My well's production decreased 50% within one month. Does this usually mean it is 'petering out'? Or is there even a slim possibility that the production amount could increase? Of course I know anything is possible, however, what are the odds of that happening?
Thank you anybody!
Pam
Ms. Kelly, that sounds steep but it is possible. Wells sometimes need a little work. Are you certain that the well produced for the full month and didn't have any downtime?
Pam, The possibilities are infinite. Consider putting all income from a well into the bank for 12 to 18 months then calculate 5 time period rolling averages from total well production, then calculate the compound decline for each rolling average to the last period, take the mean compound decline and project out no more than the history you have then use all that data to decide how much of the money in the bank to spend. Minerals Management 101 - Never count on the next production check and NEVER, NEVER, NEVER borrow money based on future mineral income. Doing so will send you to an early grave and defeat the purpose of the gift.
Do you mind me asking what was the average production before it dropped and how long the well has been producing. Still waiting for them to drill on our Morgan and Weld leases.
You are always so faithful in answering people so quickly. Once again, your answer has given me knowledge I hadn't had --- that wells do in fact need a little work. ha ha. I have contacted the landman (voice mail) and expect he will call with the answer today.
Thanks again, for your help. I do hope 'downtime' is the answer. I traveled out there in June and saw the well pumping away with three big barrels beside it.
While I was writing this to you I already had a quick call from Chase, the Landman. Yes, in fact, it had been down for work on a line... for two weeks. You were so right!
r w kennedy said:
Ms. Kelly, that sounds steep but it is possible. Wells sometimes need a little work. Are you certain that the well produced for the full month and didn't have any downtime?
Hi Gary, You are a very wise man, but you lost this very unwise woman - when it comes to the oil business - when you gave me that formula. ha,ha. What wisdom I have in financial matters is different, however. I never spend more than I bring in and I never use a credit card that I can't pay off in full every month. without question! My rule! I hate to pay interest to a bank or to anyone, as far as that goes. I also don't count or or expect the royalty $, just give God praise for making this happen.
I did use some of the royalty proceeds in June to take a long road trip to Craig... however it wasn't just to visit the oil well. I am doing genealogy on my father's side of the family. Great fun. From Denver, up to Georgetown and Idaho Springs, down to Montrose and I forgot the other town. My father was in the oil bs. all of my life, but never seeing a well produce more than a few months. He had to depend on the proceeds. I saw more 'dry holes' than I care to remember. He died nearly penniless. He was a true gambler. I can only hope that he 'knows' what has happened with his venture there in Moffat County, back in the 30's. 1936.
Thanks for listening. ha ha.
Pam Kelly
But, I will re-read your advice and your formula (?) I'm sure I can learn a lot from it.
Thank you again for your answer.
BTW The well was in 'downtime' for two weeks, to repair a hole in the tubing.
Gary L. Hutchinson said:
Pam, The possibilities are infinite. Consider putting all income from a well into the bank for 12 to 18 months then calculate 5 time period rolling averages from total well production, then calculate the compound decline for each rolling average to the last period, take the mean compound decline and project out no more than the history you have then use all that data to decide how much of the money in the bank to spend. Minerals Management 101 - Never count on the next production check and NEVER, NEVER, NEVER borrow money based on future mineral income. Doing so will send you to an early grave and defeat the purpose of the gift.
Gary L Hutchinson
Minerals Management
Hi Skip, Not at all. It has been producing approx 40 to 50 barrels a day. Which is an insignificant well to some people but to me it is very significant! (read my reply to Gary Hutchinson) It has been producing since the end of 2011. I have 120 acres in the 640 ac drilling unit, with a 17.5% royalty interest.
I hope the area you have interest in turns out to be very productive for you. Good things come to those who wait. (and pray, I might add.)
I hope this info helps.
Pam Kelly
Skip Bouvette said:
Do you mind me asking what was the average production before it dropped and how long the well has been producing. Still waiting for them to drill on our Morgan and Weld leases.
Thanks for the reply back Pam. I was under the assumption that in Weld one could expect wells to level out around 300 to 400 BPD on average. Always wondered what others are producing and still be in production and what rate would cause a will to be capped
Skip, I think you would be surprised how little a well can produce and still be viable and show a profit. Much depends on how much water a well produces and the cost to dispose of it. Electricity to run the pump is a large part also but the operator may not run the pump but one day every month or 6 weeks allowing a depleted well to load up the wellbore with slow migrating oil. The state also gives tax breaks for stripper wells that produce below a certain threshold because the state would rather gather something than nothing in taxes and it's also operator friendly to let the operator make as much as possible before the well must be plugged. At the end of a well's useful life it could produce less than 50 barrels a month, on average, for decades. I don't have exact numbers but I think there must be at least 50,000 of these stripper wells nationwide and while it's extremely diffuse, it's an important part of domestic production.
Oil companies do not like to plug and abandon marginal wells anymore because they are in the land holding business these days. A well that would have been declared played out and plugged 40 years ago will be operated today to hold the potential minerals that could be produced with todays techniques or the techniques of a decade from now. It's much cheaper to keep the lease and minerals than to have to renegotiate for them. I would not assume that if people tell you that your well will be played out in 15 years, that you will be getting your minerals back in 15 years, even if they are correct.
Jason Haak has some interest in Niobara wells in Weld, I would pay attention to what he says about their properties. If I remember correctly, Jason talked about greater well densities lowering field pressure so later wells aren't as productive as the earlier wells, (I paraphrase here). I would not have a problem with a well that enters a long stable period of 50 to 40 barrels a day production, more would be better but it could be far less and I would take 40 barrels a day over 2 barrels a day average, always.
Skip, something that can be done is to set the minimum production that will hold the lease or it terminates. This does not mean that the well would automatically be capped but that you could negotiate a profit sharing deal for the existing producing well and be free to lease the acreage to anyone who wishes to lease it. Call it drilling incentive. The Bureau of Indian Affairs has it in their leases and if it's good enough for them it's good enough for us.
Skip Bouvette said:
Thanks for the reply back Pam. I was under the assumption that in Weld one could expect wells to level out around 300 to 400 BPD on average. Always wondered what others are producing and still be in production and what rate would cause a will to be capped