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Energy & Environment

'Stripper well' part 1

The 2013 Legislature wrestled with the concept of “stripper wells” and “stripper well properties.”

Those are wells that pump relatively little oil – and companies get a reduction in oil taxes to keep them pumping. A bill was considered to end the stripper well exemption – and in return, lower the overall tax rate for new oil wells going forward. That failed.

In the first of a series, Prairie Public’s Dave Thompson defines “stripper well” – and the state’s tax policy concerning them.

State mineral resources director Lynn Helms says it came into being in 1979, when Congress imposed a “windfall profits tax” on the oil companies.

“The common term for ‘stripper’ comes from dairy farmers, and milking the cows," said Helms. "At the very end of milking a cow, you strip the last little bit of milk from her udder. And that is a pretty good analogy for what folks that are operating marginal or stripper wells are doing – they’re getting the last little bit of oil that the reservoirs will give up.”

That meant the federal tax was lowered for those marginal wells.

In 1980, voters passed Measure Six – which raised the total tax on oil from five percent to 11 and a half percent. The 1981 Legislature decided to give a break to marginal wells, similar to the federal tax reduction.  And Helms says the tax on “stripper wells” would them go back to five percent.

“We have a ten barrel a day limit for wells that are shallower than six thousand feet," said Helms.  "And then from six thousand to 10-thousand feet, it’s 15 barrels of oil a day. Deeper than 10-thousand feet, it’s 30 barrels of oil a day. Then this last session, they added the stripper well rate for Bakken and Three Forks wells of 35 barrels of oil a day, since they are typically 20-thousand feet or more in depth.”

Helms says the formula worked – when spacing units were small, and only one or two wells were drilled on those units.

“But then Mr. Bakken came to town," said Helms. "The Bakken is a resource play that covers not a few hundred square miles, or a few dozen square miles – but tens of thousands of square miles.”

That means larger spacing units. And Helms says a number of wells could be drilled on the same spacing units.

“If that first well was a marginal well, and fell below the 30 to 35 barrels a day, it would qualify its entire 1280 acre spacing unit as a stripper well property," Helms said. "And then the next 3 to 39 wells would also be qualified as stripper wells, regardless of how much they might produce. As we know, they can produce at extremely high rates.”

The Legislature changed the law so, this won’t happen. Helms says the industry was okay with the change.  But he says the industry believes every well should have the opportunity to become a stripper well – when production falls below the set thresholds.

“We want to extend their lives as long as possible, maintain those jobs, maintain the purchase of electricity and goods and services, parts and repairs and all of that that goes on,” said Helms.

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