Two associations representing California independent operators asked the US Bureau of Land Management to extend the Stripper Well Royalty Relief Program (SWRRP) for wells producing less than 5 b/d of oil.
The California Independent Petroleum Association and the Independent Oil Producers Agency of Bakersfield filed joint comments with the BLM’s Washington, DC, office in response to a notice that the SWRRP was being suspended due to sustained high oil prices.
“The SWRRP is perhaps one of the most critical programs the federal government currently operates relative to domestic production,” the groups said in a letter. “The program has been particularly important to help incentivize the exploration and production of heavy oil reserves-the principal type of reserve found in California.”
Under the BLM’s regulations, the operation of the SWRPP and the Heavy Oil Royalty Rate Reduction Program are tied to West Texas Intermediate prices. The regulations call for the suspension of both programs if crude oil prices remain above a threshold, which varies with inflation, for more than 6 months. The current price threshold is $35/bbl.
“The economics of maintaining a heavy oil well is significantly different than the costs to maintain a heavy oil stripper well,” the letter noted, adding that “smaller yielding units are still quite vulnerable.” The associations sent the letter to the House Resources Committee and to key members of Congress from the San Joaquin Valley.
CIPA and IOPA also asked BLM to take regional market factors into account in determining when to deactivate the SWRRP, rather than relying solely on WTI. It noted that the California heavy oil discount to WTI this year has risen to $15/bbl from the historically normal $5-6/bbl.
They also asked the bureau to streamline the SWRRP reactivation process. BLM’s draft regulation suspending SWRRP would require the WTI price to remain below $28/bbl for 6 months before discussion could begin about reactivation. The associations said reactivation thus could require more than 1 year and requested that the period be shortened to 2-3 months.✦
