Independent Oil Producers Squeeze Out a Hard Living

December 27, 2002
By NEELA BANERJEE

VIVIAN, La. - Every day but Sunday, starting around 7 a.m.,
Robert Caldwell ranges the pine woods just outside town,
tending to about 110 wells that squeeze a tiny bit of oil
from the old, stingy fields of northwestern Louisiana.

Keeping the family business, Caldwell Oil, afloat is a
daily fight. Over the last 22 years it has survived a
tornado and a forest fire, and Mr. Caldwell - everyone
around here calls him Fud - must watch out for rats that
regularly eat the wiring in the trucks he parks at the
fields.

But as much as anything else, he keeps an eye on the Middle
East, Russia and Venezuela, because these days, he suspects
that events half a world away, more than any force of
nature here, could ruin his business.

"If we take Saddam Hussein out, Saudi Arabia won't give us
use of their airfields. So what they're going to do to help
is open the spigot so the price of oil won't run way high,"
Mr. Caldwell, 65, calculated. "The price of oil will fall,
just like it did during the first gulf war. The world wants
cheap oil. They're not concerned with little independents
like us."

Caldwell Oil is fairly typical of the thousands of small
independent oil companies in the United States working in
fields that the major oil companies abandoned years ago as
uneconomical. The mom-and-pop operators, and much larger
independent oil companies, eke out enough oil to account
for about 20 percent of domestic production, or around one
million barrels a day. That rivals the output from Alaska
or the normal level of oil imports from Venezuela,
according to a trade group, the Independent Petroleum
Association of America.

But pumping oil from wells in these fields, called stripper
wells, is expensive. So while all oil companies would be
hurt by a drop in prices, small outfits like Caldwell Oil
could vanish altogether because their profit margins are so
narrow. It costs the little independents about $18 to get
one barrel of oil out of the ground; it costs major
companies something like $5 at their domestic wells.

Because of such vulnerability, small operators in oil
fields from Pennsylvania to California closely track the
decisions of the Organization of the Petroleum Exporting
Countries. Like Mr. Caldwell, they find their interests
converging with those of the most oil-dependent economies
in the world on maintaining oil prices around $25 a barrel.


"We need a price close to the same number for different
reasons," said Gigi Lazenby, chief executive of the
Bretagne General Partnership, an independent oil company in
Beattyville, Ky. "I don't want to gouge anybody, but it's a
delicate balance," she said. "If the price of oil gets too
low, it will kill domestic production, and that becomes a
national security issue when we start importing more oil."

Though prices are steeper now, the price of crude oil has
in fact averaged around $25 a barrel this year. The last
three years of relatively high oil prices, attributable
largely to OPEC's management of global supplies, brought
slightly more stripper wells on line in 2001, including two
that Mr. Caldwell drilled.

But he and other operators did not expand this year. Given
the shaky economy, the push toward war and OPEC's own
priorities, many small operators worry that the price of
oil could suddenly plummet.

"OPEC says it wants to hold prices at $25, but when they
cheat on each other like they are, it just adds to the
uncertainty," Mr. Caldwell said, echoing concerns in the
energy markets.

Stripper wells pump no more than 15 barrels of oil a day,
and more often around a barrel. Mr. Caldwell's better wells
deliver perhaps two barrels a day. Bigger wells operated by
major companies like BP or Exxon Mobil gush tens of
thousands of barrels a day.

But 80 percent of operating wells in the United States are
stripper wells, according to the independents' trade group,
a sign of the advanced age and declining volume of American
onshore oil reserves.

In the early 1900's, big companies began to plumb the
Caddo-Pine Island oil reservoir around Vivian, Mr. Caldwell
said. Booms came and, just as surely, busts followed. Over
time, the down cycles have carved away at places like
Vivian, turning them into quiet mazes of empty buildings.
The last major oil company here, Texaco, finally gave up on
the area in the last decade, selling and leasing its fields
to small oil companies.

