Governor's Budget Fiscal Years 2006-2007 Vol 2

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They can slow or even temporarily stop production when prices are low and expected to rise. In some cases, they can increase production to take advantage of high prices.
Third, some wells move from one old production category to another every year. As an individual oil well's output declines over time, it will move into new categories as its daily production falls below thresholds of 15 and three barrels per day.
Finally, some wells cease production each year. As production from a well declines
... over time, its cost per unit of production rises, and eventually it becomes unprofitable.
Some wells reach this point every year. In a year when prices are low and expected to remain low, more wells will be taken out of production than usual.
Annual production for each of the old production categories is estimated as a percentage of the previous year's production, which reflects declining production from individual wells already in the category and movement of wells to other categories; plus a percentage of the previous year's production in one or more other categories, which reflects wells moving into the category from other categories.


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