The Oklahoma Corporation Commission (OCC), the state’s oil and gas regulator, on Wednesday approved a relief measure allowing operators to shut-in production without losing their lease rights.
The order was requested by Tulsa-based exploration and production (E&P) operator LPD Energy Co. LLC, which is owned by attorney Lee Levinson.
The OCC accepted Levinson’s assertion that oil production in Oklahoma at current prices may constitute “economic waste,” and ordered that E&Ps be allowed to shut-in or curtail output at their own discretion from wells that are uneconomic at current prices.
In the application, Levinson said the action by the OCC was warranted “based upon the current volatility of low oil prices along with the intervening circumstances of the Covid-19 pandemic.”
OCC Chairman Todd Hiett and Commissioner Dana Murphy voted in favor of the measure, with the OCC’s third member, Vice Chairman Bob Anthony, abstaining.
“It goes without saying, there’s a tremendous oversupply of oil right now in the world,” Levinson told NGI. The problem, he said, with extended-term leases in Oklahoma and elsewhere in the United States is “if you just voluntarily shut-in your wells, you could lose your leases.”
The OCC order benefits working interest and royalty owners alike by allowing oil to stay in the ground until prices recover, Levinson said.
“A substantial number of operators in Oklahoma are going to shut-in their wells because you can’t sell oil at $10, $15, $20/bbl or less,” said Levinson, who added that small and large operators alike supported LPD’s application.
The OCC is scheduled on May 11 to discuss mandatory production cuts, for which the Oklahoma Energy Producers Alliance (OEPA) has advocated.
However, in the wake of Wednesday’s favorable ruling, curtailment likely won’t be necessary, said Levinson. He is on the board of OEPA, but the group was not represented in LPD’s application requesting curtailment.
The Railroad Commission of Texas, meanwhile, has tabled a similar proposal until next month.
“I think there will be enough voluntary cutbacks if they do something similar to what we did that that won’t be necessary either,” Levinson said of potential curtailment in Texas, “because people can’t afford to give away this commodity.”
OEPA president David Little told NGI that Wednesday’s OCC order “will allow producers to shut-in their wells and hopefully keep their leases from becoming invalid.” However, “It does not prevent economic waste, which is occurring today,” he said.
As for the upcoming hearing on curtailment, Little said that OEPA is asking the commission “to use the tools they have at their disposal to prevent economic waste. We are hopeful.”