A shut-in well is one that could otherwise be productive, but is not producing for some reason. The three most common reasons a well is shut-in are:
- Low commodity prices
- Required well maintenance
- Nearby drilling activity
Low Commodity Prices
Pumping a barrel of oil and gas out of the ground costs money. In order for a well to be profitable, the cost to extract these resources must be less than their value. If it isn’t, wells will often be shut-in until commodity prices return to prices sufficient to cover costs.
Horizontal Shale Drilling
The United States ascended to the status of the leading oil producing country in the world on the back of shale rock. Extracting oil and gas from shale rock involves drilling deep into the earth, making a 90 degree turn (done over several steps, not actually a single 90 degree bend) and drilling one to three miles horizontally. “Explosives” are then sent down the pipe and set off in order to create perforations and a “connection” between the pipe and the shale rock through which oil and gas will flow. Last, water, sand and a mixture of other materials are pumped into the well at high pressure. This creates fractures in the shale rock, releasing the trapped hydrocarbons and allowing them to flow through the perforations into the well’s pipe and subsequently up out of the ground.
This is a much more involved and expensive process than conventional drilling. Conventional drilling involves drilling straight down into the earth to a targeted reservoir. As long as the pressure inside the well’s pipe is lower than the reservoir, oil and gas will flow to the surface. Horizontal wells can cost 10-20x more than a conventional well and require significantly more ongoing maintenance. As such, the cost of producing a barrel of oil from a vertical (conventional) well versus a horizontal (non-conventional) well is far less.
Break-Even Commodity Price
Nearly all oil and gas drilling in the U.S. over the last decade has been horizontal wells drilled into shale rock. With oil currently hovering around $40 per barrel, producing oil from a horizontal well is still likely not a profitable endeavor. Most U.S. operators need oil prices to be around $45 to simply breakeven. As such, rather than to continue lose money on every barrel of oil produced, operators elect to “turn-off” or shut-in their wells until prices recover and justify production.
Required Well Maintenance
Outside of economics, the most common reason a well is shut-in is for required maintenance; also known as a “work over.” Routine scheduled maintenance or a required repair are the most common occurrences. The well is usually shut-in just long enough to complete the required work.
Nearby Drilling Activity
The other non-economic reason to shut-in a well is to avoid “fracture interference.” From the Journal of Petroleum Geology, “A frac hit [fracture interference] is typically described as an inter-well communication event where an offset [nearby] well, often termed a parent well in this setting, is affected by the pumping of a hydraulic fracturing treatment in a new well, called the child well. As the name suggests, frac hits can be a violent affair as they can be strong enough to damage production tubing, casing, and even wellheads.”
To mitigate fracture interference risk, operators often shut-in wells in close proximity to new wells. Operators may even remove down-hole equipment in order to avoid potential damage.
Summary
Oil and gas wells are shut-in for both reasons economic and non-economic. Shut-in wells have no production, which means no royalty payments for mineral rights owners. Instead, mineral rights owners receive a shut-in payment, which is usually a de minimis amount in lieu of production. If wells are left shut-in for significant amounts of time, there can be both a negative economic (forgone or delayed revenue) and physical (worse production when turned back on) impact. Check your state’s oil commission website for the status of any well you suspect is shut-in. Shut-ins are particularly prevalent in times of low oil and gas prices.
