Railroad Commission of Texas Decision on Prorating Oil Production

 

The Railroad Commission voted today to dismiss a motion for proration and curtailment of Texas crude oil production. 

On March 30, 2020, Pioneer Natural Resources U.S.A., Inc. (“Pioneer”) and Parsley Energy, Inc. (“Parsley”) filed a joint motion with the Railroad Commission of Texas (“RRC”) seeking a Market Demand Hearing and a Market Demand Order to curtail Texas production of oil and gas beginning in May 2020. Pioneer and Parsley asserted that the RRC has the authority to (1) determine if waste of oil and gas is occurring, or is imminent and (2) prorate the state’s oil and gas production to prevent waste.  On April 14th, the RRC conducted an on-line open meeting to hear public comments on Pioneer and Parsley’s motion[1].  During the marathon 10-hour session, dozens of speakers provided comments both for and against prorating production, but the RRC deferred making a decision on the motion but scheduled another meeting on April 21st.   

By April 20th, NYMEX WTI May future contracts began trading in negative territory for the first time.  The next day, the RRC again considered the Pioneer/Parsley motion at an on-line open meeting, but declined to vote on the application.[2]  Instead, the RRC announced the formation of a Blue Ribbon Task Force for Oil Economic Recovery led by major trade associations.  RRC Chairman Wayne Christian stated that he preferred to wait until May 5th before voting on the Pioneer/Parsley motion.  Chairman Christian wanted the extra 2 weeks to see how other oil producing states act, allow the Task Force to provide information, and provide time to consider possible federal government coordination.  In addition, Commissioner Craddick preferred to wait until the Commission’s General Counsel could consult with Texas Attorney General about the legality of a potential proration order, including whether a proration order could apply statewide or field-by-field and if such an order could exclude marginal wells and small operators.

On May 5th, the RRC held a third open meeting on the Pioneer/Parsley motion.   By a 2 to 1 vote on the motion of Chairman Christian, the RRC dismissed the Pioneer/Parsley motion.  Chairman Christian and Commissioner Craddick voted to dismiss.  Commissioner Sitton voted against dismissal.

Also on May 5^th, in response to the report of the Blue Ribbon Task Force, the RRC adopted rule changes to allow operators more flexibility in responding to current conditions.  The RRC voted to waive fees for the rest of 2020 for applications relating storage and disposal, including Application Forms P-17, W-14, H-1, H-4, and W-3C.  The RRC approved a one-year expansion to the scope of Statewide Rule 95 that will authorize applications for permits to store oil in non-salt formations for up to 5 years.    The RRC also approved rule changes to allow time extensions for permitted pits, alternative casing, and plugging.   Additionally, the RRC gave the Enforcement Division greater discretion for prosecution of violations occurring between March 2020 and March 2021.

Additionally, Chairman Christian requested the Blue Ribbon Task Force to consider natural gas flaring issues and to report back with recommendations for the RRC’s June meeting.