Wringing high-grade oil from rock
Greeley, Colo. — Blasting through six-inch-deep mud in his pickup truck, Mike Vance works his way up a soggy little farm road near Greeley toward a lonely oil well. Mr. Vance knows well the price of booms and busts that have historically tossed little companies like the one he now works for. While Saudi Arabia contemplates whether to pump a few million barrels more or less, small oil producers grit their teeth and hang on for a rough ride.
Sliding his pickup to a stop here among seven-foot cornstalks, Vance is showing a visitor one of the finest jewels in the modest crown of Conquest Oil Company. The jewel is this slowly nodding ``pump jack,'' which pulls about 60 barrels of sweet Colorado crude oil daily from a pool about 3,800 feet below the surface.
Sixty barrels is a lot of oil for Conquest. Most of the company's 21 wells are drilled deeper into solid, oil-bearing rock that must be fractured with hydraulic pressure. Most of these are called ``stripper wells,'' because they produce 10 barrels or less of oil per day during 10- to 15-year lifetimes.
Here in Weld County, Colo., the trickles of thousands of ``stripper wells'' combine to produce a steady stream of high-grade oil. Dotting the rolling plains northeast of Denver, such wells are a far cry from mega-dollar offshore rigs or bulging Middle East oil fields. ``Dallas'' or ``Dynasty'' it definitely is not.
Small companies running small-volume oil wells are the staple in this part of the country. But with oil prices very weak today - because of Saudi Arabia's recent decision to teach fellow oil nations a lesson - producers here are concerned.
``We're about as low as we think we can go and still make money,'' Bruce White, president of Conquest, said last month when the price of oil was at about $14 a barrel. As prices dropped even lower in recent weeks, Mr. White said he would try to hang tight by cutting production to limit any further losses.
Even with the threat of lower prices, many companies have weathered hard times already, and it will take a sustained price drop to put them out of business.
Despite their tiny output, stripper wells and the companies that keep them running make up an important segment of United States production capacity in oil - about 15 percent of total US oil output of 3 billion barrels annually, according to the Interstate Oil Compact Commission, based in Oklahoma City.
``The United States is the only oil-producing country in the world that nurtures its marginal wells,'' says Robert Cooper, associate director of the commission. ``Any other country would have shut them long ago. We need the oil.''
But the profit on many small pumping operations has all but disappeared, with many operators just barely breaking even. Others have continued plugging wells with concrete, because they are losing money on every barrel of oil pumped. From 1986 through 1987, there was a doubling of stripper well abandonments across the US. Some 9,000 wells were plugged in '86, says Mr. Cooper; last year 18,000 were plugged.
Many of the abandonments were in Oklahoma, which has the second-highest number of stripper wells after Texas. The number of abandonments in Colorado has been much lower, state officials say. They attribute this to widespread belief that the Saudis will slow production before long.
Oil prices slid from about $26 a barrel in early 1986 to less than $10 and have bounced around in the teens ever since. With some analysts predicting that prices will sag even lower, small stripper-well reliant firms like Conquest can only sit tight and hope the Organization of Petroleum Exporting Countries reaches terms to limit output somewhat.
``This is not a get-rich-quick deal,'' says White, the tanned, cleancut young president of Conquest. ``The returns are moderate.''
White is one of a new breed of operators here in Weld County. He's been in the oil business for only a few years and does not consider himself an ``oil man'' in the usual sense of the word. He has survived by playing a conservative game of drilling only when drilling costs are low - and minimizing company overhead. The firm has six employees.
With large amounts of excess equipment and companies competing for what little drilling is going on, Conquest can pick the low bid on any new well it is drilling. The company plans eight or 10 wells a year.
Exploration has revived somewhat from a low point in 1986. The activity is still behind the boom years of 1980 through 1985. Companies are still keeping costs down and minimizing exploration costs. The problem is that ``lack of exploration comes back to haunt you in 30 to 36 months,'' says Dennis Bicknell, associate director of the Colorado Oil & Gas conservation commission.
Weld County has one advantage that helps keep exploration costs low, White says. It is, simply, that every well drilled in the region has about a 99 percent chance of striking an oil-bearing layer of rock called the Codell formation, which was a sandy ocean bottom millennia ago. The bad news is that the sand is now of a cementlike consistency, and hydraulic fracturing is needed to release oil and gas. In any case, the yields are generally not large.
Big oil companies are on an elephant hunt - they want million- or billion-barrel pools and economies of scale. Conquest and hundreds of other small and medium-size oil companies with already low overhead have survived by cutting costs.
Large companies like Chevron and Arco have recently announced reductions in the region, including cutting back headquarters operations in Denver. Racked by rapid boom/bust cycles in the '80s, the industry now has another problem: a lack of trained personnel.
``We've lost all these trained people, geologists, geophysists,'' Mr. Bicknell says. ``The Colorado School of Mines has few petroleum engineering students. Why study a hard curriculum if you can't get a job?''
Entry-level jobs as a drilling rig roughneck used to pay $13 an hour, but now pay about $6 - when a position can be found. Jokes similar to those rampant on Wall Street after last year's stock market plunge are common here. ``How do you find an oil geologist in a restaurant?'' asks Bicknell. ``You say, `Hey waiter.'''
Back near Greeley, at this well among the cornstalks, Mike Vance fiddles with the controls to adjust the speed of the pump.
``It's been a tough go,'' he says. ``In 1984 it was plenty tough. None of us thought it could get worse - but it did. ... It's gotta get better now.''