“If oil stays in this price range, we’re all insolvent.” LEE LEVINSON, Tulsa attorney and oilman
OKLAHOMA CITY – The price that Oklahoma energy producers are receiving for crude oil “probably doesn’t even pay the electric bill,” Tulsa attorney and oilman Lee Levinson told the Oklahoma Corporation Commission late last week.
Levinson testified in a hearing the Corporation Commission conducted on an application he filed with the agency April 10 on behalf of LPD Energy Co. Levinson is the registered agent for the Tulsa-based company, state records reflect.
He asked the commission to issue an order “finding that the production of oil under currently existing conditions may constitute economic waste, in some circumstances...”
Levinson told the commissioners and Administrative Law Judge Jan Preslar that he has operated oil wells “since the ’70s,” and what’s happening in the oil patch “hasn’t occurred in 70 years.”
Crude oil commanded $63.05 per barrel on Dec. 30, 2019. Three and a half months later, benchmark West Texas Intermediate had plunged to $18.12 per barrel Friday afternoon.
‘SELLING OIL AT THESE PRICES CONSTITUTES WASTE’
“Selling oil at these prices constitutes waste” as defined in state law, Levinson said. “We’re in fact giving it away.”
State law provides that, as it pertains to the Corporation Commission, the term “waste,” in addition to its ordinary meaning, “shall include economic waste...” The Corporation Commission has authority to “make rules and regulations for the prevention of such waste,” state statute decrees.
The commission can intercede “when there’s no market demand,” Levinson contended. “If oil stays in this price range, we’re all insolvent.”
An organization of more than 500 oil producers made a similar request of the commission on April 10. The Oklahoma Energy Producers Alliance urged the Corporation Commission to require operators to curtail oil production in the state until markets improve.
The OEPA estimated that Oklahomans are overproducing 100,000 barrels of oil daily. Even billionaire oil producer Harold Hamm, founder of Continental Resources Inc., supports pro-rationing of oil.
SHUTTING IN OIL WELLS COULD SAVE BIG BUCKS
In the absence of a waste declaration from the commission, a producer who voluntarily shuts in a well could have his lease taken over by a “scavenger,” Levinson said. But if the Corporation Commission embraces his request, “If I shut in my well to prevent waste, then I have a defense against somebody who tries to ‘top lease’ mine.”
Oil producer Eddie Rongey of Kiefer testified in favor of Levinson’s proposal. Rongey said he has been an independent oil and gas producer for 35 years and operates more than 600 wells in Oklahoma.
He told the commission he has shut in one well already and it’s saving him $30,000 per month. When asked by Levinson whether he would be able to shut in the rest of his wells without a waste ruling from the Corporation Commission, he replied “no.”
Levinson said he operates, or is “substantially involved in” 100 wells. He would save “probably $75,000 to $100,000 if we shut in our wells.” He mentioned savings on fees charged for hauling and disposing of wastewater that’s generated in oil production, and on utility bills for the electricity that powers the pumps on the wells. Labor is a small portion of the cost of operating a well, he said.
“Every day we’re just being drained and throwing money out the window that could go to our employees and others,” Levinson said. “All I’m saying is, if I’ve got a lease and I’m losing money on it, I’m donating and the State of Oklahoma is getting cheated” out of gross production tax revenue.
PRODUCER PROPOSES 90-DAY MORATORIUM
His application requests an interim order “which provides that operators may shut in or curtail oil production from wells where the operator deems such action necessary in the current abnormal and volatile pricing environment.”
Levinson suggested a 90-day order that would expire on July 17. Corporation Commissioner Dana Murphy said there are “different thresholds for different wells,” so an across-the-board commission ruling of waste would be inequitable. And it was noted that royalty owners would be affected by an oil well shutdown.
“That’s why I made my proposal voluntary,” Levinson said. Administrative Law Judge Preslar said she plans to recommend to the commission that oil well operators be allowed to temporarily shut-in or cut back on operations when they deem it an economic necessity.
Preslar indicated her recommendation is that the decision whether to suspend operation of an oil well on the grounds of “waste” attributed to low prices should be determined by the well operator, not by the Corporation Commission.
Operators are “the best ones to determine that,” Commissioner Murphy concurred. Preslar said the interim order would be effective for 90 days unless superseded by a commission order on the merits of Levinson’s application.
The three-member commission will vote on Levinson’s proposal after Ms. Preslar files a written copy of her recommendation, Chairman Todd Hiett said.