Posted on 12/19/2014 6:30:24 AM PST by thackney
Analysts examining the effect of the oil price’s precipitous decline on companies should spare a thought for stripper well operators, the mom-and-pop businesses that coax the last trickles of crude from long-ago drilled holes.
Although tiny in isolation — the average stripper well yields less than 2 b/d — there are more than 400,000 such wells in the US supplying about 11 per cent of US oil production. They produced 700,000 barrels per day in 2012, the latest year for which data are available — as much as the OPEC member Qatar, according to data from the Interstate Oil & Gas Compact Commission.
Now, with the price of US crude below $60 per barrel — down 46 per cent from levels six months ago — some operators plan to idle their stripper wells. Widespread closures could help balance the oversupplied global oil market and stabilize prices.
Melvin Moran, whose company owns stripper wells in Oklahoma, said it costs thousands of dollars a year to keep one pumping.
“A lot of the wells we operate are not going to be viable at this price,” Moran said. “I’m not talking about drilling, but just getting the oil from below the ground to the surface of the ground.”
Mark Thomas has two companies that operate 100 stripper wells in Arkansas state with total production of 300 b/d. “Some of those will be shut in, probably within 90 days,” he said last week.
Thomas said it now costs “in the “high $30s” per barrel to lift oil from the ground. The Lion Oil refinery near his wells in El Dorado, Arkansas last week offered $41 per barrel for extra heavy crude and $52.25 for sweet crude. This suggests razor-thin profit margins for local producers.
Oil analysts have been focused on new investment, such as shale drilling, as they handicap which producers will cut back. They say that because stripper wells’ expenditures are mainly operating costs such as electricity and maintenance, their owners are less sensitive to oil prices than companies exploring for oil.
But stripper wells “operate on the lower edge of profitability,” according to the IOGCC.
“You know, as well as I do, that prices will have to drop significantly and stay depressed for a prolonged period before stripper well producers cut back on production or shut-in wells,” the executive director of the National Stripper Well Association wrote on its website. “Of course, as wells go down for mechanical reasons, they might not be put back on as quickly.”
Marginal Well = A producing well that requires a higher price per barrel of oil or Mcf of natural gas to be worth operating because of low production rates, and/or high production costs from its location, and/or its high co-production of substances that must be separated out and disposed of (like salt water and non-combustible gases mixed with natural gas). On land, this is often, but not always, a stripper well. A marginal well becomes unprofitable to operate whenever oil and gas prices drop below its critical profit point.
Temporary Abandonment = 'Cessation of work on a well pending determination of whether it should be completed as a producer or permanently abandoned.' (Williams & Meyers)
Idle Well = 1) A well that is not producing or injecting, and has received state approval to remain idle; or 2), a well that is not producing or injecting, has not received state approval to remain idle, and for which the operator is known or solvent. (IOGCC)
Plugged and Abandoned = Wells that have had plugging operations during the calendar year. Does not include wells that been plugged back uphole in order to kick the well. This category does not necessarily exclude those with site restoration remaining to be completed.
U.S. STRIPPERS?.......TTIWWOP................oh, wait.............
Has Bill Clinton been notified?
IZZAT for REAL????.............Kool, if it is!.............
Makes them seem like liberals to have such a logo.
Click the pic for the link to the company
You haven’t been around a lot of field hands after work, have you?
You guys are way too fast for me.
I was going to post the headline showing “HEADLESS BODY IN TOPLESS BAR”.
http://nypost.com/2010/02/22/83-killer-in-denial/
This is good news. A lot of the crappy wells hold acreage at 1/8 royalty. The leasehold will go back to the mineral owners, who can re-lease to a more robust operator that can drill horizontal (eventually).
The cost of bringing a well back to life that only produces a couple barrels a day, usually means the oil will never be produced.
1/8 of $110 bucks a day is a lot better than 1/4 of $0.
It is a simple matter to turn off high cost wells when prices get low and to start them back up again when prices go back up.
If the robust operators felt it was worth drilling they would simply do a farm out agreement with the current leaseholder.
ping for comments on ease of restart of an idled well
Also note that most, if not all, lease agreements require a minimal amount of production or the producer loses the lease.
That’s assuming the current operator isn’t an asshat, which is a large assumption.
Exactly. The reason strippers made a comeback was that high prices 5-7 years ago justified the capex needed to automate them.
REALLY! Do they have T-Shirts?!?!
Well if the leasehold is 1/8 it means he could recieve probably a 1/8 override in a multi million dollar project with no expense, so besides being an asshat he would also have to be an idiot.
I the current envoirment I hang on to some of my working interests be used they are in potential horzonal drilling areas and my leasehold is worth something for a farmout. But with the current low price it is getting harder to do.
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