Oil waste decisions left to operators, for now

Elected members of the Oklahoma Corporation Commission decided to leave in place an emergency order allowing operators to voluntarily shut-in wells in cases where they believe crude oil is being wasted.

However, they opted to give oil and gas industry executives and attorneys more time to consider an amended request made by the Oklahoma Energy Producers Alliance that would, if adopted, result in a declaration from the agency that oil production from wells across the state is wasteful.

During a hearing Monday, OEPA representatives stated a mandatory oil waste declaration from commissioners would allow the agency to take additional steps requiring operators to shut in wells or to take other actions deemed appropriate to cumulatively cut crude production.

It would leave determinations about what would be allowed and how to achieve those cuts up to the regulatory agency, unlike its initial request calling for the agency to take a series of specific steps to curtail production.

The OEPA represents mostly smaller, independent oil and gas producers who primarily operate older, vertical wells with smaller rates of production.

Dewey Bartlett, chairman of the OEPA and president of Keener Oil and Gas Co., said such a declaration is needed.

“It is the duty of the OCC as stated in the statutes to determine economic waste, and, that if one is made, to consider means of eliminating that waste in manners they see fit,” he said.

Joe Warren, an OEPA board member who is a partner in Brown & Borelli Inc. and Cimarron Production, agreed each well is unique in terms of production costs and revenues.

“But for the vast majority of Oklahoma producers, the West Texas Intermediate price is not what most receive,” Warren said. Instead, those prices are based on monthly averages of WTI, less costs to transport the product to storage.

He noted some companies are setting up massive amounts of temporary storage to hold crude they were forced to take involving contracts settled when oil was trading at negative values.

“In Oklahoma, we have more oil than we have demand. I would ask the commission to consider exercising its statutory duties and powers to prevent waste and to prevent this dumping of Oklahoma oil production by taking a stance and prorating oil production in the state,” Warren said.

Mary Anne McGee, an OEPA member who is president of GLM Energy, said her company began shutting in some of its wells in April, and expects it will have to shut in additional wells, moving forward.

McGee said one of her biggest expenses is the electricity it takes to run her wells, plus limited storage capacity for wells.

“I have not seen anything like this” before, McGee told commissioners. “At this rate, there is no way for smaller, vertical producers to continue operating.”