State Producers Call For Oil To Stay In Ground As Prices Plummet Amid Pandemic

Dana Hertneky | News 9

Oil prices had their worst day ever Monday plunging into negative territory. Now some Oklahoma oil producers are asking the state Corporation Commission to step in. The Oklahoma Energy Producers Alliance (OEPA) is asking the Corporation Commission to mandate oil stays in the ground, something that hasn’t been done in decades.

Oil Storage, including at the largest facility in the world in Cushing Oklahoma is now reaching capacity. A decrease in demand because of the coronavirus and an increase in supply due to a fight between Russia and Saudi Arabia means producers Monday would have had to essentially pay someone to take their oil.

“When some country or countries have an expressed purpose of putting us out of business we need help,” explained Dewey Bartlett, with the OEPA.

So, the OEPA has filed a petition with the Corporation Commission asking them to hold a hearing to determine economic waste is occurring and limit production.

Read More.

OIL BELOW ZERO: U.S. crude prices plummet to negative $37 amid COVID-19 concerns

Daisy Creager | The Journal Record

Oil futures dropped below zero for the first time in history Monday as the coronavirus pandemic continues to weaken demand amid concerns U.S. storage is near capacity.

Not surprisingly, shares of several publicly held oil and gas producers in Oklahoma fell Monday. Shares of Devon Energy fell 0.65% to $9.16; Continental Resources shares fell 4.46% to $10.72; Chesapeake Energy shares fell 0.48% to $14.38; and SandRidge Energy stock fell 10% to $1.08 per share.

West Texas Intermediate, the benchmark grade for U.S. crude, fell $55.90 a barrel for May to negative $37.63 on the New York Mercantile Exchange, while June WTI fell $4.60 to $20.43 a barrel. July WTI fell $3.14 to $26.28 a barrel.

Analysts consider the June price of $20.43 a barrel to be closer to the “true” price of oil. Crude to be delivered next month, meanwhile, is running up against a stark problem: Traders are running out of places to keep it, with storage tanks close to full amid a collapse in demand as factories, automobiles and airplanes sit idled around the world.

Tanks at a key energy hub in Oklahoma could hit their limits within three weeks, according to Chris Midgley, head of analytics at S&P Global Platts. Because of that, traders are willing to pay others to take that oil for delivery in May off their hands, so long as they also take the burden of figuring out where to keep it.

“Almost by definition, crude oil has never fallen more than 100%, which is what happened today,” said Dave Ernsberger, global head of pricing and market insight at S&P Global Platts.

“I don’t think any of us can really believe what we saw today,” he said. “This kind of rewrites the economics of oil trading.”

Jake Dollarhide, chief executive officer of Tulsa-based Longbow Asset Management, said while the drop is certainly driven by recent COVID-19 market forces, it is possibly an artificial price drop driven by a technical problem or single bad trade, causing a “flash crash” that will recover quickly.

Read More.

Global oil production to witness 20 Mln Bpd drop due to OPEC

Scott Gibson | Stock News Press

The worldwide oil benchmark, Brent crude, wobbled on Monday, despite the historic oil production cut deal sealed by the Organisation of Petroleum Exporting Countries and its allies on Sunday.

This weekend’s OPEC+ deal to slash production by 9.7 million barrels a day amounts to the largest coordinated cut in history, but the decision doesn’t go into effect until May and is still dwarfed by the decline in oil consumption as the coronavirus pandemic keeps multiple countries in lockdown.

“This historic action will help almost 11 million American workers who are supported by the U.S. oil and gas industry”. “Even after the tentative reopening of economies, it is still going to be quite challenging for OPEC to match their supply to the actual demand for oil”. Oil prices ended up falling again on Tuesday, as did the value of Norway’s currency, after widespread criticism that the cuts already agreed aren’t big enough.

“The big Oil Deal with OPEC Plus is done”, Trump tweeted on Sunday.

“Providing our storage for these US companies will help alleviate some of the stress on the American energy industry and its incredible workforce”.

How significant is the USA involvment?

Will OPEC deal be respected? . The kingdom released May’s prices earlier this week, deepening the discounts to most markets, especially Asia, where the cut was greater than expected.

WASHINGTON-Oil-producing nations reached an agreement over the weekend to reduce output by a record amount, ending a weeks-long price war between Saudi Arabia and Russian Federation that devastated oil markets.

What exactly did the United States bring to the table?

