Texas Official Acts to Firm Up Links to OPEC

When Kent R. Hance traveled from Texas to London earlier this year to meet with the president of OPEC, Nigerian oil minister Rilwanu Lukman, he was happy to find so much common ground.

“It was like talking to someone from Midland, Tex.,” recalled Hance, a member of the Texas Railroad Commission, which regulates oil production in the state.

Indeed. The mutual interests of Texas and the world’s other great oil-producing regions have Hance winging his way toward Europe again, this time for an unusual round of meetings next week with all the OPEC ministers at the cartel’s heavily guarded Vienna headquarters.

The idea, Hance said, is for the hard-hit state of Texas to seek “cooperation” and to “open a dialogue” with the Organization of Petroleum Exporting Countries as it tries to raise and stabilize oil prices around the world.

The former Democratic congressman’s dalliance with OPEC has made him either a hero or a bum in Texas, depending on who is holding forth. But as Hance, now a Republican, gears up for an election campaign, it has undeniably gotten his name in the papers.

“Anybody who is out front in trying to solve the problems created by low oil prices will garner a lot of attention,” said an aide to Republican Gov. Bill Clements, who appointed Hance to the Railroad Commission and supports his OPEC initiative, at least in spirit.

Less charitably, Democratic U.S. Rep. John Bryant of Dallas said: “Kent Hance is a shameless grandstander and always has been.”

‘At Taxpayers’ Expense’

Though the OPEC meetings are Hance’s idea, he is traveling as the official representative of the Railroad Commission and, as one Texas critic grumbles, “at taxpayers’ expense.” The three-member commission would have to approve any action in support of OPEC. Hance also said he would not propose anything without Clements’ approval.

The Reagan Administration, philosophically opposed to cartels, seems reluctant to directly criticize Hance’s OPEC adventures. He is, among other things, co-chairman of the Texas steering committee for the presidential campaign of Vice President George Bush. The other chair is Rita Clements, the governor’s wife.

As a congressman for seven years, he recalled: “I was one of the boll weevils who carried President Reagan’s tax program in 1981. I’m a Reagan Republican.”

Nonetheless, in the Oil Patch, Hance’s initiative serves to underscore for some critics what they see as the Administration’s lack of an energy policy and what is seen as Washington’s insensitivity to the travails of oil communities over the last few years.

Energy Secretary John S. Herrington is traveling in the Far East. Other top-level Department of Energy officials refused to talk about it. The job of responding to questions about Hance’s mission fell to Herrington’s press secretary, Doug Elmets, who issued a generic comment about the Administration’s disapproval of any assistance to OPEC’s price manipulation, then added: “That’s not aimed (specifically) at Kent Hance.” He said Herrington would have nothing to say about the Texas-OPEC matter.

Cut in Oil Output Seen

The overture to OPEC appears to put Texas in a similar posture as seven oil-producing nations that do not belong to the cartel but would like to help. The seven, led by Mexico and Egypt, are to hold an unprecedented meeting with OPEC’s pricing committee Tuesday in Vienna amid speculation that they will agree to cut oil production to shore up prices. A full meeting of the cartel follows Thursday.

Hance will be there, too, at OPEC’s invitation, although he is vague about what he has in mind. He insists that cutting Texas production is “not one of the top priorities, but it is a possibility.” The goal is stable prices, not necessarily higher ones, Hance says.

A cut of 5% in production--the size cutback being discussed by the non-OPEC producing nations--would carve 100,000 barrels a day from Texas crude output of 2 million barrels. While not enough to affect prices much in straight economic terms, the action would probably be a psychological plus to markets.

“Jawboning does seem to have an effect on prices,” said Thomas Burns, manager of the economics staff at Chevron Corp. in San Francisco. “By just going to the meeting and expressing solidarity, they would be adding one more feather to the scale.”

For Texas producers, it then becomes a question of whether the price per barrel climbs enough to offset the lost production.

Contribution Unclear

Other than cutting the output of oil in Texas, whose current production is in the same league as OPEC’s biggest producers, save for Saudi Arabia, it is not exactly clear what the Railroad Commission could contribute to the cause of higher prices.

And cutting the flow of Texas oil poses some awkward problems. Inevitably, oil economists point out, withholding Texas crude from the market would boost the amount of imported oil entering the country because other domestic sources are incapable of taking up the slack.

That would aggravate the very rise in oil imports that people in oil states, as well as such interested parties as the Department of Defense, cite as a threat to national security.

It is also unclear whether Texas law could be twisted enough to accommodate some sort of romance with OPEC.

Until OPEC’s rise to prominence in the late 1960s, the Texas Railroad Commission was a powerful arbiter of world oil prices through its control of production in the state. It is empowered by state law to limit production if the purpose is to conserve the state’s resources, not to control prices.

It is a convenient economic fact, of course, that limiting production for whatever stated reason tends to boost prices. But for the last 20 years, with waning U.S. production inadequate to meet demand anyway, the state’s producers have been allowed to pump all the oil they could.

‘Economic Waste’

Another commission member, James Nugent, has raised doubts about whether the state law would permit a cut in output in concert with OPEC. But spokesman Brian Schaible said that since the oil price collapse of 1986, the commission has “kicked around” the question of whether it could cut production on the grounds that continuing to produce oil at fire-sale prices constitutes “economic waste.” No legal opinion has been sought, he said.

Antitrust problems? William Baxter of the Stanford University Law School, former head of the Justice Department’s antitrust division, said the antitrust laws are directed at the private sector, not at behavior by governments, even though governmental action can have the same results.

“The point is he’s not acting as a member of Texaco management or something, he’s there on behalf of the state of Texas,” Baxter said. “I see no obvious (legal) obstacles.”

For his part, Hance thinks the state of Texas can teach OPEC a thing or two.

The cartel’s efforts to monitor production by the 13-member nations has been an abysmal failure, for example. Auditors have been denied access to oil fields by some nations, enabling them to cheat on production quotas.

All they need is a fancy monitoring system like Texas has, the one-time unsuccessful candidate for governor and U.S. Senate said. That would help Texas by helping OPEC enforce its quotas, he reasons.

‘I’m Trying to Help Texas’

“I’m not trying to help OPEC, I’m trying to help Texas,” said Hance, 45, who is running for election to the commission this fall.

Texas newspapers have been hashing this over and are editorially divided, perhaps reflecting the state’s ambivalence toward OPEC. Though the Arab-controlled cartel is distrusted by Texans as by other Americans, its success on oil prices would be good news for the Lone Star State’s battered economy.

The notion that the state of Texas might cut a deal with foreign governments does not seem to bother the U.S. State Department. Hance said he wrote Secretary of State George P. Shultz about his plans, and a spokeswoman there said: “If he hasn’t heard from the secretary, it’s apparently not a concern of the State Department. It hasn’t come up at all.” Shultz has been busy with other things lately, she pointed out.

But the OPEC ministers themselves might be puzzled by it. A top aide to one Persian Gulf oil minister said Thursday: “OPEC is an organization of (national) governments. We would expect a dialogue with U.S. officials. From what we hear from Herrington, he’s against any dialogue with OPEC.”

Presence Pleases Cartel

Still, the Texas presence is clearly satisfying to the cartel, which feels that the virtues of higher oil prices are unappreciated by the industrial world. The official OPEC news agency observed Thursday:

“When a body such as the Texas Railroad Commission seeks a meeting with OPEC . . . it is doing so not because it has decided for all purposes to jettison the American belief in ‘market forces,’ but because the events of 1986 proved that oil was a unique commodity and adverse developments in its price could bring the Texan state economy virtually to its knees.”