Steve Plants’s oil wells produce fewer than five barrels a day. He has permanently closed some as a result of low prices.
PHOTO: NICK BRANDRETH FOR THE WALL STREET JOURNAL


Steve Plants, vice president of Plants & Goodwin Inc. in Shinglehouse, Pa., still pumps crude oil from wells drilled in the 1890s.

But with the price of crude below $50 a barrel, some of those low-producing wells, known as stripper wells, don’t turn a profit. Mr. Plants has permanently closed 10 wells, he says, and plans to plug another 10 by the end of the year.

“We’re losing money every day,” said Mr. Plants, who operates about 200 wells in Pennsylvania and New York. “If we were pumping wells every day, we might be pumping them once a week now,” to save on costs.

Mr. Plants, and thousands of individual operators like him, could turn out to be a key element in ending the oil-price rout, rather than a large producing country like Saudi Arabia or a big public company. A sharp drop in stripper-well output, currently estimated at a million barrels a day, or 11% of total U.S. production, would be nearly impossible to observe as it happens, but it could still shrink the glut that continues to weigh on prices, surprising the market, analysts say.

While investors are closely watching public companies for signs of when crude production is set to slow, many are ignoring the country’s 400,000 stripper wells, most of which produce less than five barrels a day. Stripper wells—so called because they “strip” the remaining oil out of the ground—are mostly aging ones that continue to produce oil, but at much lower rates than when they were drilled.

In some states, including Illinois and New York, stripper wells account for all, or most, oil output. With oil prices still near six-year lows, stripper-well operators are facing new pressure to let damaged wells lie dormant, or even shut down production.

If oil prices fall back below $40 a barrel and stay there, half of stripper-well production could be shut down, said David Pursell, managing director at Tudor, Pickering, Holt & Co., a Houston investment bank. The U.S. oil benchmark on Friday lost 70 cents, or 1.5%, to close at $46.05 a barrel on the New York Mercantile Exchange.

“If you saw half-a-million barrels a day of stripper-well production come off line at the end of the year,” he said, “the market would tighten earlier in 2016.”

These aren’t the newer, horizontal wells used to pump water into shale-rock formations, releasing a tide of oil that has driven U.S. production growth in recent years. In contrast to low-producing stripper wells, shale-oil production accounts for 60% of the country’s output. Offshore wells in federal waters make up 16%.

When oil prices collapsed to nearly $10 a barrel in 1986, half of the country’s stripper-well production was estimated to have been shut in, according to the Rapidan Group, an energy-advisory firm.

A loss of stripper-well production would easily be overshadowed by a big pullback from some U.S. shale-oil producers or the Organization of the Petroleum Exporting Countries. Total U.S. oil production has fallen from a peak in April, the Energy Information Administration said last week, due to a sharp decline in new drilling that started in late 2014.

Still, this preliminary data often fails to include the smallest companies, meaning that a drop in stripper-well output wouldn’t show up right away.

“You’ve got wells out there in the middle of nowhere that just about no one knows about,” said R.T. Dukes, research director at the consulting firm Wood Mackenzie. “You might not know the barrels have been shut in for a year.…It’s something that happens at a very micro scale, at the smallest operators in the U.S.”

Mr. Pursell estimates that the average stripper well costs $2,000 a month to operate, mostly due to electricity and water disposal. At that price, a well that produces two barrels a day would need to earn more than $33 a barrel to make a profit.

Many stripper well operators already earn a few dollars less than the benchmark U.S. oil price, due to transportation costs. Nelson Wood, chief executive of Wood Energy Inc. in Mt. Vernon, Ill., said he earns $7 or $8 less per barrel than the Nymex price. Mr. Wood laid off seven employees in the last month and says he might shut down some of his production if prices fall again.

“We’re certainly approaching the margins where it won’t make sense,” said Brad Gill, vice president of Chautauqua Energy Drilling Inc. in Westfield, N.Y., which operates about 100 wells. Chautauqua planned to drill between five and 10 wells in Pennsylvania this year, but an investor pulled out due to low oil prices, Mr. Gill said.

In Frankfort, Ky., Cumberland Valley Resources LLC has laid off one employee and may cut more staff, said co-owner Rudy Vogt. The company operates about 200 oil wells in eastern Kentucky, some of which are nearly a century old.

“We could survive at $50. $40, we’re losing money,” Mr. Vogt said. Shutting wells would be a measure of last resort, as halting production costs money and the company might be unable to restart the wells if prices rebound. “Everybody’s going to have to decide whether to make the payments or close the door,” he said.

To be sure, plenty of production is still profitable at current low prices. Cantrell Energy Corp., which operates 150 stripper wells, says its wells cost between $10 and $30 a barrel to operate. The company hasn’t stopped any of its production and is looking “awfully hard” to buy new wells, said Blake Cantrell, president of the Ada, Okla., company.

“There are a lot of our contemporaries in the business that aren’t going to make it,” said Mike Cantrell, a partner at Cantrell Energy and chairman of the National Stripper Well Association. “We’ve got an oversupply situation, and it isn’t going to be a quick turnaround.”