Stripper Survival | Russell T. Rudy Energy LLC
Historically “stripper” wells have been defined as those which produce less than 10 barrels per day. The traditional wisdom is that the small operators who produce these wells are the most vulnerable to downturns in the oil market. However, a recent article in “Rigzone” points out that despite low production volumes, limited access to capital, and relatively high unit costs, these operators are proving resourceful and resilient.
Stripper operators are not only faced with the tactical problems of lower revenues, but also with the strategic concern of losing leases should production cease for an extended period. To keep oil flowing and leases active, a number of creative strategies have been employed. For example, Nelson Wood, with family-owned Wood Energy, has laid off employees and closed 10 of 150 wells, yet seen production drop by only 4%. The Illinois Basin operator observed “We run some wells at a loss to keep the lease active.”
Darlene Wallace inherited Columbus Oil in Oklahoma after her husband passed away. To maintain production and mineral rights, she has shut in 4 of 25 wells, eliminated the postage machine, and asked employees to pay part of their health insurance costs.
Some operators are also deferring necessary maintenance, using temporary workers, and doing some of the work themselves in an effort to reduce costs.
In order to keep oil and gas leases active, production can only be suspended for short periods of time. In Texas, this can be 60-90 days. Some operators have perfected a practice called “stop-cocking”, suspending production until the last day of the allowed cessation period. Others continue producing only one of several wells on a property in order to technically comply with a lease.
Most stripper operators are confident that if they can maintain their oil and gas leases they can bring suspended production back on line when times get better. In the meantime, Denver based energy consultants, Ponderosa Advisors, think that debt free stripper operators can survive a price downturn as low as $18 per barrel.
From a national perspective, it is tempting to say that the demise of stripper operators, while unfortunate, is not significant. However, over 400,000 stripper wells across the U. S. produce over 10% of our total oil. Let’s all hope that they live to fight another day.
To read this article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/142320/US .
