Oil Price Forcing Small US Producers to Shut Older Wells

Collapsing crude prices are confronting scores of smaller U.S. oil producers with the grim choice of either shutting older high-cost wells or burning through cash in the hope of riding out the downturn.

As oil prices fell by more than half over the last six months from more than $100 per barrel, the U.S. oil industry responded by slowing its blistering growth and dialing back expansion plans.

Now, with U.S. crude around $46 a barrel, operators are already closing some small old wells, known as strippers, and tens of thousands of similar wells are on the verge of losing money. A further slide could, by some estimates, idle an equivalent of up to 2 percent of U.S. supply, slowing overall output growth more than expected or even leaving it flat.

 
Ray Lasseigne, an oilfield veteran and president of TMR Exploration Inc in Louisiana, is deciding which wells to close. TMR looks to close old wells, which produce so much saltwater that disposal costs exceed what the oil can fetch today.

Other running costs include repairs and electricity to run the pump jacks, also known as nodding donkeys because they bob up and down while pulling oil out of the ground.

“We’ve identified about 20 of our wells that are not economic at these prices,” said Lasseigne. That figure represents about 10 percent of the Bossier City, Louisiana company’s wells, he said.

His most expensive stripper wells need oil around $70 to be profitable.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza