Texas RailRoad Commission three member board to vote on 20% production cut May 5th

[BLA + 1,666]

TRRC head Ryan Sitton wanted to take a vote today .  The other two commissioners want to wait till May 5th.  So May 5th is the date

Sitton says the Texas cut is contingent on all other U.S. basins joinong the quota agreement. Sitton has spoken to North Dakota, New Mexico, Oklahoma and Colorado.  He is reached out and spoken to Canada and even the  Russian Oil Ministers.  

The objective is to take an additional 5mm bbls off the market above what the OPEC+ has already agreed to.

Sitton insists this is not a cartel-like "quota" .  He prefers to use the term proration.  It's all semantics.  It is what it is. 

While it has supposedly legal precedence in Texas, I doubt it can be enforced in other states.  

I believe this is all for naught.  The market will only demonstrate some normalcy when the U.S. and the world economies start back up again.  People need to get back to work. The demand for gasoline will lead the way to crude recovery.  Not another faux production cut that nobody ever complies with.  The market no longer falls for these OPEC style games. 

The real reason some of the Permian producers want the TRRC vote is so they can claim Force Majeur and void pipeline, storage and export terminal contract committments.

The truth be known, the Permian and Eagleford have ALREADY been forced to cut production by at least 20% in the last 3 weeks and that will double by the May TRCC vote date. 

TRCC effort is a waste of time. 

 

 

 

Edited April 23, 2020 by BLA

[astros148 + 5]

We need OPEC to implement the cuts they agreed upon ASAP instead of waiting for May 1st. They continue to flood the market while blaming the finger at Russia. I hope the USA finally sees Saudi for who they are and we remove all of our troops from the region and allow Iran to have its day with them.

[0R0 + 6,251]

I think they can pull down production and negotiate their pipeline terms etc.. Calling force majeur won't really help. Production is falling anyway since so little drilling and completions are going on for a second month.

The idea is a bad one. The internal TRRC authority is wobbly enough on a national anti trust basis. An agreement among several states would bring it back to anti trust at the Federal level, and they would not let it stand for long - if any time at all.

As I said before, the imposition of prorating at the TRRC will just cause a market share shift to other states. 

The other states have much less of the piping density to serve the production so are always constrained and those still using rail are probably completely stopped already.

By far the best solution is to get the economy restarted and get the treatments going. Squash the doctors who are fearing the risk of the meds over the risk of the disease in early stage patients. Put them on 100% CV19 ward duties for a week or two and they will all have HCQ/Z sloshing around their system. It will take a long time for the HIV drugs and Gilead's antiviral to pick up production volume and the same for monoclonal antibodies. Nothing is not an acceptable answer.  

 

[john bozeman + 42]

No doubt that nothing works until we all get back to work.  However, we needed the RRC to do their job years ago (which would have moderated this mess), We need the RRC to do their job today and tomorrow too.  The natural resources code of Texas is a pretty easy read.  Prevention of waste is job one for the RRC.  The RRC has always (in the past) worked to prevent physical AND economic waste.  As of today, the RRC is on record in favor of flaring (Williams/Exco) so the producer could make more money.  That means they are officially in favor of physical waste.  In the Permian, they are allowing physical waste  (flaring) to allow economic waste (over-drilling & over-production).

The job of a regulator is to regulate.  The wall street funny-money guys will be right back at it if we don't regulate.  Check out the management of outfits like Dim-bulb-back (FANG-really ?) and see how far down the pecking order in the company you have to go to find someone with industry experience.  We need just (the word is all over the Natural resources Code) and sensible regulation to provide a price low enough for consumers to want our product and high enough that we can make a living.  Once again I ask, during the decades of prorationing, was there ever a shortage of Texas oil millionaires ?

Oklahoma and New Mexico are already acting.  Texans like to brag about our oil industry, we should take the lead now.  My fingers are getting tired, maybe tomorrow I will tell you how the RRC ducked their responsibility 3 years ago and let DCP and Energy Transfer rob millions in severance taxes and ad valorem tax money from every citizen in Texas.

