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Texas Oil Regulator Pronounces OPEC-Style Production Quotas "Dead"

By Matthew DiLallo - May 4, 2020 at 2:06PM

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Several drillers had pushed the state's energy regulator to mandate production cuts to ease the oil glut.

Texas won't be joining oil-producing nations around the world by mandating producers under its jurisdiction reduce their output. The state's oil regulator, the Texas Railroad Commission, had been reviewing a proposal from leading drillers Parsley Energy (NYSE: PE) and Pioneer Natural Resources (NYSE: PXD) to impose a 20% statewide reduction in oil production. However, one of the commissioners said in an interview with Bloomberg that the proposal "is now dead." 

The Commission was supposed to vote on the controversial proposal, known as "pro-rationing" tomorrow. Instead, it won't move any further with the idea.

A drilling rig near some oil pumps with a sunset in the background.

Image source: Getty Images.

Several leading producers in the state, including oil giants ExxonMobil (XOM -1.80%) and Chevron (CVX -1.32%), voiced their disapproval of the proposal, arguing that the market was already forcing oil companies to shut-in their higher cost output. ConocoPhillips (COP -1.54%), for example, plans to voluntarily curtail 165,000 barrels per day (BPD) in the lower 48 states in May and another 260,000 BPD in June due to low prices. Exxon and Chevron are also shutting in some lower producing wells in the U.S. that aren't economic due to low prices. Meanwhile, Continental Resources (NYSE: CLR) shut down its entire oil production operation in North Dakota because low pricing made wells unprofitable. 

With the market already forcing producers to shut in output, regulators felt that they didn't need to force others to act. That will likely keep the pressure on oil prices in the near term since the market remains oversupplied. However, that will undoubtedly force more producers to shut in uneconomic wells of their own accord.

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