North America’s Oil Industry Is Shutting Off the Spigot

Canceled orders were mounting when Texland Petroleum LP recently decided to shut in each of its 1,211 oil wells to cease production by May. “We’ve never done this before,” said Jim Wilkes, president of the 7,000-barrel-a-day Fort Worth, Texas, firm, which has weathered oil busts since 1973. “We’ve always been able to sell the oil, even at a crappy price.” Now there are no buyers for the crude coming from its wells and no choice but to shut them in. Texland told state regulators its plans and applied for a loan through the Small Business Administration’s Paycheck Protection Program to keep its 73 employees on payroll. From the West Texas desert, where oil is blasted from deep shale formations, to the wilds of western Canada, where multibillion-dollar steam plants bubble thick crude from the earth’s crust, energy producers are resorting to the desperate measure of shutting in productive wells. Though President Trump promised the U.S. would curtail oil output in a pact with major producers, including Saudi Arabia and Russia, there is really no mechanism for the federal government to do so without legislation or major regulatory changes, such as tougher environmental enforcement. Instead, U.S. producers are choking back on their own due to the dismal economics and strained physics of the oil market. The sharp drop in fuel consumption caused by the coronavirus pandemic and exacerbated by the feud between the world’s largest producers has limited options for North American oil companies. Pipelines, refiners and storage facilities are filling up. Even when there is somewhere to send oil, low prices mean that many barrels lose money...MORE (subscription)