"The major oil companies - we're picking up the crumbs they
left behind," Mr. Caldwell said one recent afternoon, with
more pride than bitterness, as he drove his red truck
through his fields. "The majors are all offshore or
overseas."

Some local oil companies have been around for generations.
Mr. Caldwell turned to oil after retiring from the Army as
a lieutenant colonel in 1980, inspired by memories of life
as a roughneck here when he was a teenager. He is the
company's president and one of three employees, along with
a son and grandson.

He says that little has changed in the way people pump oil
here in the last 40 years. In the stubbled pastures and on
some front lawns, horse-head oil pumps nod ceaselessly. The
oil from several wells flows through skinny pipes to a
nearby stand of tanks. To produce a barrel of oil, the
Caldwells pull up about 250 barrels of water. They separate
the oil and water, and the oil flows into 8-foot-tall
collection tanks, dripping like coffee brewing.

The air near the wells smells of asphalt. The Caldwells'
oil is "heavy," less valuable than the West Texas light
crude oil that sets the domestic benchmark price. So when
oil is $25 a barrel, Mr. Caldwell says, he may receive
about $22 from the local oil broker, whose tanker trucks
haul it away. It costs Caldwell Oil about $16 to get a
barrel out of the ground. All told, his wells pump 60 to 70
barrels a day.

Regardless of the price of oil, the price of everything
else from chemicals to equipment has risen, Mr. Caldwell
and others here said.

The Caldwells pay more than $10,000 a month alone for
electricity to run their sites. People here also complain
mightily that environmental regulations have made it
expensive to work. To control expenses, the Caldwells buy
equipment secondhand and do nearly everything themselves.

Mr. Caldwell and his son Boe erected the electrical poles
by their fields and cleared the red clay roads, stitched
here and there with deer and bobcat tracks. They maintain
their own wells, cannibalizing broken equipment to keep
everything else running.

But the enjoyment is bleeding out of the work, Mr. Caldwell
said. In a good year, the company makes about $150,000,
which it divides among several owners. In a bad year, it
slides into the red, and the company dips into savings it
put away for tough times.

"When the price of oil is high, our leases could be worth
$1 million," Mr. Caldwell said. "But when it's low, they're
worthless. That's why everybody is watching to see if
Russia comes on line more, because then our fields could be
worthless." (Russian output has grown significantly over
the last three years.)

The demands in the field seldom relent; almost daily, a
stripper well here needs to be repaired.

Down a dirt path called Catfish Road, Steve McLaurin, owner
and one of two workers at the McLaurin Oil Company, uses a
winch on the back of a big truck to pull out the pipes
encasing the inside of his 1,000-foot well to fix a leak in
one section. A former accountant, Mr. McLaurin is flecked
in the oil that drips off the 30-foot-long sections of pipe
that he and his helper rapidly set on metal racks extending
into the woods.

The well draws three-quarters of a barrel a day, and Mr.
McLaurin's 55 wells produce only 30 barrels. A quarter of
that goes to ChevronTexaco, which leases the wells to
McLaurin Oil. The returns are so slim for such punishing
labor that relatively few young people, like Mr. McLaurin,
36, now enter the independent oil business.

"You can't find people under 30 to work," he said. "It's
too hard, too dirty. Think of the summer, when it's 100
degrees out here."

Even some industry veterans have given up after decades.
"The main reason is the fluctuation in the price of oil,"
said Jim Briggs, who until recently ran the biggest
independent oil business in town. Over a 40-year career, he
said, "I've seen it go from $2.75 a barrel to $40 and
everything in between. But it's been a lot more volatile
the last 20 years."

He sold some of his well leases to Mr. Caldwell, who,
despite working alongside his son and grandson, says, only
half-jokingly, that he may be the last one to stick out the
oil business in Vivian.

"When I go, I want to go like Al Chiles," Mr. Caldwell
said, referring to a relative who died at 86, the day after
he repaired a well. "I'll work until I die and they slide
me out on the pipe rack."

http://www.nytimes.com/2002/12/27/business/27OIL.html?ex=1042030775&ei=1&en=eabd07fa691fdd7b