A proration order recently approved by the Oklahoma Corporation Commission that limits the amount of production from natural gas wells is a reminder of the state’s past.
The order, effective from Oct. 1 through Sept. 30, 2019 and adopted by the commission at its Aug. 14 meeting, sets a maximum annual flow allowed from gas wells drilled and produced in Oklahoma.
Tim Baker, who recently retired as director of the Oklahoma Corporation Commission’s Oil and Gas Conservation division, said the statute and rules authorizing such orders have been around for as long as anyone can remember.
As for proration orders related to oil production, those historically haven’t been needed, given that onshore production until recently had been falling while demands for the product consistently climb.
Baker also said the early 1980s is the last time a proration order truly limited production, back when a dramatic boost in natural gas produced by wells drilled during the state’s 1970s boom had overwhelmed needs for the fuel, though he added an order could again cap production, if needed.
“In the practical world, what we’ve learned is that natural gas produced typically by even monster wells begins to decline in a very short period of time,” he said.
Conservation measures, it turns out, are functions the Oklahoma agency and others in states across the nation like it are involved in, year in and year out.
They don’t get nearly as much attention now as they did in 1931 and again in 1933 when Gov. Alfalfa Bill Murray declared martial law to clamp off oil production in the Oklahoma City and Seminole Fields after the overproduction of crude drove prices into the cellar.
His acts, along with similar actions taken by governors in other oil-producing states, eventually led to the creation of the Interstate Oil and Gas Compact Commission.
And that organization, based in Oklahoma City, just recently brought on board a new executive director who has extensive experience with conservation issues in Oklahoma and in surrounding states.
Debate about conserving the nation’s petroleum resources was every bit as volatile as the oil and natural gas spewing from the ground when Murray issued his martial law proclamations.
Oklahoma had a proration statute at the time, but Oklahoma’sSupreme Court had invalidated the use of criminal prosecutions to go after violators, allowing operators to run “hot oil,” or, excess production, without fear of being punished.
Murray declared martial law the first time to try to support slumping oil prices and to try to gain an upper hand in a battle he was having with owners of some of the state’s largest oil companies. When Murray ordered the first shutdown, some monster wells in the Oklahoma City Field were producing more than 10,000 barrels of oil per day.
At the same time, he was accusing Harry Ford Sinclair, an industrialist and banker who owned Sinclair Oil, of plotting with certain members of the Legislature to impeach him. Murray also stated his order was necessary to protect Oklahoma’s children and to prevent the exhaustion and waste of the state’s natural resources.
The problems Murray grappled with were very real, said Bob Blackburn, executive director of the Oklahoma Historical Society.
Murray’s concerns were with independent owners and operators of stripper wells who had borrowed money to continue their drilling programs with the expectation oil prices would remain stable. But prices had been falling precipitously because the nation’s daily oil production was approaching 10 million barrels, while demand was just a third of that.
As prices continued falling, producers ran their wells as hard as they could so they could pay their debt, making problems worse.
Banks also were in peril as more and more producers defaulted on their loans, and so was Oklahoma, which at the time collected just ad valorem and gross production taxes to pay its bills.
Meanwhile, larger companies like Sinclair, were able to cheaply buy up independents’ wells and the production that came with them.
“Harry Sinclair was … loving it. It was cheap oil, he could get it, he could store it and sell it and manipulate the markets because he had the financial backers to do that,” Blackburn said.
When the price for oil fell to 18 cents a barrel in the winter of 1931, Murray acted, issuing an order declaring martial law and giving it to his brother, Cicero Murray, whom he’d commissioned as a lieutenant colonel in Oklahoma’sNational Guard.
Blackburn said Murray chose his brother to execute the order because he worried word of it might leak before he could get state troops into the field.
The larger oil companies had been successfully battling Murray in federal courts, and the governor worried a judge might send marshals or the nation’s military first if the companies knew what he planned. Murray knew he couldn’t order state militia members to fire on federal troops if they deployed first, and reasoned the reverse would be true if he beat them to the punch.
“His brother was the only person he could trust. They marched out of Oklahoma City before anyone knew where they were going or what they were doing … and shut down 3,108 wells,” Blackburn said.
The first period of martial law, lasting 65 days, nearly achieved its goal by boosting prices back to nearly $1 a barrel.
Murray ordered the Oklahoma National Guard back into the field again in 1933 to once again shut down rampant production. The second time, Oklahoma’s Legislature responded by passing a new proration statute, giving enforcement of the issue to Oklahoma’sCorporation Commission.
Interestingly, while Blackburn said the governor’s aim was to “protect the little guy,” he also noted those declarations were widely unpopular among Oklahomans.
“People didn’t want the governments in Oklahoma City or Washington, D.C., telling them what to do.”
As Murray and Oklahoma’s oil giants battled, state leaders in Texas, Kansas and other states were grappling with similar overproduction issues. Their concerns ultimately resulted in Congress’ 1935 approval of an act that created the Interstate Oil and Gas Compact Commission.
Blackburn said Oklahoma Gov. E.W. Marland, also an oilman who had made and lost fortunes in the business, championed the effort to create the commission.
“His standing … in the industry enabled its creation,” Blackburn said. “It never could have been imposed on the oil industry by an outside force — it had to be done for its benefit.”
Throughout its 80-plus year history, the commission has championed conservation and the responsible recovery of the nation’s petroleum resources.
The commission and its 31 member states in recent years have been emphasizing a States First initiative that highlights the idea that collaboration among states is the best way to carry out those goals. Through the commission, state regulatory experts regularly communicate to keep current with changing technology and to share regulatory procedures.
FracFocus.org, a website created by the Groundwater Protection Council where companies post ingredients they use in the process to complete horizontal wells, is a product of the commission’s States First initiative, compact officials said.
The group also shares data on work that regulators among various states continue to do as they deal with ongoing seismic issues caused by saltwater injection and fracking operations.
The commission recently added its 31st full member, Idaho, as companies begin to develop that state’s shale formations to produce oil and gas.
It also has a new executive director, Lori Wrotenbery, whose extensive career has involved her in regulating the oil and gas industry and with the compact commission.
Wrotenbery started at the Texas Department of Water Resources as a staff attorney in the general counsel’s office. In 1984, she joined the Texas Railroad Commission’s Underground Injection Control unit, rising to director of its Environmental Services division and to deputy director of its Oil and Gas division before leaving in 1998 to become chairman and director of New Mexico’sOil Conservation Commission.
Wrotenbery came to Oklahoma in 2004 as director of the Corporation Commission’s Oil and Gas Conservation division. She also headed the commission’s administrative office for more than two years before returning to Texas in 2015 to become director of the Texas Railroad Commission’s Oil and Gas division.
She joined the Interstate Oil and Gas Compact Commission as its new executive director earlier this summer after Mike Smith retired.
Wrotenbery seeks to continue promoting the commission’s stance that states are best positioned to create oil and gas regulations by working with diverse communities on oil and gas issues to achieve mutually beneficial resolutions.
She’s no stranger to the commission, either, having participated in various activities since 1991, including leading the commission’s environmental affairs and state review committees, belonging to its resolutions committee, and represented New Mexico and Oklahoma governors on the commission.
“From the very outset, environmental protection and public safety have been key parts of oil and gas regulatory programs of the states as they support the sound development of resources while protecting public health, safety and the environment,” she said.
Wrotenbery said states’ regulatory agencies are key because they are the labs where regulations are tested and proven out.
“We are very much about bringing states together to share information, to discuss policy issues and to develop materials to assist each other,” she said. “Plus, I have an opportunity to work on behalf of all of the oil and gas producing states in the nation to promote their shared visions about the industry with the federal government.”
Wrotenbery added she was excited to have a chance to return to the Sooner state.
“The people of Oklahoma and Oklahoma City have always been very welcoming to this Texan,” she said. “This is my home away from home.”
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