HOUSTON – If you’re not in the business you’ve at least noticed it while gassing up (if you still do that). Oil is in a total tailspin.
“The oilfield industry is going through great turmoil,” said Mike Chaffin, with Oilfield Christian Fellowship. OCF is a non-profit ministry headquartered in Texas for the oil and gas industry around the world. They help with networking, job recruiting and bible ministry.
Chaffin added that “layoffs are happening in most all oil and gas companies.”
Supply and demand
The problem is, currently, the pandemic has slashed global oil demand, leading to a historic oversupply.
Basically, there’s too much supply and not enough demand.
And remember, Texas energy jobs were vaporizing before COVID-19. Now?
“As this virus wreaks havoc across the traditional healthcare system, it’s done so much harm to our oil and gas industry,” said Wayne Christian, chairman of the Texas Railroad Commission. He made that statement Tuesday in Austin at the beginning of a marathon day-long hearing.
The Texas Railroad Commission is the state’s oil and gas regulatory authority. Officials with the agency are thinking about actively tinkering with the supply and demand equation.
Prorationing oil
The commission is looking into whether it should set state limits on output to drive up price, also known as prorationing. At the international level, the Organization of the Petroleum Exporting Countries (OPEC) does it. But in Texas, some argue it could cost even more jobs short term, especially among smaller companies that may get squeezed out of a tightening market.
"Texas should continue to work without regulatory intervention. Second, the economic impact of prorationing in the near term, prorationing will have a more severe job economic impact than the free market process,” said Kaes Van’t Hof, CFO for Houston-based Diamondback Energy, while testifying before the Texas Railroad Commission
The flipside of the argument is that no government action could be even more catastrophic, leading to overproduction.
“The Commission really does not have any wiggle room to do nothing in the unprecedented disastrous circumstances of today," said Scott Sheffield, CEO of Irving-based Pioneer Natural Resources.
President Donald Trump seems aware of the problem and wants the whole world to cut oil output. Earlier this month at the White House, he hosted a meeting with oil executives and the U.S. senators from Texas.
"The Railroad Commission in Texas has the power to limit oil production, but the president does not," said Christian.
Clearly, in Houston we are already in trouble. Even a local non-profit group that helps oilfield workers that are in financial trouble is now finding itself in economic hardship.
“We have set aside a rainy day fund. Certainly, we’re into the rainy day, don’t know how much longer that will last... depends on how many people are in need,” said Bill Markus, CEO of Oilfield Helping Hands.
If you are a Texan, this issue affects you.
Just the state tax generated from the oil and gas sector is an $8.5 billion chunk of the state’s revenue.
Like Oilfield Helping Hands, OCF is also on the frontlines of what is right now, extreme pain for thousands of Houstonians in this industry.
But count Chaffin as one who says the state has to do something to stop the freefall, and tightening supply may be the best tool available.
Every operator would have the same percentage in reduction, which would be a fair way to treat the oil and gas industry," explained Chaffin.
To limit or not to limit Texas oil production rests in the hands of the three people on the Texas Railroad Commission. They are scheduled to vote next on April 21.