A study by a group of governors of U.S. oil and gas producing states underscores the economic worth of stripper wells in the U.S. while sounding alarm at their demise.
Proponents of preserving marginal oil and gas wells in the U.S. hailed the report by the Interstate Oil & Gas Compact Commission (Iogcc), Oklahoma City, as a call to action. They said the U.S. government should enact incentives similar to those passed in some states to encourage operation of as many marginal wells as possible.
Iogcc's report said U.S. stripper wells in 1994 produced oil and gas valued at $6.5 billion, contributing $10.5 billion to the U.S. economy. Also in 1994, stripper wells:
- Accounted for 14% of U.S. oil production and 4.8% of gas flow.
- Created 59 worth of added economic activity for each $1 of oil or gas produced and 9.4 jobs for each $1 million worth of stripper production.
- Supported directly 28,000 jobs in the U.S. and indirectly another 34,000, generating $1.38 billion in employee earnings.
In addition, stripper well producers paid $311 million of severance taxes to local, state, and federal government in 1994. Industry defines stripper wells as oil wells producing 10 b/d or less and gas wells producing no more than 60 Mcfd.
Abandonments
Despite the importance of stripper wells to the U.S. economy, the Iogcc picture of marginally economic wells included some troubling aspects.
For example, the group counted 601,900 active stripper wells in the U.S., including 442,500 stripper oil wells and 159,369 stripper gas wells. However, the study showed the number of stripper wells producing oil has declined 21,354 in the past decade.
U.S. operators in 1994 abandoned 21,059 stripper oil and gas wells, an average of 57 wells/day. The daily average in 1994 of stripper oil well abandonments, 49, was the highest since producers abandoned nearly 50 oil strippers/day in 1987.
Iogcc began collecting stripper gas well statistics in 1994 with data from 1993.
In addition, operators presumably shut in the least profitable stripper wells. Yet the average output of a U.S. stripper oil well in service through 1994 was 2.1 b/d, the lowest production rate since Iogcc began tracking stripper oil wells in 1941. Combined stripper oil production declined for the 11th year in a row to 339.9 million bbl.
Stripper gas wells, meantime, produced more than 940 bcf, an average 16.2 Mcfd.
Iogcc estimates stripper well abandonments in 1994 caused nearly $270 million in lost gross revenue, $421.3 million lost economic activity, and nearly 2,400 lost jobs. Stripper well abandonments in 1992-94 resulted in combined lost economic activity of $1.2 billion and 6,806 lost jobs, Iogcc estimates.
Conserving resources
Iogcc and the National Stripper Well Association (NSWA), Washington, D.C., maintain that U.S. stripper wells represent opportunities in economic development.
In addition, the low volume wells provide a means to conserve U.S. oil and gas because they produce hydrocarbons that otherwise might not be recoverable. Iogcc estimates U.S. stripper reserves amount to more than 2.89 billion bbl of oil and nearly 1.6 tcf of gas.
"Allowing the demise of the stripper well industry is tantamount to abandoning a national treasure and wasting a precious natural resource," said Christine A. Hansen, Iogcc executive director. Hansen said tens of thousands of idle, low volume wells in the U.S. could be returned to production, creating widespread benefits in some of the country's most economically depressed regions.
NSWA Pres. Virginia Lazenby said preserving U.S. stripper production should be an important part of U.S. energy policy.
"Instead of sending our American dollars and military to boost the Middle East's oil industry, we must preserve our own," Lazenby said. "Before promising billions to help build the Russian oil industry, we must promise to invest in our own."
Federal regulators have stopped short of adopting policies to maintain stripper well production. However, Iogcc in its report cites several examples in which states have approved incentives that appear to be working:
- After enacting incentives in 1994 for workovers and recompletions, Wyoming reported only three stripper abandonments during the year. The state in 1994 ranked seventh in stripper oil production with more than 8.5 million and 12th in the number of stripper oil wells with 7,402.
- Utah in 1994 boosted stripper oil production by more than 100,000 bbl to more than 2.57 million bbl after passing a tax credit for workovers or recompletions of producing wells.
- Producers in Montana credit a tax incentive for new wells and for wells shut in for 5 years or more with placing idle wells back on production and boosting stripper output in 1994 to 2.2 million bbl from 2.1 million bbl in 1993.
Despite the effectiveness of such measures at the state level, Hansen said, federal energy policies seem to favor spending billions of dollars to import and protect supply lines of foreign oil.
"In addition to incentives," Hansen said, "we believe state and federal efforts could include research and development that concentrates on recovery technologies for the billions of barrels of domestic oil that remain in place."
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
