I recently aquired working interest in 7 wells. In looking at the check stubs and comparing against monthly invoices I see that a couple of the wells are costing more than they are making. I understand that there will be months when expences are greater than production but shouldn’t that be the exception instead of the norm? It seems that these few wells loose money on a regular monthly basis. Any insight would be appreciated.
That is the risk of working interest. When wells are first drilled, they cost more due to the drilling costs, then sometimes you break even and sometimes you don't. At the end life of a well, they can also cost more to maintain them than they actually make in production. For some folks, the tax break on the situation helps them out in the larger scheme of their finances, but for others it is not a good thing. WI is not for the faint of heart.
Thanks for responding MB. So if a well is costing more than it is producing why would the operator not just shut it down? Also, if I have these things now and they are costing me money each month, how do I unload them, and who would want them?
In answer to why the operator would operate a well at a loss. If they stop producing the well, they may lose the lease all together.They might be holding onto the asset banking on commodity prices going up enough to make the money back or to give them money to drill to a new formation on the lease. They might also be procrastinating on plugging due to the high cost associated with that. There are many reasons a well might be operated at a loss for a while, not all of them are an indication of a bad deal. Hope things turn out for the best!
In addition to what Myranda said, operators function on a much larger scale. They may have many wells in an area so they think of the big picture, holding leases, field scale economics, future drilling plans, how this area fits into their larger portfolio, are they trying to sell, are they shooting more seismic or doing reservoir modeling and those wells are useful even if individually they might be uneconomic. Lots of reasons.
You can offer them for sale on the marketplace on the tabs above, or you can hang on for a while and see what they do. A lot of it depends upon where the wells are in the life cycle and current versus future prices.