Trump said Monday that the cuts may be deeper than the headline figure – with top producers considering slashing output by 20 million barrels a day under the deal.

“But Yergin said: “(Trump) came to see this as a national security issue, also an employment issue, and a very important factor in the USA economy … and he just jumped in”. The U.S. was conspicuous as a hold-out on global output curbs, instead leaving it up to individual companies to steer production decisions.

The next major focus for markets will be numbers from the U.S. Department of Energy on its strategic petroleum reserves (SPR). “I think it will serve the president well on every count”, including border issues, she said.

“If they lose that group of senators you start to see veto override majorities on legislation that deals negatively with the Saudis”, Sullivan told a small group of congressional reporters. In brokering this deal, he proved that the U.S. President can still convene powerful countries around a table to make a deal.

Could force production cuts work in the US?

America’s Energy Information Administration (EIA) forecasts that USA “crude oil production will average 11.8 million b/d in 2020, down 0.5 million b/d from 2019”. But this grand bargain won’t help oil producers as much as they would like.

According to Yergin, the national security implications of the price war on the US oil industry have prompted Trump to step in.

“We’re not suggesting that Oklahoma can balance the market, we can’t do that”, said Mike Cantrell, owner of Cantrell Investments LLC, an oil and gas investment group based in Oklahoma. But statewide, production has declined about 20% this year, the equivalent of about 100,000 barrels a day – a cut similar to Mexico’s. If sustained, “that would be a cut that would be a significant cut in the world scheme of things”, he said.

Read More.

Oklahoma judge to recommend regulators rule oil production ‘economic waste’

Liz Hampton | Reuters

An Oklahoma Judge will recommend the state’s oil and gas regulator approve an emergency order declaring oil production in the state could constitute economic waste, a spokesman for the state’s Corporation Commission (OCC) said on Friday.

The administrative law judge intends to write the recommendation in response to an application submitted by producer LPD Energy Company, the OCC said. If approved by regulators, the motion could allow companies to shut-in wells without losing leases that sometimes require drilling.

Oil prices have plunged some 60% since the start of the year and on Friday were trading under $19 a barrel – far below most companies’ cost of production. Oil producers in Texas and Oklahoma have urged state regulators to use their authority to help stabilize prices through production limits and other measures.

Oklahoma regulators could issue a ruling on LPD’s application as soon as next week, the OCC said.

Trade group Oklahoma Energy Producers Alliance also filed a separate application that asked regulators to set limits on oil production. The OCC will hear arguments on that application on May 11.

Read More.

Texas, Oklahoma mulling state cuts to oil, gas production

Kallanish Energy

Texas and Oklahoma are both looking at cutting production of crude oil and natural gas because of low prices tied to the coronavirus pandemic and the oil price rout.

On Tuesday, the Texas Railroad Commission held a 10-hour video hearing with 55 witnesses including energy companies and trade groups on a possible 20% cut in production within the state, Kallanish Energy reports.

No decision was reached by the three-member commission that oversees oil and natural gas operations in the state.

There has been no indication on when a decision might be reached.

It is an issue that finds some energy companies supporting the mandatory Opec-style cuts and others totally opposed.

The lengthy Texas debate came only days after Opec+ finalized a deal to reduce oil production by 9.7 million barrels per day.

Officials said the Texas virtual hearing was viewed by more than 20,000 people from 49 states and 86 countries.

Cutting Texas production was officially requested by two companies: Parsley Energy and Pioneer Natural Resources, both active drillers in the Permian Basin of West Texas and New Mexico.

They said temporary supply cuts would protect oil and gas companies from a major crash.

Continental Resources founder Harold Hamm supported the cuts in a letter, while ExxonMobil was opposed to the move, as were Marathon Oil and Ovintiv (formerly Encana).

One company, Houston-based Diamondback Energy, told the commission that it would cease all drilling activity immediately if forced to cut production, and that would impact nearly 3,000 workers, the Texas Tribune reported. The company has already cut 2020 drilling by 30%, it said.

Opponents including Enterprise Products Partners co-CEO Jim Teague and Marathon Oil’s Lee Tillman both suggested that such cuts were being supported by some selfish energy companies as a way to void contractual obligations.

Read More.

A rare intervention by the US helped seal crucial OPEC deal

Cathy Bussewitz | AP News

As demand for fuel plummeted worldwide and the oil industry faced a devastating drop in oil prices, the U.S. took the rare move of stepping into negotiations involving the member countries of OPEC and non-members such as Russia and Mexico, an alliance called OPEC+.

