Stripper well

A stripper well or marginal well is an oil or gas well that is nearing the end of its economically useful life. In the United States a "stripper" gas well is defined by the Interstate Oil and Gas Compact Commission as one that produces 60,000 cubic feet (1,700 m3) or less of gas per day at its maximum flow rate; the Internal Revenue Service, for tax purposes, uses a threshold of 90,000 cubic feet (2,500 m3) per day. Oil wells are generally classified as stripper wells when they produce 10[1]-15 barrels per day or less for any twelve-month period.[2]

The top ten US stripper well states.

Economic importance

In the United States in 2015, 11 percent of crude oil produced comes from a marginal oil well,[3][4] and over 85 percent of the total number of U.S. oil wells are now classified as such. There are over 420,000 of these wells in the United States, and together they produce nearly 915,000 barrels (145,500 m3) of oil per day, 18 percent of U.S. production.

Additionally, as of 2006, there are more than 296,000 natural gas stripper wells in the lower 48 states. Together they account for over 1.7 trillion cubic feet (4.8×1010 m3) of natural gas, or about 9 percent of the natural gas produced in the lower 48 states. Stripper wells are more common in older oil and gas producing regions, most notably in Appalachia, Texas and Oklahoma.

A stripper well may cost between $10 and $30 per barrel to operate, averaging $2,000 per month.[3][4]

Taxation

In Oklahoma, the regular tax rate is 7 percent, but may be 1 percent for marginal wells.[5] In Michigan, stripper well tax is 4 percent.[1] Other tax exemptions can be 15 percent of gross income.[6][7] A 2005 tax credit for prices below $30/barrel was rarely in effect.[8][9]

Premature abandonment

Many of these wells are marginally economic and at risk of being prematurely abandoned. When world oil prices were in the low tens in the late 1990s, the oil that flowed from marginal wells often cost more to produce than the price it brought on the market. From 1994 to 2006, approximately 177,000 marginal wells were plugged and abandoned, representing a number equal to 42 percent of all operating wells in 2006, costing the U.S. more than $3.8 billion in lost oil revenue at the EIA 2004 average world oil price.

When marginal wells are prematurely abandoned, significant quantities of oil remain behind. In most instances, the remaining reserves are not easily accessible when oil prices subsequently rise again: when marginal fields are abandoned, the surface infrastructure – the pumps, piping, storage vessels, and other processing equipment – is removed and the lease forfeited.[4] Since much of this equipment was probably installed over many years, replacing it over a short period should oil prices jump upward is cost prohibitive. Oil prices would have to rise beyond their historic highs and remain at elevated levels for many years before there would be sufficient economic justification to bring many marginal fields back into production.

References
  1. "Taxes - Stripper Well/Marginal Property Information". Retrieved 17 November 2016.
  2. "Stripper Well Facts - National Stripper Well Association". Retrieved 17 November 2016.
  3. Friedman, Nicole (7 September 2015). "'Strippers' Pose Dilemma for Oil Industry". WSJ. Retrieved 17 November 2016.
  4. "The Fuse - Production From Stripper Wells at Risk in Current Price Environment". The Fuse. 6 January 2016. Retrieved 17 November 2016.
  5. "Unprofitable Wells Now a Big Tax Break". Oklahoma Watch. 30 March 2016. Retrieved 17 November 2016.
  6. "Tax Advantages - U.S. Energy Assets". Retrieved 17 November 2016.
  7. The Tax Magazine Deloitte, 6 September 2016
  8. "Small-well producers see tax relief amid oil price drop". Amarillo Globe-News. 17 March 2016. Retrieved 17 November 2016.
  9. "There's one group not ready to ditch the Donald: ethanol producers". Bloomberg Government. 17 May 2016. Retrieved 17 November 2016.

Sources
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