Newspaper article THE JOURNAL RECORD

Small Oil Producers Cautious about Starting Up

Newspaper article THE JOURNAL RECORD

Small Oil Producers Cautious about Starting Up

Article excerpt

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. …

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