Oklahoma Oil Regulators Hear Arguments on Output Cuts

(Reuters) — Oklahoma's energy regulators on Monday began hearing arguments from producers seeking to win state-support for setting limits on oil production to help stabilize prices. 

U.S. oil futures this year have fallen about 60% to $24.33 a barrel as coronavirus-related lockdowns have crushed demand for fuel. The price collapse has companies in major oil-producing states pushing for regulatory action to stave off further declines.

On Monday, regulators heard proposals seeking to declare oil production in the state waste, and a plan submitted by trade group Oklahoma Energy Producers Alliance that would mandate production cuts.

It was unclear whether the Commission would vote on Monday on either proposal. Two of the three Commissioners must approve an order for it to pass.

One commissioner last week dissented to the emergency order, saying it was "replete with fatal error" and said did not meet the "basic requirements had been met with respect to notice of hearing" on the application for an emergency order.

Oklahoma last month adopted an emergency order that said some oil production could be considered economic waste. That emergency order allowed operators to opt to shut wells without losing valuable leases. 

"We're floating out there in dangerous waters," said Lee Levinson, owner of LPD Energy Company LLC, which submitted the order requesting some output be considered waste.

"It's critical we get this done for the benefit of the operator," he said.

Oklahoma has some of the highest production cost in the country. Breakevens in its SCOOP (South Central Oklahoma Oil Province) and the STACK (Sooner Trend, Anadarko, Canadian and Kingfisher) plays are roughly $48.19 a barrel, versus about $40 a barrel in the Permian basin, according to an analysis by Deutsche Bank. 

Once dubbed the "Permian Junior," the SCOOP/STACK play attracted producers due to its cheaper land cost and proximity to the Gulf Coast refining and export hub and to key storage at Cushing, the delivery hub for U.S. crude futures.

Oklahoma producer Crawley Petroleum Corp voiced opposition to the motion on Monday, arguing that it could open "the flood gates of litigation." 

"The notion that we don't have the right to do this (shut wells) absent of this order is a fallacy," said Chief Executive Officer Kim Hatfield.

Many oil and gas lease require producers to maintain a level of production to avoid termination of their contracts.

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