Independent Oil Companies Hold Off on New Drilling Amid Price Stability Concerns

Independent oil companies in the US are awaiting sustained oil price levels before engaging in new drilling activity, despite recent price increases. Current prices remain below $20/bbl, a threshold that must be sustained for six months for new drilling to be viable. This caution is driven by the memory of prolonged low prices, which has led to increased maintenance and workover rates among stripper wells.

Key Takeaways:

• Small independent oil companies are hesitant to invest in new drilling due to concerns about oil price stability, with prices remaining $4/bbl below 1993 levels for independents.
• Producers are holding off on new drilling plans, with many awaiting oil prices to stay at current levels for at least six months before making significant capital investments.
• Increased maintenance and workover rates among stripper wells have been a result of higher oil prices, with Virginia Lazenby, president of the National Stripper Well Association, stating that stripper producers are doing necessary repairs that they otherwise would not have done.
• Striper wells will continue to experience a natural decline in production, but the rate of decline will slow down due to increased prices.
• Even with the recent price rally, the prices independents receive remain below last year's levels, according to Karen Kennedy, executive director of the Wyoming Independent Petroleum Association.
• Low-gravity sour crude, such as Wyoming crude, is disproportionately affected by imports from Canada, which have a $2/bbl advantage due to lower taxes and subsidies.

Statistics:

• Current oil prices remain $4/bbl below 1993 levels for independent oil companies.
• Producers are awaiting oil prices to stay at least $20/bbl for six months before investing in new drilling.
• Workover rates among stripper wells have increased due to higher oil prices.
• The rate of decline in production for stripper wells will slow down as a result of higher prices.