Shale drillers slow to scale back volumes as Texas discusses mandatory production cuts

Houston — Shale drillers continue to dramatically scale back their spending, but they're only moderately reducing their crude production volumes as Texas discusses mandatory cutbacks in oil barrels.

Big capital budget cuts from shale producers in March have averaged close to 30%, but the companies that have announced reductions to their 2020 production guidance are only seeing their volumes falling by closer to 5%-10%.

Some of the newest shale players announcing cutbacks include Permian producer Centennial Resource Development, which is slicing its capital spending 50% to $320 million and pulling four of its five rigs, and the smaller Amplify Energy that will trim its spending 37% down to just $29 million. But neither Centennial nor Amplify revealed updated production numbers.

Although the losses of barrels will inevitably be far greater - especially when private firms are factored in - publicly traded North American producers have just revealed a total of about 320,000 boe/d in 2020 guidance reductions thus far. And, for many of the companies, their initial 2020 guidance projections were well above their average 2019 volumes.

That's hardly enough to put much of a dent in the potentially vast oversupplies of global crude oil as the coronavirus pandemic hits demand at the same time that Saudi Arabia and Russia are entering a pricing war that could bring millions of barrels per day of new crude volumes on the world markets.

LONG-SHOT PROPOSAL

The Texas Railroad Commission, which regulates the oil and gas industry, is talking about taking the step of mandating production cuts in the state for the first time since 1973, although doing so is not yet supported by a majority of the three-person commission.

A few Permian producers, including Pioneer Natural Resources, have pushed for the potential measure.

The Railroad Commission has the ability to require operators to prorate the production of each of their wells below their production capacities, but such measures haven't been taken since the early 1970s.

The idea is that such a big step would only move forward if its part of a broader compromise with the White House, the Saudis and potentially the Russians to all agree to scale back their volumes if the United States joins in the effort. Railroad Commissioner Ryan Sitton said he spoke Friday with OPEC Secretary General Mohammed Barkindo, whom he said is in favor of a broader international deal.

However, the two other Texas commissioners are yet to come on board with the idea. Chairman Wayne Christian on Friday said he is open to all ideas, but that he has strong reservations about the potential plan and he instead stands with free enterprise.

In a Bloomberg opinion editorial published Friday, Sitton wrote, "In theory, Texas could cut production by 10%, and if Saudi Arabia is willing to cut production by 10% from its pre-pandemic levels and Russia is willing to do the same, it would return the market to pre-crisis levels."

Other companies, such as Continental Resources and its chairman Harold Hamm, have argued in favor of the Commerce Department placing tariffs on Saudi crude oil for the alleged illegal dumping of cheap crude.