Coronavirus in Oklahoma: Regulators allow voluntary well shut-ins
To prevent waste, oil and gas regulators in various oil-producing states have been asked to consider orders requiring operators to shut in wells.
In North Dakota and in Texas, regulators so far have refused to go that far.
Oklahoma regulators, meanwhile, have enabled producers here to voluntarily shut in their wells. They will revisit that decision and consider issuing an additional order in May that could force operators to limit oil production rates to prevent waste.
“The global energy landscape has been turned upside down,” Commissioner Dana Murphy stated in a release issued after commissioners approved the order sought by LPD Energy Co. of Tulsa.
“While overproduction by Saudi Arabia and Russia has played a role in the collapse in oil prices, the far bigger factor is a drop in oil demand that only weeks ago would have been thought impossible," she said. "There was no way for Oklahoma and other U.S. producers to anticipate and plan for up to 30 million barrels per day of consumption to disappear."
Specifically, the commission’s order, issued April 22 with an effective date of April 17, states that oil operators/producers may shut-in or curtail oil production to prevent economic waste "while protecting their correlative rights."
Some producers have argued that will enable them to take action without jeopardizing their leases, although regulators stressed it would depend on judicial interpretations of leases between well operators and owners.
The order will remain in effect for 90 days unless it’s superseded by a subsequent order.
It differs from another request sought by the Oklahoma Energy Producers Alliance (OEPA) that, if granted, would broadly require many operators across the state to cut wells' production until market conditions improve.
The OEPA represents more than 500 companies that mostly operate older, vertical wells typically producing a dozen or less barrels of oil daily.
The alliance asserts state law declares oil production a waste when the cost to do so is more than its value at the time, adding that such activity adversely impacts royalty owners, working interest owners, the operators themselves and Oklahoma, which gets much of its revenue from gross production taxes and is the state’s largest mineral owner.
It requests a commission order that would bar wasteful oil production through an adjustment, modification, amendment or an established allowable.
Commissioners plan to consider the OEPA request and to further consider the LPD Energy request on May 11, officials said Monday.
For now, Murphy said the commission has granted oil operators in the state freedom and flexibility they can use to respond to market forces by taking actions designed to help them survive.
“Oklahoma’s oil producers have faced and triumphed over many challenges in the past 100 years,” Murphy said. “I have no doubt they will win out, even over these previously unimaginable market conditions.”