[Bob_W + 37]

Quote

Texas RailRoad Commission three member board to vote on 20% production cut May 5th

What an utterly useless and irrevalent thing to do.

If the TRRC wanted to play the role of active regulators (they absolutely don't), the time to do so was March.  May as well vote that the sun will rise in the east yesterday.

Edited April 23, 2020 by Bob_W

[BLA + 1,666]

3 hours ago, john bozeman said:

No doubt that nothing works until we all get back to work.  However, we needed the RRC to do their job years ago (which would have moderated this mess), We need the RRC to do their job today and tomorrow too.  The natural resources code of Texas is a pretty easy read.  Prevention of waste is job one for the RRC.  The RRC has always (in the past) worked to prevent physical AND economic waste.  As of today, the RRC is on record in favor of flaring (Williams/Exco) so the producer could make more money.  That means they are officially in favor of physical waste.  In the Permian, they are allowing physical waste  (flaring) to allow economic waste (over-drilling & over-production).

The job of a regulator is to regulate.  The wall street funny-money guys will be right back at it if we don't regulate.  Check out the management of outfits like Dim-bulb-back (FANG-really ?) and see how far down the pecking order in the company you have to go to find someone with industry experience.  We need just (the word is all over the Natural resources Code) and sensible regulation to provide a price low enough for consumers to want our product and high enough that we can make a living.  Once again I ask, during the decades of prorationing, was there ever a shortage of Texas oil millionaires ?

Oklahoma and New Mexico are already acting.  Texans like to brag about our oil industry, we should take the lead now.  My fingers are getting tired, maybe tomorrow I will tell you how the RRC ducked their responsibility 3 years ago and let DCP and Energy Transfer rob millions in severance taxes and ad valorem tax money from every citizen in Texas.

Looking forward to DCP and Enterprise story

[john bozeman + 42]

So, here's a brief outline of the other problem the RRC has failed to address that is now causing a good deal of extra hell that many folks don't even know has happened.  Although this is a gas story it belongs in this thread.  DCP was the leader in this evil but no the only evil-doers.

In the spring of 2016, gas producers everywhere that were connected to DCP midstream received a letter.  If you don't know, DCP came out of Phillips Petroleum and has managed to keep the Phillips tradition of treating everyone badly.  This letter canceled existing gas purchase contracts and included a new contract.  The letter explained that producers had three options.  Producers could 1. shut in the well and try to find another gas buyer or 2. sign the contract as is and sell gas or 3. continue to deliver gas and DCP would "deem" the contract signed.

Option 1.  All wells decline, so if you own a 20 year old well that now only produces 100 mcfd, the value of that well is reduced to approx 36 month's current net cash flow.  In 2016, that meant a 100 mcfd well was worth maybe $250,000.00.  Due to consolidation of gas gathering companies over the years, there are, for example, only two gas buyers in most of the panhandle,  and they do not have adjoining pipe.  So, to exercise option 1, a producer would likely need to lay 10 miles of pipe to connect to a competing purchaser and the necessary pipe would cost more than the well is worth in the first place (mini monopoly) so, no to option 1.

Option 2 & 3.  Being the only option with any hope involved, producers took one of these options and then tried to improve things from there.

GAS CONTRACTS 101.  For decades, the standard gas contract was a percentage of proceeds (POP) contract.  This contract called for the pipeline to retain a percentage of the proceeds derived from the sale of gas they took in from producers and sold after primary gas treatment.  This percentage varied from 15% for the pipes to 30%.  An additional deduction of 3-5 per cent was taken for fuel used by the pipes for transportation and treating and to cover  "lost and unaccountable" gas. (Fun side note- Oscar Wyatt, a well-known villain in South Texas gas circles, used to insist that his pipeline deliver "negative line loss"-that is, he insisted that his pipes sell more gas than they bought).  The NEW contracts DCP sent out touted that they were "fee based" and delivered 100% of the proceed from sales.  This was a balder-than-baldfaced lie.  The contracts plainly stated that they would deliver proceeds equal to 100% of the sales volumes (less fuel,etc)  but only for 95% of the sales price.  In addition, the 3-5% fees for compression, transportation, etc were raised to as high as 17.5 %.  Thus, the share of well value that the pipes retained from each wells production remained the same, percentage wise.

