I HAVE HEARD THAT AFTER FIRST INTIAL PRODUCTION A WELL WILL START TO DECLINE IN PRODUCTION AND THAT THE OIL COMPANY DOES THIS ON PURPOSE FOR WHAT REASON?
ALSO ARE THERE ANY TAXES TAKEN OUT OF ROYALTY PAYMENTS FROM NORTH DAKOTA? THANKS FOR ANY INFO==ARDIS T J
The first [ production ] is a natural process and the oil co would like the well to have natural pressure and flow forever. Yes, production, severance, federal income taxes are taken out of royalty in N.D. You also have to pay N.D. state income taxes, possibly school taxes and your home state income tax if it has one and it is greater than the N.D. you pay them the difference. I have probably left out some. See a tax professional.
The declines in a reservoir are caused by the same reasons that the gas gauge in your car goes from full to empty. The companies objective is to have the production rate to be as high as possible for as long as possible. There are no advantages for a company when a well production declines.
Ardis,
The oil, gas and water molecules in the formations are under pressure naturally. By drilling a well and inserting pipe, a producer can control the pressure in the pipe. When the producer lowers the pressure in the pipe, the molecules of oil, gas, and water flow to the point of least pressure, the pipe, and then to the surface tanks or pipelines. You are fortunate that the operator can control the change in pressure and therefore the production rate of the well otherwise they would have a blowout as occurred in the Gulf of Mexico last year and millions of barrels of oil were wasted. With oil wells, the slower the oil is produced, the longer it will last before the formation water starts coming in.
Gary Hutchinson
Minerals Mangagement