Oil and gas producers in the Uintah Basin are tightening their belts and getting ready for another dry spell in the face of declining oil prices with the end of the Persian Gulf war.
Prices for crude oil have been on a rollercoaster ride since the first week of August when Iraq invaded Kuwait, moving from about $20 a barrel at the beginning of the conflict up to the low 40s, down to the upper teens and finally correcting to the current price of about $20 a barrel.When prices reached high levels, every workover rig in the Uintah Basin was busy; however, due to the huge price swings over the past seven months, the mood among Uintah Basin oil producers has turned cautious. A workover rig re-establishes or improves an existing wellhead.
"Price fluctuations are the best example I can give of the instability of the market and why everybody's afraid to commit any kind of money to major drilling and work-over programs," said Cary Smith, owner of Applied Drilling in Roosevelt.
"The work that was going to be done under the advantage of price was already done by smaller operators and some of the larger operators. At this point in time, oil companies are holding off and taking advantage of whatever production they were able to gain when prices were high."
Smith said the attitude of investors in the 38 wells operated by his company in Duchesne and Uintah counties is cautious. "Rigs are stacked, and we're not going full guns. But by the same token, there's work that's been planned before that's being done. Nobody's optimistic about the whole thing right now, but we haven't shut in any wells yet."
It won't take high prices before work in the oil fields could pick up again, but it will take long-term price stability. "It's not going to necessarily take $24 to $26 a barrel oil to drill wells. It is going to take stability to the market so you can turn around and plan. If you're going to invest $2.2 million or more to drill a well in the Altamont-Bluebell field and you're anticipating a two-year payout on the well, you want to know that the price is going to remain relatively stable over a couple of years so that you can get your money back," Smith said.
Analysts predict that prices must remain stable for at least nine months before activity can be expected to resume. In the meantime, the majority of oil and gas operators are going to be very hesitant about the kinds of programs they commit themselves to, he said.