One of the biggest Texas shale explorers warned it will halt all drilling if the state imposes OPEC-style production caps, raising the stakes in a debate over a contentious proposal to arrest free-falling oil prices. The stark pronouncement from Diamondback Energy Inc.’s finance chief stunned observers of Tuesday’s virtual hearing by the Texas Railroad Commission, which oversees oil output in the Lone Star state. At issue was whether the state should restrict crude output for the first time in roughly 50 years.
The proposal has deeply divided an industry already grappling with a global oversupply, escalating financial losses and the demand-killing Covid-19 outbreak. Diamondback Chief Financial Officer Kaes Van’t Hof said the company already is in the process of shutting down 30% of its drilling and would take it to zero if the state clamps down on production. Such a move would have dire consequences in the form of lost jobs and disrupted families, he said.
In the event of quotas, “we’d let all our service providers go through the period of proration,” Van’t Hof said. “That turns that industry, the service industry, on to the same issues that the restaurant industry is facing today where they’re completely shut down with zero revenue and zero employment.” On a practical note, Railroad Commissioner Christi Craddick wondered whether the agency even retains the expertise to enforce a statewide output limit. “We don’t even know how to do it any more,” she said.