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Suspended Wells

Financiers can suspend production from a well for several reasons:

  1. Oil prices are too low and it's better to wait for higher prices.
  2. Marginal well can be saved for higher prices.
  3. Profits in a province with two tax tiers are approaching the second tier limit.
  4. It's more financially sound to suspend a well indefinitely than pay the abandonment cost.

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When a well is suspended, it is counted as 0.20 of a flowing well. In other words, there is still an operating cost to keeping this well available for future production.

In an example with two wells in a province the costs for the three possible operating scenarios are as follows:

  • Two operating wells (n = 2.0): $14,142
  • One operating well, one suspended well (n = 1.2): $10,954
  • Two suspended wells: (n = 0.4): $6,324

When a well is suspended, it can be called back into production at any time. When the well is reactivated, it will resume its theoretical flowrate from the day it was suspended. In other words, the “t” in the flowrate calculation is based on “days of production,” not OF Days.

A suspended well does not incur any amortization and abandonment expenses while it is suspended. These expenses resume when the well is reactivated. Book value and accrued abandonment liability will not change while the well is suspended.

But a suspended well's CCA can be applied to other operating wells in the same province.

Suspending wells will reduce your net income, which then lowers your share price. Watch your share price carefully so that your stock price does not collapse. Even though you may have some reasonable assets that could earn a great profit in the future, you will still be eliminated from the seminar if your share price falls below $0.01 per share.

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© 2014 Dave Volek. All Rights Reserved.