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Texas Oil Drillers Prepare To Halt Production

Texas oil companies may soon cut back production, both because of a looming lack of available storage space and because wells are becoming uneconomical at $20 per barrel WTI. 

Many regional grades are trading lower than that--approaching negative territory.

"Large-scale production interruptions appear inevitable and imminent," according to Pioneer Natural Resources and Parsley Energy executives, who wrote to the Texas Railroad Commission asking the industry body to order a production cut, Reuters reports.

One commissioner, Ryan Sitton, already suggested cuts, possibly in partnership with OPEC, earlier this month, before the crisis really hit. Now, the cuts, with or without OPEC, seem inevitable, and the industry is eager to start cutting, calling on the regulator to effect the cuts beginning in May.

"We think it's important to save this industry," Reuters quoted Pioneer's chief executive Scott Sheffield as saying, adding that he had suggested a production cut of as much as 20 percent, but excluding the smallest producers in the state.

There is a catch, however. According to Sitton, Texas will not resort to production cuts unless Saudi Arabia and Russia agree to the cut, too.

"I'm not advocating we do anything on our own," the commissioner told Reuters. "If it is the right thing to keep some stability in the world, we can do it."

Saudi Arabia and Russia don't seem too enthusiastic about cuts, however. Saudi Arabia just yesterday announced plans to boost its oil exports to 10.6 million bpd in April and more than 10.8 million in May.

Meanwhile, pipeline operators in Texas are asking producers to stop pumping oil because storage space is filling up. The storage problem is becoming critical on a global scale. According to the chief analyst of data analytics firm Kayrros, if storage continues to fill up, oil prices could fall close to zero. This zero space available could happen in months, if not weeks.

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More