Small oil producers cautious about starting up

Even after a 30 percent jump in crude oil prices last month, Terry Smith, the general manager of the Tidelands Oil Production Co., is not sure it is time to begin reopening oil wells.

Tidelands has 834 wells off the coast of Long Beach, Calif., but it shut down 327 of them in the last year as oil prices plunged.

Prices had been so low for so long that Smith is reluctant to spend the $30,000 it takes to bring a well back and rehire workers, even though he says he makes a profit when prices are $10 a barrel. West Texas intermediate crude oil traded at above $17 a barrel last week for the first time in more than a year, largely on the strength of cutbacks announced by big oil producers last month. But Smith's cash has been depleted, he has laid off a third of his workers and, as with thousands of other small, independent producers, he is worried that prices might collapse again. "I want to see if this thing is going to stabilize," he said in a telephone interview. Independent oil companies like Tidelands account for 40 percent of the oil produced in the United States. Many are facing the same kinds of hard choices that Smith confronts. While they have seen many downturns, the last year has hit them particularly hard, with crude prices at a low of $10.35 a barrel in December. Their problems make it unlikely that domestic production, which hit a 50-year low of about 6 million barrels a day last month, will recover soon. Those that have suffered most and will have the hardest time recovering are the very small producers. They typically own about 10 so-called stripper wells. Many motorists glimpse wells of this type from the highways in states like California, Texas, Oklahoma, and Kansas, the pumps slowly bobbing up and down, extracting about 2.2 barrels a day at each unit from old and often declining fields. Even though they produce very small amounts individually, together they account for 1.3 million barrels a day. That is about 20 percent of domestic output and roughly the amount the United States imports daily from Saudi Arabia. While lower crude oil prices have enabled consumers to enjoy some of the lowest gasoline prices in decades, and cheap oil has contributed to low inflation, those working in the domestic oil industry have paid a heavy price for these benefits. About 52,000 jobs have been lost since October 1997 in oil and natural gas production, according to the Bureau of Labor Statistics. Many of these will not be replaced. Oklahoma lost 8.5 percent of its jobs in oil and gas extraction within a year, according to the Oklahoma Employment Security Commission. Employment in oil and gas extraction in February totaled 28,100, down 2,600 from 30,700 for February 1998 and down 400 from 28,500 for January. There are 574,000 oil wells in the nation capable of producing an average total of 6.4 million barrels a day, but about 136,000 of them have been shut temporarily. Of those wells, which are capable of producing about 550,000 barrels a day, some oil economists and industry experts predict that up to half could be abandoned. The loss of production could turn out to be as high as 400,000 barrels a day. Some experts say many wells that will be restarted are likely to produce at lower rates because of equipment and technical problems. Such a large loss of output means that domestic oil production is expected to continue to decline even if prices maintain their current levels. Last month, imported oil made up more than 55 percent of the United States supply, one of the highest levels ever, and increasing dependence on imported oil is likely to continue. "It's not just like turning the tap back on and we recover the production that has been lost," said Scott Espenshade, the senior economist at the Independent Petroleum Association of America. Of particular concern is the loss of the skills and knowledge of experienced workers who have been laid off and moved on to other fields. The losses range from crews that can handle the tough job of drilling and keeping wells producing to the extensive web of thousands of small and large companies that provide services and equipment that enable many small producers to operate.

Copyright 1999
Provided by ProQuest Information and Learning Company. All rights Reserved.