We recently came back from a trip to ride the North Bend Rail Trail in West Virginia. (That will be the subject of a photo thread.)

 

I have this question, and I can't seem to find another section that is a natural fit for it:

 

What are the economics of all of these small oil and gas wells that you see around areas in Southeastern Ohio and western West Virginia?

 

I kept running into small oil wells that seem to still be in operation - usually there's a gasoline engine (about the size and appearance of a lawnmower engine) that is powering the pumping (I suppose), and an oil tank of about 10-15' diameter standing next to it to receive the oil.

 

Sometimes they stand by themselves on a plot along the road, and sometimes they seem to be sitting in someone's back yard or small farm.

 

I am curious about stuff like:

 

Who typically owns the well equipment itself?

 

Is the land leased or owned?

 

What are typical lease payments, if leased?

 

What were the economics of constructing and placing these wells in the first place? I assume that the one big expense is drilling.

 

What sort of periodic volume of oil do such wells produce? What are we talking per week, month, year?

 

What kind of revenue does such a well produce?

 

It just seems incredibly anachronistic to see this stuff in 2012. But they're out there.

 

About 100 years ago, the region of Ohio/Pennsylvania/Indiana was the world's largest oil producing region. This is what started the Age of Oil, and is a good reason why we have so much fantastic architecture from that period. That is, along with coal. Ohio's world dominance is under-appreciated on this board, I think. This was before Oil was discovered in Texas and Oklahoma, and way before anyone was even thinking of Alaska, the North Sea, Mexico, Venezuela, Nigeria, or of course, the Middle East.

 

Some of the oil in our region is relatively shallow, but the reservoirs are also relatively small, compared to Saudi Arabia. You don't have to drill as far to get the oil, but the wells don't produce as much, either.

 

My dad used to work in a stone quarry. He used to find pockets of oil that held a few cups. It would drip out of the rock and get on your clothes. It wasn't enough volume to mess around with.

 

So, it takes relatively little investment, for little profit, to drill these little wells in our region. There were, of course, some larger ones, too.

 

In the early days of automobiles, some farmers would actually drill their own wells, extract their own oil, and refine their own gasoline for their own cars and tractors! A lot of accidents happened, so it isn't done much anymore.

 

Many of these little wells are barely profitable. It takes almost as much energy to extract the oil as the oil is worth. So, they can only be operated profitably when the economics are right.

 

In recent years, the price of oil has been high. So, lots of old wells and some new ones have been activated. Many of the wells produce only a few barrels per day. In the big picture, they aren't worth much. The United States consumes 20 million barrels of oil per day; we produce about 9 million and import about 11 million. 

 

I don't know if the equipment is usually owned by the landowner, or an oil company. While geologists can guess whether or not a well will produce oil, based on experience and knowlegde of the geology, the only way to really know for sure it to drill a well and see if there's any oil there. Lots of wells are unsuccessful, and the that has to be accounted in the economics.

 

But if you are landowner with a little oil well, and you extract a couple barrels of oil per day, worth $100 to $200 per day, depending on the price of oil at the time, wouldn't it be nice to have an income stream like that?

 

 

The folks that I know with wells on their property have historically received 5-15k/yr from their royalties with outliers in either direction. I haven't talked to them about their wells in probably 7-8yrs so if they're still at the same production they likely make a fair bit more. In NEO if you spend a lot of time in the woods or near farms you'll see them all over the place.

 

As far as lease arrangements go they can be set up like any other type of property. For example the city I grew up in just recently bought some more land to be preserved, but they didn't acquire the wells or the access roads that are on that property.  The family that has owned the land for the last 100yrs or so will keep it till they stop making money on the wells.

Loretto and Eighth and State, thanks for the details and background information. Ok, so this is low budget entrepreneurship at work.

 

I did see one such well actually running,  in someone's front yard. The gas engine operated a drive belt that went to another part of the well mechanism.

