Two Oil CEOs Back Plan to Cut Texas Output After Crude Crash
Two of the biggest drillers in America’s largest oil-producing state have asked Texas regulators to consider a cut to crude output after a historic price crash.
Pioneer Natural Resources Co. and Parsley Energy Inc. asked the three-member Texas Railroad Commission on Monday to call an emergency virtual meeting no later than April 13 and issue an order setting the “reasonable market demand for oil from Texas” for May, according a five-page letter shared with Bloomberg News. Ryan Sitton, one of the commissioners, said earlier on Monday that the regulating body would discuss curbing oil output at its next meeting.
“We need dramatic government action, because we know the operators cannot uniformly talk together,” Matt Gallagher, chief executive officer at Austin, Texas-based Parsley, said in an interview. The pair of shale explorers believe a 20% cut to the state’s production would be most helpful for the industry, Gallagher said. Pioneer is led by Scott Sheffield, whose son Bryan is Parsley’s chairman.
The request comes less than a week after Sitton surprised the oil market with his own controversial call for state caps on oil output. His proposal for a 10% cut in production was blasted by the American Petroleum Institute, a major industry lobbying group, as a “shortsighted” and “anti-competitive” effort that will “harm U.S. consumers and American businesses.”
The crude industry is facing a rare combination of plummeting demand and soaring supplies as Saudi Arabia and Russia battle for market share amid the Covid-19 pandemic. Oil futures have tumbled to the lowest in almost two decades amid the outbreak, which has pummeled the global economy.
“Taking this action from a state level I think will help enable discussions at an international level from our federal government,” Gallagher said.
Gallagher said he’s most concerned that if the U.S. energy industry drops to complete inactivity for a couple of months, it would hit the oilfield services industry so hard that companies could never recover. The U.S. has already lost its ability to ever produce 13 million barrels a day again, creating the risk that the country will become more reliant on imports, he said.
“That ship has sailed,” he said. “If we don’t rebalance the market soon, in two years or so, we’re going to be importing 5 to 7 million barrels a day from foreign sources and be right back to where we started from a geopolitical standpoint.”
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