Oil production and pipeline activity affected by Texas Railroad Commission determination on proration

Texas Railroad Commission Decides on Oil Production Cuts

In the midst of unprecedented turmoil in the oil and gas industry, the Texas Railroad Commission (RRC) weighed options of whether to require cuts in oil production in the state of Texas. While this may sound like a state issue, it has national and global implications.

Texas is the top U.S. producer of both crude oil and natural gas. In fact, according to the U.S. Energy Information Administration (EIA), Texas accounted for 41 percent of the nation’s crude oil production and 25 percent of marketed natural gas production in 2019.

With eyes on Texas to see how state regulators would react to the oil and gas turmoil, RRC chairman Wayne Christian made a formal recommendation not to support mandated production cuts — or proration — and allow producers to make a determination on their own of whether to cut back on production.

Additionally, the RRC introduced regulatory relief to the oil and gas industry to help companies make it through the turmoil.

What Was Discussed For Oil and Gas Production Cuts?

In April, the Houston Chronicle reported that the RRC was set to vote on a proposal to cut oil production by 20 percent — about 1 million barrels per day.

The proposal would have fined producers $1,000 for each barrel in excess of the limit, while exempting smaller producers.

As part of the decision-making process, Chairman Christian held an Open Meeting in April to review alternative solutions.

One item of note was a report from refineries and pipelines on the availability of unfilled storage capacity to hold the glut of product being produced. According to a RRC report, the refineries reported having 18,414,733 barrels capacity remaining and the pipelines reported having 52,770,925 barrels of capacity remaining.

Additionally, the RRC commissioned a “Blue Ribbon Task Force for Oil Economic Recovery” to help decide on what steps the RRC could take to provide industry relief during the oil and gas downturn. The Task Force was asked to focus on operations, permitting, timelines, tax policy and deadlines, storage capacity, and pipeline capacity.

In their recommendation to Chairman Christian, the Task Force recommended: “a comprehensive approach to provide relief to small operators in the Texas oil fields and to assist the oil and natural gas industry as they continue the battle to survive these catastrophic circumstances.” (Of note, the Task Force defined smaller operators as “those producing 1,000bbls/day or less of crude oil.”)

In response to the report and other input during the crisis, Chairman Christian arrived at the decision to vote against government-mandated production cuts. He also passed two relief orders:

  • The creation of an exception to Rule 95 to allow underground oil storage in alternative formations.
  • The suspension of certain fees to provide economic relief, specifically to smaller operators. (The temporary suspension was made effective May 5 and runs through December 21, 2020.)

“Over the past few weeks it has become increasingly obvious to me that we need to restore regulatory certainty to the oil and gas industry and move past the discussion on proration,” said Chairman Christian. “This motion ensures Texas companies, rather than the government, can decide for themselves what level of production cuts make sense for them to make while they weather the storm of market instability.”

What’s Next for Operators in Oil and Gas?

After receiving a “vote of confidence” from Chairman Christian, producers at the local level in Texas have the opportunity to make informed production decisions without being overly-concerned about government intervention.

For smaller operators, there is an opportunity to find a measure of relief from costly fees in order to maintain operational integrity and to focus on business continuity.

Supporting business continuity is not just an issue for operators in Texas. Looking beyond the state to include national and global operators, business continuity is especially critical during the transition period following an unthinkable collision of a global pandemic, workforce disruption, unprecedented decline in consumer demand, and international battle for pricing power.

Now, as operators attempt to find a “new normal” for their operations, it’s time to think through critical business continuity issues that include:

  • Supporting the pipeline control room, especially 24/7 control rooms.
  • Protecting the health of personnel as they return to the confines of shared workspaces.
  • Implementing new schedules or shifts to limit contact between teams.
  • Ensuring the operation continues to operate safely, efficiently, and in compliance with applicable guidelines and regulations.

How EnerSys Can Provide Support

During the transition period, our company is making available support for your pipeline control room and SCADA teams.

Specifically, we are offering expertise and emergency staff augmentation to help operators maintain safe operations during this time of needing to address business continuity issues.

For the control room, we will work with your team to ensure that proper recordkeeping occurs as controllers perform their tasks, especially during the transition from remote work environments back to shared workspaces. Our goal is to help your control room continue to achieve compliance naturally during this period of disruption.

For your SCADA teams, we can provide SCADA support in the event of a staff shortage during the transition or during the change from remote work environments back to the SCADA team’s primary work location.

Find support for the control room, SCADA, and other issues related to supporting production during this time of disruption in Texas, nationally, or globally. Contact us at 281-598-7100 to discuss your operational needs.