Parsley Energy and Pioneer Natural Resources, two of the most active oil companies in Texas, on Monday asked the Railroad Commission to hold an emergency meeting and order production cuts at a time when record low crude prices threaten hundreds of thousands of jobs.
The request comes as the U.S. benchmark crude settled Monday just above $20, nearly a two-decade low, as a global price war and the coronavirus pandemic combine to crush oil prices.
The Railroad Commission, which regulates the state’s oil industry, canceled its March meeting as the outbreak widened, and it’s not scheduled to meet until April 21. The two companies filed a Monday afternoon petition asking the commission to hold an emergency meeting before then.
“The situation requires urgent and immediate action,” said Matt Gallagher, CEO of Austin-based Parsley.
Crude oil, which for most of 2019 traded between $50 and $60 a barrel, have collapsed since January. The coronavirus outbreak kicked off the decline as fears mounted that its spread would slash global demand for oil and its refined products. As those fears became a reality, Russia and Saudi Arabia exacerbated a longtime global oil glut by pumping even more after they failed to agree on production cuts to soften the price collapse.
The result has caused pain for the energy companies, particularly those in Texas’ shale plays, where $50 oil typically is needed to break even. Effects are being felt from wells to gasoline pumps.
Refining companies are selling gasoline at record-low prices and cutting back on production. Pipeline operators with full storage tanks are asking some Texas oil companies to stop production. Industry experts fear the pipeline firms may soon invoke contract clauses allowing them to stop buying and shipping millions of barrels of oil per day, creating billions of dollars of losses for oil producers and forcing them to shut down oil wells. That scenario would cascade through the industry, leading to thousands more jobs cut in production and oil field services.
Railroad Commissioner Ryan Sitton, one of the panel’s three elected officials, says he supports holding an emergency meeting and discussing the issue in a public setting using videoconferencing to comply with public health “social distancing” recommendations.
On top of the situation with pipeline operators, Sitton said the oil and gas industry is facing tremendous process across the supply chain.
“I’m hearing today that there are some Permian Basin operators receiving offers as low as $6 per barrel at the well head on their futures contracts,” Sitton said.
