 million bbl/day * 25% is 4 million bbl/day to go to storage. (56*.5)/4=7 days. (Numbers from Google, no idea how valid, except the half, which I obtained by proctonumerology).

[Gerry Maddoux + 3,627]

25 minutes ago, Jan van Eck said:

Personally, I don't think 25% does the trick; you would likely have to go to a 100% tariff, or a quota allocation of 10% of the US market, or some combination of restrictive measures. 

Wow! Well, that's even better. 

Keep Saudi oil away from the United States of America!

They tried their best to put us down when we were at our worst.

[Dan Clemmensen + 1,011]

1 minute ago, Gerry Maddoux said:

Good point, but it's logistically not very feasible, is it?

My rallying cry is to keep Saudi oil out, top off the SPR to unplug the chokepoints, then use our own oil. 

It seems to be the only rational solution.

Gerry, this is not a solution, because there is not enough storage available even counting the 77 million bbl available in the SPR.

[Gerry Maddoux + 3,627]

13 minutes ago, Dan Clemmensen said:

Gerry, this is not a solution, because there is not enough storage available even counting the 77 million bbl available in the SPR.

It's a great solution, Dan.

Cancel Saudi oil today.

Start unclogging pipelines immediately by filling the SPR.

If we use ONLY our own oil, this thing can still be handled with minimal shutdown. If producers knew they had a market, and oil was going to stay at home, it would take no time at all before they began to synchronize production so that everyone gets to eat. Maybe there would be a little slowdown but not much. This is now a national emergency. Soon there will be no way out of this. Soon oil will be at $5 and everybody with any stake whatsoever will be asking why somebody didn't do something. Soon this will further wreck the American economy. Proration is no answer. Finding more storage is no answer. The ONLY way out is to shut down Saudi oil imports, which would bolster WTI price to a viable zone. 

We will wind up doing this. But only after trying everything else until we have a wrecked system. 

[Dan Clemmensen + 1,011]

1 minute ago, Gerry Maddoux said:

It's a great solution, Dan.

Cancel Saudi oil today.

Start unclogging pipelines immediately by filling the SPR.

If we use ONLY our own oil, this thing can still be handled with minimal shutdown. If producers knew they had a market, and oil was going to stay at home, it would take no time at all before they began to synchronize production so that everyone gets to eat. Maybe there would be a little slowdown but not much. This is now a national emergency. Soon there will be no way out of this. Soon oil will be at $5 and everybody with any stake whatsoever will be asking why somebody didn't do something. Soon this will further wreck the American economy. Proration is no answer. Finding more storage is no answer. The ONLY way out is to shut down Saudi oil imports, which would bolster WTI price to a viable zone. 

We will wind up doing this. But only after trying everything else until we have a wrecked system. 

Please look at the numbers. Immediately prior to the lockdowns, we were a net exporter (barely), and we were pumping more than 12 million bbl/day. That is to say, US production and consumption were nearly in balance. (Yes, we exported LTO and refined product and imported Heavy, but approximately balanced).  If we completely isolate the US petroleum industry, we would have been in balance. But then the pandemic hit and we locked down. consumption crashed by at least 25%, but production has not gone down much yet. Thus, we are overproducing by at least 4 million bbl/day. I'm not making this up. I'm too ignorant to make it up. The SPR had 77 million bbl/day of available storage. It can therefor absorb about 20 days of this surplus. That's all. pretty much everything all other storage has already been absorbing this 4 million bbl/day for the last month and will be full by early May. We need to lower US production by at least 4 million bbl/day within about six weeks. We cannot count on exports to absorb the excess because the rest of the world is in an even worse numerical situation.

Again: I agree that we should send those Saudi tankers back home, and we should never buy another barrel of Saudi oil. But getting that set up takes time.

[Mississippi Bubble + 2]

2 hours ago, Gerry Maddoux said:

No, it really wouldn't. I have an old well in Texas--it comes immediately to mind--and would likely be one that was targeted. Yet it pays me about $2,000 per month. It was a complicated well to begin with and then surprised us all, but I wonder about a second life for it. 

It was pointed out a couple of days ago that there are whole fields of stripper wells across Texas. That's correct, and many of them don't produce much, but it costs upwards of $20-30,000 per well to plug them. Are we going to force the plugging of thousands of wells during the worst downturn in our history? 

Last I checked, this was America, where we don't just demand that a business be shut down permanently, or even transiently unless the welfare of people visiting that business and running it are in jeopardy. We shouldn't have state agencies saying which wells can be produced and which can't. I get the plugging of 10% end-of-life wells per year, but not this wholesale proration. It will get political, just like everything else, and corruption will possibly (probably) sink in. 

The fellow in the Wall Street Journal this morning was correct: Some of these wells are never coming back, once stopped. 

Wall Street is slicing the cake now. 1) Let the indies go down, ... 2) buy the best quality survivors and 3) form them into something new, 4) let the majors swallow the rest. The oil industry is too big to fail, but too small for Wall Street magic.