U.S. oil 'strippers' maneuver to keep pumping amid crude slump

US stripper wells may be in peril below $35/b
https://nswa.us/custom/shownews.php?action=detail&id=711&page=1

undreds of thousands of US stripper wells with production totaling 1 million b/d of crude could be at risk if oil prices fall below $35/b, where prices teetered in recent days, for long, observers say.

Stripper wells are wells nearing the end of their lives that each produce very low volumes of 15 b/d or less. Collectively, they account for a surprisingly large amount of output — as much as 1 million b/d of crude from about 410,000 oil wells, or about 11% of the US’ total oil production of around 9.1 million b/d, according to the National Stripper Well Association website.

“The low $30s/b is about it,” as far as the economic threshold, Mike Cantrell, chairman of the Oklahoma City-based National Stripper Well Association, said. “We’re not making any money ... at below $30.”

Front-month WTI crude futures in early afternoon trading were up $1.30 to $37.61/b.

Crude prices closed in the $35-$36/b range in the last few trading days.

Cantrell said many stripper well owners are “struggling,” but added: “I don’t think the hammer has dropped yet” on many or most of them.

This could happen, though, if prices get much lower toward year end, when companies report year-end reserve numbers, he said. For now, operators “are kind of hunkered” down, he added.

Investment bank Tudor Pickering Holt said in its daily note on Monday that the average stripper well does not cover direct operating expenses at $35/b WTI.

In general, stripper wells operate on a basic program where the expenses include electricity to run the pump jacks and artificial lift to help oil flow better out of the well, as well as anti-corrosion chemicals, insurance, repairs and hired labor unless the owner does the day-to-day work.

“Some [wells] are actually economic” right now, Cantrell said. “Just as long as your revenue exceeds your expenses, you can keep going.”

He and others say all stripper wells are not necessarily at risk even at current low prices. Because the economics of each well are so different, and have such mixed variables, they will not necessarily go under, they say.

And sometimes the wells keep pumping oil for other reasons. Cantrell said a friend who operates stripper wells and whose company has “a lot” of leverage, is forced to keep his wells going.

“He said, ‘I have no choice, I have to keep their revenue going whether I like it or not because the banker wants to see the production’,” Cantrell said.

Other wells may continue to operate at breakeven because shutting them down costs even more.

“Let’s say you get down to a point where you’re breaking even or a little negative. If I shut the well down, I have to submit it to abandonment,” which incurs expenses and a required regulatory process, energy economist James Williams, who founded and runs energy consultancy WTRG Economics, said.
“Sometimes there is a limit on how long you can go without producing a well before you’re required to go through official abandonment procedures,” Williams said. “So it may be best to keep it going for awhile until oil prices go back up.”

In addition, some wells that are shut-in are lost entirely, due to the type of formation or other well issues, while others can be brought back afterwards, he said.

“The decision point is different on every well,” said Williams. “It’s not a simply one-size-fits-all solution.”

But with low oil prices stalking the industry, 2015’s activity has been lower than that of recent years, stopping some production — even though it will create hardship for well owners — is not an unwelcome development, others say.

“Stripper wells fill a role in the market — but the market doesn’t support [them as] necessary at this point,” Doug Sheridan, founder of the EnergyPoint Research consultancy, said.
“It’s a challenge for those guys, but nothing I see suggests [stripper wells] will necessarily be a very prosperous part of industry for the next few years,” Sheridan said.

Low oil prices that are forecast to be around for some time, stemming from a horde of new crude output in the US and also increases in Saudi Arabian production and potentially from Iran over the next year or so, mean less crude output is needed for awhile until demand picks up, he said.

“The role of stripper wells will be greatly diminished going forward until such time we see commodity prices bounce back,” Sheridan said. Stripper wells “are kind of America’s reserve supply,” he added.

Today’s events may prove them right as Arabia’s current problems are sending this morning’s oil futures thru the roof!

Common sense, really.

