Shut-in wells worry Oklahoma Treasurer

Oklahoma Treasurer Randy McDaniel isn’t optimistic as the number of shut-in oil wells in the state is growing and will have a downside to the gross production tax revenue.

In a statement to OK Energy Today, which reported shut-in wells begun by two Texas companies with dozens of operations in Oklahoma, McDaniel said producers are facing formidable challenges to their operations in these difficult times.

“The pandemic is exerting downward pressure on already low commodity prices. While my hope is that conditions will start to improve, the near-term outlook for global demand continues to be suppressed.”

Last month’s figures were already down and the Oklahoma Tax Commission is working with consultants to prepare new estimates for revenue expectations in Fiscal year 2020 which starts July 1. As OK Energy Today reported March 4, gross production tax revenue from oil and gas dropped 20% in February. Revenue totaled $84.9 million for February, a drop of $20.8 million or 19.7% from February 2019. Compared to January, the February gross production tax revenues were down $3.5 million or 3.9%.

At the time, McDaniel blamed revenue declines on low oil and gas prices, adding, “In the coming months, we will be closely monitoring national and international developments relating to the coronavirus and the resulting economic impact.”

Now taxes will be reduced even more as two oil leasing firms, H.L. Brown Operating, LLC based in Midland, Texas and Lime Rock Resources based in Houston recently notified their royalty owners of Oklahoma wells of intentions to shut-in some of the operations.

H.L. Brown indicated it was “in the process of shutting in wells where expenses are exceeding current revenues.” The company explained it might even go further, “Depending on the production potential of specific wells and the current outlook for prices, we may be recommending some older wells be plugged.”

Lime Rock announced its shut-ins would be in the Norge Marchand Unit west of Chickasha and stated in its memo to royalty owners, “To improve the operating efficiency of the NMU, LRR has taken various steps, including curtailing and shutting in high cost/water-cut producers and releasing all workover units from the field.”

The company anticipated a shut down of an estimated 20% of its wells in the Marchand Unit.

What remains unanswered is how long the shut-ins might last. One employee of the Treasurer’s Office said there had been reports that point to a deep downturn in the oil and gas industry through all of next fiscal year and maybe even longer.