NOW COMES THE FEE  In addition to the above, DCP slapped a $1.20/mmbtu cash fee on the gross gas delivered.  In March 2016, the Henry Hub price (which is for methane delivered to Louisiana) was $1.72.  Since raw gas contains liquids (ethane, propane, butane, etc), we generally received a price for our gas in the panhandle equal to or even higher than the Henry Hub methane price, but you can see the results of these new contracts.

How did this affect other parties ?  Well, severance tax on nat gas in Texas is calculated as 7.5 % of the net price received by producers.  DCP's Fee reduced that by 50% and they don't pay severance tax on fees, viola.  Of course, bank robbers don't pay taxes either.  How bout ad valorem taxes (that support our  local schools, hospitals, county roads, etc) ?  Well ad valorem on a gas well is a calculation derived from the net profits of the well.  Two wells producing the same amount of gas at the same price can have a different valuation if one well requires more inputs.  When DCP imposed these fees, it gutted appraised values.

Then what ?  Among other things, I'm a jailhouse lawyer so I read the law.  The RRC is clearly mandated to prevent physical and economic waste, AND to see that oil and gas are bought and sold in a just, fair, and orderly manner-it's all over the code.  A short time after DCP did their deed, Energy transfer did the same thing and now, I understand, pretty much all the pipes have followed suit.

How does the RRC fit In?  We proved that the RRC had the mandate and the tools from the code to step in.  We contacted all three commissioners (Christian wasn't there yet) in person and they all refused to take up the issue.  Ryan Sitton told us in a meeting in Amarillo that he could "set a rate this afternoon" and he can.  But he refused.  The pipes all told us repeatedly that we would not like regulation, as though that could be any worse. Many of our shut in wells today are due to gas CONTRACTS, not low prices.  Small producers are like the wheat farmers I grew up with,  we eat low prices for breakfast.  But now, finally, DCP is crying for volume that we can't afford to deliver.  It is likely that they will shut in facilities permanently which will make the tax revenue situation even worse, all because the RRC failed to do it's job.

I really do believe in free markets, but markets can't be free when one party has more power than the other, that's only human nature.  Our citizens must demand that our elected representatives do their job or we will all regret it.  Whew...this is the abbreviated version, but it true.  jcb

[Gerry Maddoux + 3,627]

21 hours ago, john bozeman said:

o doubt that nothing works until we all get back to work.  However, we needed the RRC to do their job years ago (which would have moderated this mess), We need the RRC to do their job today and tomorrow too.  The natural resources code of Texas is a pretty easy read.  Prevention of waste is job one for the RRC.  The RRC has always (in the past) worked to prevent physical AND economic waste.  As of today, the RRC is on record in favor of flaring (Williams/Exco) so the producer could make more money.  That means they are officially in favor of physical waste.  In the Permian, they are allowing physical waste  (flaring) to allow economic waste (over-drilling & over-production).

John, you have a good way of making a point. I've been blabbering on about Statewide Rule 32 until I'm blue in the face. The TRRC made a judgment call on venting and flaring. Not only was it in violation of their own rule governing economic waste, their endorsing it gave the oil and gas industry a blacker eye than it needed to wear. 

[wrs + 893]

1 hour ago, john bozeman said:

 

I really do believe in free markets, but markets can't be free when one party has more power than the other, that's only human nature.  Our citizens must demand that our elected representatives do their job or we will all regret it.  Whew...this is the abbreviated version, but it true.  jcb

That's called the level playing field and we don't believe in that. The little guy is always the one shafted because the big guys are able to.  There is rarely a win-win between big and little but between even players there is often a win-win strategy.  That is because neither is big enough to finish the other one off and so something that hurts each the least is the best alternative.  With big vs small, it's always the smalls that end up bruised and beaten for the most part.

Try negotiating with TxDOT for example when your highway frontage on an important road is being taken for a new drainage culvert or some other roadway impediment.  Same thing, your loss is not paid for and they could care less what the future loss might be.  They are big and you are little.  You lose.

Edited April 23, 2020 by wrs