Stripper production is often sold on bid by larger producers who don't find it economical to produce low volume wells--and bought by people who find they can do so at a profit.

It is not without potential loss, but generally not heavily leveraged, either. Without having to pay the bank, and often having bought the producing well rather than drilling it (at a considerably reduced cost over drilling), the balance sheet works.

Some of these wells can be worked over and will produce better as a result (at a profit), others cannot.

The good thing about stripper wells is they’re paid for and most have been for a long time. They’re in long established fields so all the infrastructure is already in place. Should the price get down too low I’ll just shut it off and leave the casing open. The gas costs me nothing to produce. Plus it doesn’t need to be checked daily! We’re lucky since we own both the surface and the mineral, others not so much. This is not something I want to do but I have in the past, 98 was a killer but we still survived.

I’m not sure they’re taking into account the gas revenue. Most wells in central WV are produced for the gas. The oil is a by product of operations. The oil normally isn’t hauled until the tank is close to full.

American hard work & ingenuity vs Saudi Arabia. I know who I will bet on.

If hostilities heat up much more between Saudi Arabia and the Islamic Republic of Iran, the glut of oil they are now pouring upon the world market (which in turn depresses prices here in the US) will disappear virtually overnight.

This in turn would put Russia in a much more favorable economic position, as much of their revenue to support and expand their military might comes from foreign sales of crude oil.

In this complicated three-dimensional chess game now going on in the world, absent any US influence (which has become ZERO since 2009) Russia emerges ascendant, while virtually abolishing anything resembling NATO in Europe or the Middle East. The European Union, fast becoming a Northern Caliphate, has a choice - revert to their roots as just about the most savage, bloodthirsty, and aggressive bunch of pirates the world has ever known (who built empires that encircled the world?), or submit and become Dhimmi to what is, sadly, a much inferior ideological and financial culture, one that invents nothing and builds nothing.

It is an old Chinese curse - may you live in interesting times.

"The role of stripper wells will be greatly diminished going forward until such time we see commodity prices bounce back," Sheridan said. Stripper wells "are kind of America's reserve supply," he added.

I bought into gas and oil wells in the late 70's when jimmy carter was pResident, prices were through the roof, and you could get a YUGE tax shelter for your investment. I recaptured my initial $160 K investment from 1977 in three years from Uncle Sugar, and received minimal annual income {$8-12 K} for the next 12 years.

Reagan changed the tax code and prices went down, so I didn't invest anything in the 80s, but the stripper wells were still producing {I know because I used to ride around on weekends checking mine out, in PA and OH}.

I would talk with many of the owner/operators and they were making a profit, but like all commodities, the law of supply and demand controlled the amount of profit. Regardless, it was still an excellent investment, during those times. I wouldn't do it in today's environment.

Stripper Well
https://nswa.us/custom/showpage.php?id=25

For tax purposes, a stripper well is defined as any oil or natural gas well property whose maximum daily average oil production does not exceed 15 bbls of oil, or any natural gas well whose maximum daily average gas production does not exceed 90 Mcf, per day, during any 12-month consecutive time period. Often used interchangeably with the term â€œmarginal wellâ€ although they are not the same thing.

Is water disposal the biggest expense you see with marginal wells?

Thack water is the one thing I don’t have a problem with, where we’re producing from makes very little water. My Garrett A Battery has 11 wells feeding into it and I’ll sell 2.5 to 3 loads of oil a month. In the last 4 years I’ve only hauled of 2 loads of water. Where we went down to the top of the Cline I did pick up a little more water but still only haul about 2 loads a month from 72 wells total. We’re gearing up to drill 2 wells on the south end of the ranch and both will reach to the bottom of the Cline where we expect to see an increase in water. Right now I can drill these wells for about 20-25 percent less than I could 3-4n years ago.

Thanks for the info.

Cheers!

Just give them the money from the ethanol program in Iowa. They will be better stewards of the money.