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US stripper well operators eye closures amid low oil prices

by Gregory Meyer
Financial Times | 14 DEC 2014

[full story] 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.”