OXY Occidental Petroleum Corporation

By Rebecca Elliott 

Texas regulators declined to act Tuesday on a proposal to limit state oil production, but the U.S. shale industry is cutting anyway.

The Railroad Commission of Texas, which regulates the oil-and-gas industry in America's largest oil-producing state, deferred until May 5 a decision on whether to make operators curtail production for the first time since the 1970s. Officials in North Dakota and Oklahoma also are considering curtailments.

Meanwhile, free-market forces are already forcing some companies to cut back as fuel demand shrivels and storage facilities fill up, leaving producers with nowhere to send their oil.

U.S. shale producers, from Continental Resources Inc. to Cimarex Energy Co., have said they are curtailing output -- some by 30% -- in response to a steep decline in crude prices. On Monday, U.S. benchmark oil plunged below zero for the first time on record as some sellers effectively paid buyers to take oil off their hands.

While government-mandated cuts in production would likely apply equally across much of the Texas oil industry, those forced by the market fall disproportionately on smaller companies that don't have the scale to ensure their crude gets to market, or access to storage space. Larger players including Exxon Mobil Corp. and Occidental Petroleum Corp. have opposed regulatory intervention, arguing that the laws of supply and demand would naturally lead to lower production.

Texas debated whether to cut production in response to a proposal by West Texas shale drillers Pioneer Natural Resources Co. and Parsley Energy Inc. The idea split the railroad commission's three members, who are all elected. Wayne Christian and Christi Craddick said the commission needed more time to consider cuts and ensure a measure wouldn't get tied up in court.

"We need to make darn sure when we make the motion that it fits legal requirements," Mr. Christian said.

Commissioner Ryan Sitton, meanwhile, said he was ready to require as of June 1 output cuts of 20% from late-2019 production levels, amounting to about one million barrels a day, if other states or countries agree to cut an additional four million barrels a day.

"Taking weeks, even days, right now to act is itself a choice," Mr. Sitton said. "I don't believe that inaction on our part is acceptable."

Other states are also weighing curtailments. On Wednesday, Oklahoma regulators are poised to review a request that they define at least some oil production as economic waste, which could help oil and gas producers retain drilling leases even as they shut down wells. They also plan to hold a hearing next month about limiting Oklahoma oil production.

North Dakota is earlier in the process and is planning to have a hearing soon to determine whether oil is being wasted.

Parsley Chief Executive Matt Gallagher said he was encouraged by the parameters of Mr. Sitton's plan for so-called proration in Texas' oil patch, but warned against waiting too long to take action.

"The situation is urgent and further delays will cripple our state and the industry," Mr. Gallagher said. "It is clear we are not in normal market conditions and we need a symphony of solutions to bring stability back to our industry."

Occidental Chief Executive Vicki Hollub reiterated her company's opposition to state-imposed cuts, and instead thanked President Trump for what she called decisive action to support the oil-and-gas industry.

The president tweeted Tuesday morning that he had directed federal officials to make funds available to secure jobs and companies in the industry, though it is unclear what if any form that assistance would take.

"It would be very difficult for the Texas Railroad Commission to put an equitable proration plan in place when other states are not implementing a similar program," Ms. Hollub said in a statement Tuesday.

--Collin Eaton contributed to this article.

Write to Rebecca Elliott at rebecca.elliott@wsj.com

(END) Dow Jones Newswires

April 21, 2020 16:48 ET (20:48 GMT)

Occidental Petroleum (NYSE:OXY)
Historical Stock Chart
From Mar 2024 to Apr 2024

Occidental Petroleum (NYSE:OXY)
Historical Stock Chart
From Apr 2023 to Apr 2024