The Railroad Commission of Texas (RRC) is the agency that regulates oil and gas in the state. On April 14, it held an all-day virtual hearing to discuss the current glut of oil on the market and the corresponding drop in price. Producers, pipeline companies, investors, consultants and academics came together to present their thoughts on whether the RRC should take any action or allow the market to regulate itself.
According to a University of Houston Energy fellow who wrote for Forbes, the speakers were about evenly distributed between those arguing for production cuts and those who argued against them.
The last time the RRC ordered oil and gas producers to limit their production was in the early 1970s.
There were many issues at play. A pipeline executive intimated that producers seeking production cuts are trying to duck contractual obligations to pipelines, landowners, royalty owners and lenders. Producers said they were merely trying to shore up the price for everyone.
However, it is the small players who would suffer most if there are no production cuts. Larger companies likely have the assets to survive the downturn — and can store massive reserves of oil. Those who can’t store the oil would have to sell it at today’s prices. Smaller, independent producers are more vulnerable to sudden price changes and generally support production cuts.
And, although the RRC can’t regulate outside Texas, any production cuts would need to be underscored by agreements with other oil-producing states and nations. Otherwise, any production cut by Texas would simply be offset.
Yet a global agreement to cut supply appears to have had little impact on the price of oil.
If you’re a small player in the market, you are probably struggling with the current low prices. If you have been considering entering the market, you may want to consult with an oil and gas attorney who can help limit your exposure to price fluctuations.