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A stripper well owner-operator speaks up

Oil and Gas Journal
March 6, 2009
The domestic oil and gas industry found plenty to dislike when the Obama administration announced its proposed federal budget. But it's possible that the segment which would be hurt quickest and hardest is its marginal, or "stripper," oil producers.
Their 420,000 low-volume wells each produce fewer than 15 bbl daily. Yet they collectively represent 20% of the total domestic oil and gas production, or 1.2 million b/d, roughly equal to daily US energy imports from Saudi Arabia, according to the National Stripper Well Association.
"It is critical that US stripper wells are exempt from this legislation. Without revision, these provisions would result in well abandonment and reduced oil and natural gas production, serving only to further harm America's fragile economy," said Dewey Bartlett Jr., president of Keener Oil Co. in Tulsa and the NSWA's chairman.
The owners and operators of these wells essentially are small business owners who are dramatically different from major oil companies, he noted.
An Illinois producer
Arlene P. Snyder, the president and chief executive of Parish Oil Production Inc. in Northbrook, Ill., is one of them. She recognizes that the country is in economic trouble, says that US President Barack H. Obama is working hard to clean up the mess, and thinks that everyone should help. She would also like to stay in business.
"We are not large, integrated international oil companies reporting huge profits earned last quarter. Our only source of income is at the wellhead after paying the monthly operating expenses to get that oil out of the ground and into a tank," she told me in a Feb. 27 e-mail message. Many stripper wells take three months to fill a stock tank before the oil can be sold to a refinery, she added.
Refiners set the price, Snyder continued, and after several years of mergers and acquisitions, there are only two who buy Illinois Basin stripper oil. "These refineries discount our sales price for our 40-degree sweet crude at $8.25/bbl below West Texas Intermediate pricing for sweet crude," she said.
More sour crude
Most US refineries have retooled their operations to process imported sour crude, which also increasingly flows into the US Strategic Petroleum Reserve, Snyder said. Sweet crude costs less to process, "but refineries need volume every day and use sour crude because sweet crude production levels have dropped since 1986," she said.
She said that her small business might be able to absorb a reduced tax incentive. "But we cannot sustain the complete loss of the depletion allowance and the ability to write off intangible drilling costs in the year they are incurred," she said.
"We are in a very high-risk business. Even reworking existing wells costs a lot of money with no assurance we can even get it back. We must have a way to offset these huge gambles because we are a small company with limited operating capital," Snyder said.
She hopes that Congress will recognize there are differences between her company and Exxon Mobil.