 

It just looks so industrial to see this stuff out in the middle of nowhere. And I would have thought that economies of scale would drive them out of operation. Since oil is now $90/barrel, it makes sense to see them running.

these wells are all over nw ohio too. most of them are abandoned in the middle of farm fields, but some are in use. its an interesting history to say the least. if you did not know anything about that, who would ever imagine pennsylvania once being the oil capital of the world? but its true. the oil business had to start somewhere!

 

i have seen them and i later read somewhere that there is a big network of small oil wells on private property, in backyards, etc. around los angeles and the property owners make extra $ that way.

 

 

 

 

 

 

Rusty, that part of West Virginia was one of the earliest oil and natural gas boom areas in the United States. Parkersburg was an "oil city" (hence why it is home to large plastic and chemical manufacturers today, such as DuPont) and the towns along the Interstate 79 corridor were essentially boom towns - much like the coal camps in the southwest part of the state. So much oil was discovered during the salt explorations that it was literally discarded onto the ground before a use could be found! Oil peaked in 1900 in the state, and natural gas peaked at around 1917 (although its now starting to boom with the deep well drilling).

 

If you are in Parkersburg, visit their Oil and Gas Museum (http://oilandgasmuseum.com/Pages/oilandgashome.html).

i have seen them and i later read somewhere that there is a big network of small oil wells on private property, in backyards, etc. around los angeles and the property owners make extra $ that way.

 

Yea, I remember going to L.A. in '83 with my folks and they'd point those little guys out when they saw 'em. They were the drinky-bird kind like at the beginning of Dallas.

They were the drinky-bird kind like at the beginning of Dallas.

 

"Drinky bird." Love it!  :-)

 

Yes, that's the style we saw in WV. One side seems to be a counterweight with a variable number of lead or steel weights, and the other side of the see-saw is the piston end (apparently.)

Oil and gas wells once were plentiful in the part of Indiana where I grew up. Along the Indiana-Ohio line and extending maybe 60 or seventy miles to the west, with a northern boundary about forty miles south of Fort Wayne and running southward for maybe seventy miles, at peak there were thousands of producing wells. Glass manufacturing grew up in some places like Dunkirk and Winchester and Muncie, and others like Montpelier became home to iron foundries and rolling mills. Muncie successfully got into both of those bonanzas. Municipalities gave away free gas to attract industry, and many "experts" believed that natural gas was inexhaustible and was made inside the earth as fast as it could be drawn out.

 

Towns and developers advertised the abundance of their gas supplies by lighting wells and by piping gas to brilliant "flambeaus" or torches in their downtowns. Train travelers through the area at night told of the countryside being lit "as bright as day" by the displays. More gas may have been wasted than was ever put to productive use. In places, heedlessly drawing off gas at rapid rates depressurized oil deposits and reduced the productivity and probably the lifetime yeild of some oil wells.

 

Seven miles south of the farm where I grew up is the town of Petroleum, so named because of the great number of oil wells in the vicinity. The wells mostly dried up, and so has the town. Its businesses now consist of a large grain terminal along the Norfolk Southern Railroad, a trucking company's  offices and shops, and a couple of auto repair places. I can remember when it still had a feed mill, a hardware store, and a drug store with a soda fountain. I was pretty young then, and the soda fountain distracted me from noticing much of anything else.

 

Here's a "drinky bird" that's bigger than most of the ones in the eastern US. This was near San Angelo, in West Texas, where I spent a little time while in the USAF.

 

 

There's a huge collection of the equipment used in the oil fields in Pennsylvania, West Virginia, and Ohio in earlier times in oil and gas production, at Coolspring Power Museum, between Punxsutawney and Brookville in Pennsylvania. Much of the equipment is restored and operable, and work goes on continuously to create authentic working demonstrations of the equipment as it was used in the late nineteenth through the mid-twentieth centuries.

The "drinky bird" style was pretty common even in NE Ohio 30 years ago. I'm pretty sure as a kid I just assumed they were a part of every farm. You mean every farm doesn't come with a barn, a silo, a chicken coop, a dog that won't shut up, a rusty tractor in the front yard that hasn't run since the hoover administration and an oil well in the back acre?