Stripper Wells

What is a Stripper Well?

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 barrels 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 “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 nearly 19% of U.S. oil production. They produce less than 90 thousand cubic feet a day, yet account for 12 percent of U.S. natural gas. (Energy Tax Facts)


Image by Energy Tax Facts

An estimated 777,000 marginally-producing wells (396,000 oil and 381,000 natural gas wells) contributed to U.S. oil and natural gas production in 2016. Despite weakness in 2015 and 2016, the total number of marginal wells is still believed to be in a long-run uptrend. Overall, nearly three-fourths (72.4 percent) of all operating wells in the U.S. in 2016 are marginal producers. The 284.4 million barrels of marginal oil produced in the U.S. in 2016 represent 8.8 percent of total domestic oil production of 3.24 billion barrels. Marginal natural gas production in the U.S. totaled a reported 1.88 billion Mcf in 2016, representing 6.6 percent of the 28.3 billion Mcf of natural gas produced domestically in 2016.
Interstate Oil & Gas Compact Commission

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 perticular well as merginal well depends on oil prices, and the cost of production, unlike a stripper well that has a difinite 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.”
(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