Whether Texas Railroad Commissioners opt to pursue proration in Texas, limiting the amount of oil and gas that can be produced, remains to be seen. But the timing could be perfect, analysts say, for action on another topic—flaring.

Battered by plunging oil prices that have prompted massive spending cuts and layoffs, a couple of the state’s biggest oil producers have asked regulators to mandate a 20% oil production cut instead of letting the global market correct itself. Pioneer Natural Resources Co. and Parsley Energy Inc., a duo of Permian Basin pure-plays, also support reducing the amount of flaring and venting of natural gas in the basin.

Commissioners on April 21 will consider requests from several companies, including Endeavor Energy Resources LP, Carrizo Oil & Gas (acquired by Callon Petroleum Co.), EOG Resources Inc. and Pioneer among others, for exceptions to Rule §3.32 of the Texas Administrative Code, which prohibits flaring of associated gas from initial completion beyond 10 producing days.

The proration item is also on the agenda.

RELATED: Texas Oil Industry Discusses Opening ‘Pandora’s Box of Proration’

Pioneer CEO Scott Sheffield told commissioners last week that shutting in some production of companies flaring more than 2% of their production would be a “home run” for commissioners. Exceptions would be allowed for safety reasons, and smaller producers, which would face more risk, would be exempted.

“You can cut oil. You can also reduce CO₂ emissions,” Sheffield said. He later added, “I wish y’all would get stricter in regard to giving flaring permits. Most producers say it’s operational. But the problem is…there’s a mismatch between the producer, the midstream company, the plant operator and in the downstream. That’s one of the biggest problems. If you get stricter in that regard, it will force all three groups to talk in the future.”

The Permian Basin saw amounts of flared and vented gas surge alongside rising oil production. The increase came as shareholders pushed oil and gas companies to develop resources more responsibly as the world turned toward cleaner energy sources.

Typically, companies drilling for more profitable oil flare or vent gas when pipelines are not available to move it to market.

From an economic perspective, gas doesn’t drive economics.

Nowadays, the case is similar for oil. U.S. crude futures were negative April 21, falling to -$11.42/bbl just after 1:30 p.m. CT, though the June WTI contract was at about $22/bbl.

RELATED: Front-month Crude Oil Futures Plunge into Negative

“Now with the extremely low oil price environments a lot of flaring issues in the Permian Basin are being resolved automatically,” Artem Abramov, head of shale research for Rystad Energy, told Hart Energy.

Driven mainly by the number of new wells completed, gas flaring was problematic in 2019 as more operators chose to flare gas instead of waiting for new pipeline infrastructure to come online, Abramov said. The Permian has since undergone a massive buildout.

Flaring is now being discussed in the context of needing to regulate oil production; however, without additional regulations, wellhead flaring has declined by about 50%, according to Rystad’s estimates. Exxon Mobil Corp., which had a high flaring intensity as it expanded in areas without infrastructure, was among the companies showing improvement.

The energy consultancy group reported this month that basin-wide gas flaring dropped to about 700 million cubic feet per day (MMcf/d) in first-quarter 2020, with 550 MMcf/d flared at the wellhead, down from about 800 MMcf/d in fourth-quarter 2018.

Source: Rystad Energy

“As a percentage of gas production, it will decline even more,” Abramov said, negating the need to include flaring in any proration efforts.

The firm’s data show more than 5% of produced gas at the wellhead was flared in fourth-quarter 2018. That dropped to 2.8% by first-quarter 2020.

Source: Rystad Energy

“With this in mind, if the railroad commission were to apply some stricter regulations, this is the perfect timing because very few companies will complain about flaring regulations during the downturn,” Abramov said. “Flaring is already declining naturally so they will be able to comply with any regulations quite easily.”

Ovintiv Inc. opposes proration in Texas but supports continued flaring reduction.

“The only time you’ll see our company flaring is when there are operational upsets,” Ovintiv CEO Doug Suttles said last week. The company has supported putting stricter flaring regulations in place. However, “I don’t believe it’s the right tool to manage this supply demand issue today.”

Todd Staples of the Texas Oil and Gas Association had a similar position.

“Flaring for curtailment issues is the wrong basis to be looking at for operational issues regarding wells,” Staples said. “Flaring is necessary for safety reasons. Flaring could be required because someone else in the supply chain had a glitch in their operations and then it backs all the way up to your well.”

During the hearing, Commissioner Ryan Sitton asked: “If we adopt the approach that economics is not part of our consideration of waste and someone were to argue that they want to flare because the economics are not good should we no longer consider that a viable argument?”

RELATED: Texas Regulator Names Companies With Highest Flaring Rate

Staples responded, saying: “Economics is a part of every conversation. … But I think we need to look at flaring on what is operationally acceptable.”

As for oil production cuts in Texas, Abramov doesn’t expect any action from commissioners as the request by Pioneer and Parsley is not supported by the majority of the industry. Low oil prices incentivize more shut-ins, he said, noting some producers have announced such moves in recent weeks.

Everything depends, from the global context, on how quickly global liquids demand recovers,” he said.

Abramov pointed out continued second-quarter demand detraction with COVID-19 and planned cuts by various oil-producing countries. “[Cuts] cannot be implemented as quickly as the market needs them,” he said. “I would expect a few more weeks of very depressed environment to trigger more widespread cuts but the market will ultimately balance itself.”