President Donald Trump and a group of U.S. senators wielded political influence to push OPEC and its allies to agree over the weekend to cut production by nearly 10 million barrels per day — about 10% of current global output.

The unusual action by the U.S. — and the fact that the intervention worked — reflect the desperate conditions the oil industry found itself in due to the economic damage wrought by the coronavirus outbreak.

“There have been oil market crises, but nothing like this before,” said Dan Yergin, vice chairman of IHS Markit. “Even when the price collapsed in 1986 or 1988, demand actually went up. You’ve never had a 20 to 25% drop in demand just overnight. You’ve never had the world economy shut down overnight.”

Trump also knew what was at stake domestically — The U.S. is now the world’s largest oil and gas producer.

“This historic action will help nearly 11 million American workers who are supported by the U.S. oil and gas industry,” Trump said during a coronavirus press briefing Monday.

HOW SIGNIFICANT IS THE U.S. INVOLVEMENT?

American officials have gotten involved with OPEC in the past, making phone calls or attempting to sway a deal during international crises and unusual circumstances. The intervention has typically been in response to high prices; instead, in the current situation, oil prices dropped more than 60% since the start of the year.

“There is nothing new about a president phoning Riyadh to ask for help dealing with oil market disruptions, but the level of pressure and deep involvement of both sides of Pennsylvania Ave., not to mention the G20, along with the scale of the oil cuts on the table, is something rarely seen in OPEC history,” said Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy.

WHAT EXACTLY DID THE U.S. BRING TO THE TABLE?

Mexico stalled the negotiations by refusing to cut more than 100,000 barrels a day of production, when OPEC was asking for double or triple that amount. Trump said the U.S. would help by shouldering the cuts that Mexico was unwilling to make.

While Trump’s promise to help Mexico may have seemed hollow — U.S. companies were already cutting production due to the low prices — Trump’s intervention on Mexico’s behalf sent a message that could have helped push the wary alliance into a deal.

“They had to agree to give something like a cover story, a diplomatic cover, so that the other parties in OPEC, who whether they liked it or not were going to have to accept these terms, would be able to do so without a loss of prestige,” said Kevin Book, managing director at Clearview Energy Partners.

Trump’s statements also signaled that the U.S. views Mexico as an important partner in the integrated North American energy market, said Amy Myers Jaffe, senior fellow at the Council for Foreign Relations, who also saw it as an important policy move. “I think it will serve the president well on every count,” including border issues, she said.

Even more stark was a call between a dozen U.S. senators and high-ranking energy and defense officials Saturday. Sen. Dan Sullivan, R-Alaska, noted there is legislation drafted that would remove American forces, including Patriot Missile batteries, from Saudi Arabia.

“If they lose that group of senators you start to see veto override majorities on legislation that deals negatively with the Saudis,” Sullivan told a small group of congressional reporters.

That was a very clear threat, Book said. “It’s not really a negotiation at all.” he added. “It’s a pretty dangerous neighborhood for the Saudis, and the U.S. plays a vital role in protecting them.”

Read More.

Texas oil hearing stirs hornet’s nest, as regulators offer no clue to decision

Jennifer Hiller | Reuters

Texas energy regulators listened as top executives on Tuesday debated whether the state should cut oil output by 1 million barrels per day, but did not indicate how they might vote after more than 10 hours of sometimes dire testimony.

Oil and gas companies are gushing red ink and cutting tens of thousands of workers as oil prices tumble, prompting regulators in the largest U.S. oil-producing state to wade into global oil politics and consider the calls for cuts. U.S. crude oil prices <CLc1> fell during the hearing to under $20 a barrel at one point, a nearly 18-year low.

While the federal government has little power to influence oil production, many state regulators like the Texas Railroad Commission have powers that can include limiting production across the state.

The hearing, based on a request by executives from shale producers Pioneer Natural Resources Co <PXD.N> and Parsley Energy Inc <PE.N>, ignited a debate between those who favor free markets and those who worry that without intervention, small producers could get shut out of oil sales as storage fills next month. Some firms have already started closing wells, several executives said.

The industry is facing a historic economic collapse with $3 per barrel to $10 per barrel oil in coming weeks, Pioneer Chief Executive Scott Sheffield warned commissioners on Tuesday.

Read More.

