IPAA: Price plunge threatens 2 million b/d

The U.S. oil and gas industry has lost 41,000 jobs and shut in more than 136,000 oil wells and 57,000 gas wells since oil prices began dropping in November 1997, said Independent Petroleum Association of America.

IPAA Pres. Gil Thurm said, "America's oil and natural gas production base is eroding. And if action is not taken immediately, the Y2K computer problem predicted in 2000 will look like a stroll in the park compared with what America will face without a functioning domestic oil and gas industry."

IPAA survey

IPAA's projections were based on an industry-wide survey it conducted in January. The data were based on 573,504 wells that produced 6.4 million b/d of oil and 303,724 wells that produced 18.9 tcf in 1997.

Thurm said, "The numbers are staggering. Even if oil prices were to increase to levels averaging $14/bbl for another 6 months, we can expect an additional loss of 17,000 jobs, and more than half of the oil and natural gas wells in the Lower 48 states will be shut down."

In 1998, the average wellhead price of crude was about $11.25/bbl.

IPAA estimated the number of oil and gas wells shut in to date represents an economic loss of $25 billion.

It said sustained low oil prices have also resulted in more than $1.8 billion in lost royalties and severance taxes to the 33 producing states and the federal government, reducing funds for schools and other public services.

Thurm said, "These numbers are significant, not only in terms of economic impact and employment, but also because once these wells are abandoned, access to the resource base tapped by these wells is gone forever."

He said some legislators have filed bills to help the industry, but, "Even with strong endorsement by fellow colleagues of other oil-producing states, nothing will be gained without overt and public support from the White House.

"The future of the most strategic industry in America hangs in the balance. IPAA urges the entire U.S. government to take immediate and meaningful emergency action to deal with this crisis."

Responses

IPAA surveyed its membership and 40 cooperating associations and received 720 responses.

The respondents operate more than 68,000 (11.9%) of U.S. oil-producing wells out of an estimated 573,000, and more than 43,000 (14.2%) gas wells out of an estimated 303,000.

Respondents said they had shut in 16,147 oil wells (23.7%) and 8,226 gas wells (19.1%). They said lost production was 7.2 million bbl (18,000 b/d) and 13.1 bcf.

In 1997, survey respondents drilled an average number of 9.1 new wells. They said that, last year, the number of new wells they drilled dropped to 6.8; in 1999, they plan an average of less than five wells apiece.

The 720 respondents reported that 3,093 jobs have been lost.

Extrapolations

The association used the survey to make industry-wide assumptions.

It estimated 136,132 oil wells and 57,958 gas wells have been shut in since November 1997.

It said that, even if oil prices remain at levels averaging $14/bbl for another 6 months, another 184,432 oil and 23,490 gas wells will be shut in.

IPAA said survey results indicate 360,000 b/d of oil has been lost since November 1998. Correlating with the National Petroleum Council's 1994 marginal well report, it appears that 2 million b/d of crude oil production is at risk.

IPAA estimated that 24,415 jobs have been lost since the price decline began and said that, if low oil prices remain below $14/bbl for another 6 months, another 17,279 jobs will be lost.

IPAA estimates more than 68,000 jobs (20%) out of an estimated 338,600 total industry employment could ultimately be lost.