Daily on Energy: Texas debates mandating oil production cuts
TEXAS DEBATES PRODUCTION CUTS: Texas can lead in producing a “real” U.S. oil production cut to save the shale industry, Scott Sheffield, CEO of Pioneer Natural Resources, argued Tuesday in calling for the state to take action to force companies to hold back their production for the first time since 1973.
Sheffield opened all-day testimony before the Texas Railroad Commission, which is considering imposing “pro-rationing” on oil companies in the largest-producing state. The measure would require drillers to reduce their production by certain percentages until it no longer exceeds market demand.
Pioneer is one of two Austin-based companies with Parsley Energy that has called on the Texas oil regulator to act, despite the overwhelming opposition from large oil majors, refiners, and the trade groups that represent them, who fear a mandate would upset the free-market system in the U.S.
Sheffield, in strikingly blunt comments, suggested the financial problems of shale producers existed before the current crisis driven by the coronavirus, as companies took on too much debt amid the shale rush and produced more than the market demanded.
“No one wants to give us capital because we have all destroyed capital and created economic waste,” Sheffield said. But he said regulators could bring the market back in balance when it’s needed most.
What’s a ‘real’ oil cut?: Sheffield said the OPEC+ plus agreement to cut oil production nearly 10 million barrels per day, coupled with some 5 million barrels per day in market-driven cuts from G-20 countries like the U.S., won’t be sufficient to compensate for the lost demand from the coronavirus.
“Texas can lead in getting a real G-20 cut of 5 million, not a fake 5 million barrels per day,” Sheffield said.
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