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Oklahoma's Energy Production Decline Makes Marginal Wells More Important

Posted on: Wednesday, 6 July 2005, 21:00 CDT

Jul. 6--Oklahoma's least productive oil wells are becoming increasingly important as total production continues to decline across most of the country, energy industry experts say.

Oklahoma oil production slipped about 1.4 percent in 2004 to 63.7 million barrels, mirroring a similar decline across the onshore United States. Bruce Bell, chairman of the Mid-Continent Oil and Gas Association, said the decline is caused by two interrelated issues.

"If you look at the rig count, 85 to 90 percent of the active drilling rigs are looking for natural gas," he said. "That all has to do with the fact that the U.S. is a very mature oil province.

"The easy oil has been found. Oil is now harder to find in any large quantity, and it's generally difficult to extract."

Natural gas faces a similar problem, but significantly increased drilling over the past two years has allowed production to break even and increase slightly last year. Such a turnaround, however, is unlikely for crude oil, Bell said.

"It would appear no amount of drilling will actually increase our oil production in the onshore U.S.," he said. "It is very likely that if prices remain high that increased drilling will slow the rate of decline, but to be able to reverse it does not appear likely."

The declining production levels are making the state's least productive wells -- also known as marginal wells -- increasingly important, said Liz Fajen, executive director of the Oklahoma Marginal Well Commission. "I think marginal production will always be a mainstay in the state because some of those wells have been producing for 50, 60, 70 years and may have been making two barrels per day for about 40 of that," she said. "But they may make two barrels a day for another 40."

Marginal wells are defined as those that produce less than 10 barrels of oil or fewer than 60,000 cubic feet of natural gas per day. Individually, the less-active wells may seem insignificant, but together, they supply about 30 percent of the country's oil production and about 70 percent of the oil pumped out of Oklahoma soil.

Numerous marginal wells were shut in during the late 1990s when the price of crude dipped below $10 a barrel. With costs of $11 to $20 to produce a barrel of oil from a typical marginal well, many operators couldn't afford to keep their wells operational.

Improved technology and soaring commodity prices, however, have allowed energy companies to expand the production of certain marginal wells and, in some cases, reopen wells that were shut in during the industry's down years.

"Every barrel per day is that much more that comes from domestic production," said David Spencer, administrative engineer for Tulsa-based Calumet Oil Co. "Some of these wells may have been producing one to five barrels a day 10 years ago, but with new technology, we may be getting five to 10 barrels a day now."

Calumet has been aggressively buying and expanding marginal wells for years. The company bought a field of marginal wells in 1996 that was producing less than 500 barrels a day. Today it is pumping out more than 1,400 barrels each day.

While the demand for drilling and well-servicing equipment has driven up marginal well operators' costs over the past two years, the expenses have not caught up with ballooning oil sales prices, Spencer said. Even so, he said it is more difficult to get into marginal wells now than it was just a few years ago. "Competition is much increased," he said. "It is much harder to purchase some of the older fields, so in the past couple years, we have turned internally more towards enhancing our existing wells."

Bell said, "It is even more crucial now than ever that we do everything we can to save those wells and keep them producing. Once you plug a well, it is often just not economically feasible to go back and put it back into production."

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Source: The Daily Oklahoman

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