Texas must cut oil production or jeopardize domestic crude

Parsley Energy CEO Matt Gallagher on Wednesday told CNBC’s Jim Cramer that the state of Texas must issue an oil production cut, or risk putting almost 1 million jobs across the country in jeopardy.

“My stance is if we don’t do something quickly in the face of a pandemic, you are going to cripple this domestic industry on the other side,” he said in an interview with the “Mad Money” host.

Gallagher’s comments come one day after the Texas Railroad Commission, which regulates the state’s oil and gas industry, heard arguments from dozens of energy executives on whether a supply cap should be implemented due to the coronavirus pandemic and stunted crude prices. If carried out, it would mark the first time Texas has cut production in nearly five decades when OPEC tightened its hold on the market.

Parsley, which is based in Austin, Texas, is one of a handful of operators that has existing production capacities to cover debt without new drilling, Gallagher said in the interview. The oil company is among the producers in favor of a prorate, or production reduction.

“So, this isn’t about us. This is about the service sector,” he said. There are “360,000 jobs just in the state of Texas, close to 1 million jobs across the country, supported in [the] oil and gas sector and the service sector.”

“If those companies are shut down for 2-3 months, they will not come back and we will be reliant on domestic imports again like we were before the last decade,” he warned.

Gallagher noted that if Texas was considered a country it would be the third-largest producing nation on earth.

Midland, Texas-based Diamondback Energy, however, is opposed to a state-mandated production cut. CFO Kaes Van’t Hof said during the Texas Railroad Commission’s 10-hour telemeeting that a reduction would impact the employment of roughly 3,000 people, as reported by The Texas Tribune.

The discussions are being held with the backdrop of at least 16 million jobs lost in the U.S. amid the coronavirus outbreak.

“If we are forced to prorate, we are going to cease all activity right away,” Van’t Hof said.

In response to the evaporating demand for oil amid the pandemic, Parsley decided to cut capital expenditure spending by 66%, Gallagher told Cramer in the interview. While OPEC and its allies made a historic deal to cut daily global oil production by 9.7 million barrels and ease off a price war, he said it is “not enough” when demand for crude has fallen to 30 million barrels a day.

“That’s the largest demand shock this industry has ever seen,” Gallagher said. “We need to pitch in everywhere we can. Operators need to pitch in.” 

The U.S. benchmark West Texas Intermediate was $20.15 as of Wednesday afternoon, down more than 66% from the start of the year.

U.S. Energy Secretary Dan Brouillette told CNBC he thinks the oil price may be at a floor.