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Prorationing Proposal at Texas Railroad Commission Appears Headed for Defeat

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At the April 21, 2020 open meeting of the Texas Railroad Commission (RRC), Commissioner Ryan Sitton stated his attention to bring to the May 5th open meeting a motion to approve a proration order requiring Texas producers of more than 1,000 barrels of oil per day (bopd) to cut their production beginning June 1st by 20% from their highest monthly production during the fourth quarter of 2019.  The order is contingent upon other states and countries having taken action prior to June 1st to reduce global production by an additional 4 million bopd.

Late on Monday, April 27, 2020, the RRC released the agenda for the May 5th open meeting. Two agenda items relate to prorationing and other efforts to address historically low demand and low prices for oil:

189. Consideration of issues and possible action related to the COVID-19 pandemic including but not limited to (1) potential waiver or suspension of applicable statutes, rules, final orders, or other regulatory requirements; and (2) analysis of potential relief or other economic development initiatives.

190. In Re: Motion for Commission Called Hearing on the Verified Complaint of Pioneer Natural Resources USA Inc. and Parsley Energy Inc. to Determine Reasonable Market Demand for Oil in the State of Texas.

Attached to the agenda as Appendix A is Commissioner Sitton’s proposed order to institute prorationing.

However, on Wednesday afternoon, April 29th, the Houston Chronicle published an opinion piece by RRC Chairman Wayne Christian in which he stated his intention “to stick to my free market principles and oppose proration in Texas.” Commissioner Craddick has not expressly stated a position on the issue, but she is widely considered to be another opponent of prorationing. If that view is correct, then Commissioner Sitton’s proposal—and the request by Pioneer Natural Resources USA, Inc. and Parsley Energy, Inc. for a proration order—appear headed for defeat at the May 5th open meeting.  It is also possible that Commissioner Sitton’s prorationing motion may not even come to a vote.

The May 5th open meeting will begin at 9:30 am Central and can be viewed here.  The agenda for the meeting notes that the Commissioners “may enter into an executive session on either Item 189 or Item 190.” An executive session would allow the Commissioners to discuss the agenda items privately with the RRC’s legal counsel in addition to their public discussions and actions with each other in the open meeting.

Baker Botts will continue to monitor this issue and will provide further updates as warranted following the May 5th open meeting.

 

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