(by: Jason Womack, Tulsa World Staff Writer - 9/18/2007)
With oil prices at record levels, Oklahoma's smallest wells may be its greatest asset. Marginal wells -- wells that produce 15 barrels or less of crude per day -- comprise 65 percent of the state's oil production. And in the current price environment, those small wells have become more profitable.
"They support the pumper, royalty owner, service people, and they pay taxes to the state," said Mike Terry, president of the Oklahoma Independent Petroleum Association. "It's like a small business."
Oil set another record Monday. The price of light, sweet crude rose to $80.57 a barrel on the New York Mercantile Exchange on expectations that the Federal Reserve will cut interest rates, a move that energy speculators hope will spur the U.S. economy. Last week, oil began trading above $80 a barrel for the first time after the Energy Department reported declines in oil and gasoline inventories. Hurricane Humberto also cut power to three Texas refineries, adding to concerns about supply.
The record high price was still below the adjusted high of 1980, when oil reached $38 per barrel, according to The Associated Press. A price of $38 per barrel back then would be worth $96 to $101 today, depending on the adjustment for inflation. Still, prices above the $80 mark stimulate growth in the exploration and production segment of the energy industry, Terry said. "Drilling -- let's face it -- is the economic driver for Oklahoma."
The average marginal well in Oklahoma produces just 2.7 barrels of oil per day, and many have continued to produce small amounts of oil for years or even decades.
Dewey F. Bartlett Jr., president of the National Stripper Well Association and Tulsa-based Keener Oil & Gas Co., said marginal or "stripper" wells are a reliable source of oil that during peak price periods become more economically viable. "We can always count on stripper wells to continue to produce a significant amount of energy for our country," he said.
Marginal wells make up the foundation of U.S. oil production, Bartlett said. More than 400,000 marginal wells are scattered across the nation, pumping out about 900,000 barrels of oil per day -- more than 20 percent of domestic oil production. The wells are typically owned by smaller companies or family operations that maintain the wells and reap the profits.
When the price of oil is strong, a marginal well may trigger additional drilling. Operators who have producing wells on large leases may drill additional wells into the same reservoir and make incremental increases in oil production. "There is a lot of looking at these old wells in new ways," Bartlett said.
With prices high, operators are less likely to plug the small wells, often cutting off access to an oil reservoir forever, Bartlett said. "The pricing of product determines if that well stays in existence."
