People have not been flying, commuting or traveling due to the novel coronavirus pandemic that has kept millions of people at home, and it has led small, independent oil producers to make difficult choices.
People have not been flying, commuting or traveling due to the novel coronavirus pandemic that has kept millions of people at home, and it has led small, independent oil producers to make difficult choices. iStock/Getty Images

For decades in the tiny Texas panhandle town of Perryton, John Bozeman has bought oil and gas wells from companies and says he operated them for a lower cost and with better efficiency.

“And I produce the wells until they’re no longer capable of producing,” Bozeman said, “and then I plug them up.”

Recently, he’s been forced to plug some up even before they’ve produced all the oil they can. The far north Texas Panhandle is a world away from Saudi Arabia and Russia, yet the two leading oil-producing countries have been locked in an oil price dispute, leading the Saudis in March to ramp up oil production and export it into an oversupplied market — gutting oil producers in places like Perryton, population 8,802.

Meanwhile, almost no one wants to buy oil and gas these days. People have not been flying, commuting or traveling due to the novel coronavirus pandemic that has kept millions of people at home, and it has led small, independent oil producers like Bozeman to make difficult choices.

He’s already closed more than 10 of his wells, and he predicted his JCB Companies, whose 10-person staff has been working from home to avoid the new coronavirus, could shut in about 40 more wells before the end of April.

“If we have to haul tanks to store oil,” Bozeman said, “we will do everything in our power to keep that well open.”

At the same time, state regulators in Texas have considered curbing oil production, a move that hasn’t happened in the state since the 1970s. The three elected officials that head the Texas Railroad Commission, which regulates the state’s behemoth energy industry, have called a public, virtual meeting for April 14 to “determine reasonable market demand for oil in the state of Texas.”

It’s unclear what the commissioners will decide, but they’re hosting the meeting after some oil producers requested that the state commission curtail oil production. The formal request, written by the leaders of Pioneer Natural Resources, based in Irving, and Parsley Energy, based in Austin, argued that other states could follow Texas’ lead in production cuts. Texas is the largest oil-producing state in the U.S., and royalties from production make up billions of dollars in the state budget.

Commissioner Ryan Sitton, who will leave the agency this year after a Republican primary defeat in March, has been the most publicly vocal on the issue. Sitton said in March that the state “needs to get out in front of this.” He also hosted an online seminar last week presenting his model of measuring global oil data, and he made the unusual move of speaking on the phone with Russia’s energy minister, Sitton said.

“While we normally compete,” Sitton tweeted after the conversation late last week, “we agreed that #COVID19 requires unprecedented level of int’l cooperation.”

They discussed decreasing global oil production by 10 million barrels per day, Sitton said, the same number President Donald Trump said he discussed with Crown Prince Mohammed Bin Salman, the leader of Saudi Arabia, whom Trump called a “good friend.”

Sitton’s two colleagues on the state commission have not said whether they would support production cuts. But Chairman Wayne Christian and Commissioner Christi Craddick said they support stabilizing the global oil market and want to hear from the oil industry during the upcoming meeting.

“One commissioner does not speak for the [commission],” Craddick tweeted. “No decision has been made about proration to limit Texas oil production. Meeting on April 14th. Texas operators will be heard.”

Christian shared Craddick’s tweet and added commentary of his own.

“Great point,” Christian wrote. “I see a lot of news citing ‘The Railroad Commission’ when discussing a single commish’s viewpoint, even mine. If a release or tweet comes from an individual commish, it doesn’t signal consensus from the agency.”

Officials in Saudi Arabia said they want to resolve their oil clash with Russia by bringing together the G-20 countries, including the United States, to agree on a global oil supply cut. The U.S. is expected to participate if a meeting among the countries takes place, U.S. Energy Secretary Dan Broulliete said.

And Sitton has been invited to a meeting hosted by the Organization of Petroleum Exporting Countries, the cartel known as OPEC with Saudi Arabia as its de facto leader. Sitton hasn’t said whether he’ll attend the June meeting, but it wouldn’t be the first time a railroad commissioner attended the oil cartel’s meeting.

Kent Hance, a railroad commissioner in the 1980s, did so in 1988, representing the Texas oil industry at an OPEC meeting in Vienna, he said.

“The guys who say, ‘We want the market to decide’ — there’s no such thing,” Hance, now an attorney in Austin, said in an interview. “It’s a question of who’s setting the price. I took that position when I went to the OPEC meetings. If I was a carrot farmer and there was one farmer in the world setting the price of carrots, I’d know him well.”

Hance said a railroad commissioner would be wise to attend an OPEC meeting and “see what they can do and report back.” Hance also said Texas should cut some oil production “and likewise, get other states to do the same. Oklahoma, North Dakota, for example.”

“But you do it at the same time you get OPEC and Russia to do something similar,” Hance said. “The double whammy we’re in here is that Russia and Saudi Arabia got tired of losing market share, so they decided to flood the market.”

Texas producers will have to make cuts no matter what happens with the state commission’s decision, said Karr Ingham, an Amarillo-based economist with the Texas Alliance of Energy Producers.

“Production is as high as it’s ever been, and it can’t fall fast enough to keep up with the rate to which demand is dropping,” Ingham said in an interview. “The market is about to do this to us whether we take up a practice like proration, like they’re talking about, or not.”

Trade organizations in Texas, such as the Texas Oil and Gas Association, have not supported the idea of regulating production. Eugene Garcia, chairman of the Texas Independent Producers and Royalty Owners Association, wrote in a bulletin Thursday that the impacts on the industry have begun and could be devastating.

“It appears to me that no segment of our industry will come through this unscathed,” Garcia said.

For regulators, the market may have already made oil production cuts for them, according to the American Petroleum Institute, a leading lobbying group for the oil industry.

“While some argue the U.S., the world’s leading natural gas and oil producer, also must cut production in some kind of evolving grand bargain,” wrote the group, “the private industry has already made cuts, driven by market realities.”

Of the 408 energy workers surveyed between March 25 and April 1 in a University of Houston study released Monday, 84% of respondents said they’re “concerned about the future of the energy industry caused by the combination of low oil prices and COVID-19.”

The Houston firm Rystad Energy warned that 140 U.S. oil producers could file for bankruptcy this year if the price of West Texas Intermediate crude remains closer to $20 per barrel, down from around $60 in January. Another 400 producers could file for bankruptcy in 2021 if the price remains that low, the firm said.

“What I don’t want to see is for our smaller guys to go bankrupt, which allows bigger fish to swallow them,” Jim Wright, who beat Sitton in the Republican primary, said in an interview. “Then we get more along the lines of a monopoly.”

As various political, economic and public health forces continued colliding and playing out in Texas and across the globe, Bozeman spent the weekend figuring out what to do about the company’s most profitable and best-flowing well. It produces 60 barrels per day, Bozeman said, quite a bit more than the five to 10 barrels per day that his roughly 240 operating wells produce.

“If things continue as they appear,” Bozeman said, “revenue within probably 30 to 60 days will be zero.”

By that time, Bozeman said, 100% of his wells could be closed.

Disclosure: The University of Houston, Texas Alliance of Energy Producers and Texas Oil and Gas Association have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.

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Mitchell Ferman covered energy and the economy from 2020 to 2022, based in Houston. Before joining the Tribune he was a reporter for The Monitor in McAllen, where he covered cross-border trade, politics...