Stripper Wells

What is a Stripper Well?

For tax purposes, a “Stripper Well” is defined as any oil or natural gas well whose maximum daily average oil production does not exceed 15 barrels of oil, or any natural gas well whose maximum daily average gas production does not exceed 90 thousand cubic feet of gas (Mcf), per day, during any 12-month consecutive time period. The term stripper well is often used interchangeably with the term “Marginal Well,” although they are not the same. (Tax code of the United States Internal Revenue Service, 1986)

Stripper Wells makes up a significant portion of America's oil and natural gas production. These wells may produce less than 15 barrels of oil a day, but they account for over 7.4% of U.S. oil production. They produce less than 90 thousand cubic feet a day, yet account for 8.2% of U.S. natural gas production. (Energy and Industrial Advisory Partners)


Image

Image by Energy Tax Facts

The United States has an estimated 760,000 stripper wells in production – about 400,000 oil and 360,000 natural gas wells. That means, of the roughly one million active oil and natural gas wells in the United States, 76% are low production wells, typically operated by small businesses.

Combined, these stripper wells make up over 7.8% of the total of all oil and natural gas produced domestically (7.4% oil and 8.2% natural gas).

Energy & Industrial Advisory Partners: The Economic Impacts of Eliminating the Percentage Depletion Allowance

What is a Marginal Well?

A marginal well definition is about economic viability, whether the extraction of oil and gas is profitable. To define a particular well as a marginal well depends on oil prices and the cost of production, unlike a stripper well that has a definite output attached. Stripper wells tend to be marginal wells, but a marginal well might not be a stripper well.

A producing well that requires a higher price per Mcf or per barrel of oil to be worth producing, due to low production rates and/or high production costs from its location (e.g. far offshore; in deep waters; onshore far from good roads for oil pickup and no pipeline) and/or its high co-production of substances that must be separated out and disposed of (e.g. saline water, non-burnable gasses mixed with the natural gas). A Marginal Well becomes unprofitable to produce whenever oil and/or gas prices drop below its crucial profit point. On land, this is often but not always a stripper well. (Interstate Oil and Gas Compact Commission)


What is a Temporary Abandonment?

Cessation of work on a well pending determination of whether it should be completed as a producer or permanently abandoned. A temporary abandoned well can include wells that were formerly producing but are temporarily abandoned, waiting on a decision to restart or plug. (Williams & Meyers)


What is an Idle Well?

(1) A well that is not producing or injecting and has received state approval to remain idle

(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.
(Interstate Oil and Gas Compact Commission)


What is a Plugged or Abandoned Well?

Wells that have had plugging operations during the calendar year. It does not include wells that have been plugged back up-hole to kick the well, etc. This category does not necessarily exclude those with site restoration remaining to be completed. (Interstate Oil and Gas Compact Commission)


The large number of wells plugged and abandoned each year presents an ongoing economic cost to U.S. energy production. Over the past decade (2006-2016), a cumulative total of more than 182,500 wells - 115,000 oils wells and 67,000 natural gas wells - have been plugged and abandoned. The lost production from these wells the past decade has an estimated market value of $7.6 billion annually (measured in the year production ceased). The estimated market value of the lost production from these wells in 2016 totaled $442 million - $364 million for oil and $78 million for natural gas. If all stripper wells plugged and abandoned…The lost output in direct production and in direct and induced economic effects would total $32.5 billion with 142,844 jobs lost.
Interstate Oil & Gas Compact Commission