Texas Regulators Weigh Historic Oil Cuts as Coronavirus Pandemic Saps Demand

Rebecca Elliot | Wall Street Journal

Texas regulators on Tuesday debated curtailing oil output in the state in response to cratering demand caused by the new coronavirus, but it quickly became apparent that the industry was divided over taking such a historic step.

The virtual discussion by the Railroad Commission of Texas over whether to limit production—something the state last did in the 1970s—attracted numerous oil industry leaders, including the heads of shale producers Pioneer Natural Resources Co., Parsley Energy Inc. and Marathon Oil Corp.

While West Texas shale producers Pioneer and Parsley have spurred regulators to cut production, many larger companies including Exxon Mobil Corp. and Occidental Petroleum Corp. have opposed the idea.

No immediate decision was expected Tuesday, when U.S. benchmark oil prices fell roughly 10% to $20 a barrel as concerns over oversupply grew. Over the weekend, a coalition of countries including Saudi Arabia and Russia agreed to reduce output by 9.7 million barrels a day, but many believe that won’t be enough to address lost demand as people stay home due to the pandemic

Pioneer Chief Executive Scott Sheffield urged the state to reduce daily oil output by one million barrels in May, or nearly 20% from January levels.

“Nobody wants to give us capital because we have all destroyed capital and created economic waste,” Mr. Sheffield said. “If the Texas Railroad Commission does not regulate long-term, we will disappear as an industry like the coal industry,” he said.

Marathon Oil Chief Executive Lee Tillman urged commissioners to allow companies to chart their own paths.

“Supply-and-demand imbalances will always occur, and in those times, some companies will succeed and others will fail,” said Mr. Tillman. “What will be the threshold to toss aside free-market principles in the future?”

He suggested that the federal government could support the oil-and-gas industry by having the military purchase refined products such as gasoline or by giving operators more flexibility to suspend production on drilling leases.

Jim Teague, co-chief executive of pipeline company Enterprise Products Partners LP, questioned the motivations of the companies pushing for the railroad commission to order cuts, though he didn’t name the firms.

“Are they really trying to fix a problem, or do they want to argue that government action by you gives them the opportunity to get out of some of their obligations?” Mr. Teague said.

U.S. antitrust laws limit the federal government’s ability to curtail oil production, but Texas empowers its railroad commission to do so independently when production exceeds market demand.

At the heart of Tuesday’s debate was whether the current situation amounted to a wasting of Texas oil resources, a condition regulators struggled to define after decades of not imposing curtailments.

Commission members spent the early hours of the hearing asking executives how proration, as the output cuts are known, would help to bring supply and demand back into balance and how they envision implementing cuts, as well as what constitutes wasting oil.

Some on the panel, whose three members are elected by state voters, have expressed reservations about forcing production cuts.

“The Railroad Commission of Texas has the power to limit oil production but the president does not, and that’s kind of a sobering responsibility we find ourselves holding,” Chairman Wayne Christian said at the hearing’s outset. “Despite my reservations on this limiting, I am open to discussion.”

The threat of unemployment in the industry loomed large over the hearing, with opponents and supporters of output cuts both arguing that jobs would be lost if the wrong decision were made.

Read More.

OEPA says apparent end to Saudi Arabian-Russian price war over oil is a good start

Erin Beu | KOCO

Leaders from Russia, Saudi Arabia and the Organization of Petroleum Exporting Countries announced an oil production cut Sunday night.

The agreement appears to end the Saudi Arabian-Russian price war over oil. There’s now debate on exactly how much product will be slashed, but local industry leaders said it’s just a good start.

“To limit their production worldwide of about 10 million barrels of oil a day,” Dewey Bartlett Jr. said.

Bartlett, a chairperson with the Oklahoma Energy Producer Alliance, told KOCO 5 that the announcement would end the ongoing oil price war as consumption has plummeted worldwide because of the COVID-19 coronavirus pandemic.

“Over-producing a significant amount of oil,” he said.

Read More.

Chesapeake Energy approves one-for-hundreds reverse stock split

Jack Money | The Oklahoman

Americans are benefiting through lower fuel prices. On Monday, AAA stated the average price for a gallon of gas in Oklahoma was $1.40, second lowest in the nation.

But energy companies are hurting.

Companies in Texas have requested regulators there require operators to cut their oil production to try to boost the price of West Texas Intermediate crude, and the Oklahoma Energy Producers Alliance and about a dozen of its members’ companies are seeking a similar type of order from regulators here.

Read More.