I am an Old mineral interest owner with three Very New wells . In fact I received my first Very Large check a week ago , and now the price of oil went down in half. I know oil flows are largest when a well is new, so I would like the company to keep the oil in the ground for a while. Is that something that is ever done? Thanks Alan
The answer to the question would depend upon the financial strength of the operator and various other factors. Yes, it is physically possible to choke back the well and hold some or all of the production back. However, the company may need to pay off the costs of drilling the well and continue to pay their bills. The operator will decide what is best for the operator and the mineral owners will have to cope with it.
Agree with M Barnes, operator likely seek to recoup the cost of the well investment as fast as possible, and if they are well hedged, the price they are seeing for their oil after the price rout is likely much better than the price you will be realizing. So the economics of keeping it in the ground for a period are very different for each party…
It’s unlikely operators will hold back on oil production due to daily fluctuations in price. I’ve not seen it done, personally. I’ve seen operators wait to complete a well for better pricing, but once it’s producing …you want it to produce. Healthy, positive-cash-flow wells are what keeps the company afloat.
Other factors:
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Some operators have “hedged” (locked in) oil/gas/ngl prices so these small swings don’t affect them as much.
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Most operators have a large enough portfolio of wells that it’s not reasonable to choke back or shut in enough of them to make a difference.
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There are studies showing that it can damage a modern horizontal well by shutting it in during the first few months of production, since this is how the well most efficiently unloads the frac water. The first month or two of production can be very critical to the life of the well (not too slow you don’t unload the water, not too fast that you damage the frac you just created, etc). The rate at which the well is producing is being controlled by the completions/production engineers, not the finance guys.
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A lawyer we have dealt with had some company analyze the wells on our leases (7 wells, two leases) and their assertion in our case was that while Apache is not choking production, they are not pushing it either. I think they used the water flow numbers as partial indicators of such. Now we are only natural gas and condensates. Does that make sense?
@f100owner Was that company specifically looking to see if Apache was choking production as a response to pricing? Interesting. Is there a clause in the lease that wouldn’t let them do that? I’d be curious how any 3rd party could have enough information to determine this. Usually you need pressure data and daily rates to do that kind of analysis, which isn’t publicly reported .
Following…very good post…
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