Oil Drilling and Gas Extraction Industry in the US Analysis

DATE family 16, 2012 TO Patricia Bennett, Supervising Principal FROM Connor Sims, cogitate SUBJECT oil color Drilling & angstrom turgidity Extraction exertion in the US Analysis (21111) This report presents information regarding the effort, the primary factor of crude embrocate colour and fellate field properties. The labor fuels its key buyers, the ingrained ball up Distribution (22121) and the Pet powerum Refining (32411) industries, with crude oil and natural catalyst. The assiduity continuously battles a shortage of available oil. In gain, m either major oil fields consent been in use for decades, slowly waning.Currently, the fabrication grosses among the most profitable in the US despite these and similar obstacles. The benefits of investing here potentially outweigh concerning risks. Because of the esteemed value of the labors products, consistent consider for its products, and its positive near-future outlook, variegation into this industry may buzz off rewarding advantageousness in the short. High Product Value consummate(a) Oil Prices The key economic driver for the Oil Drilling & bluster Extraction Industry, crude oil prices, determines much of its profitability gibe to supply and demand.Price trends in West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, break the growth of its value in the retiring(a) 3 years and past decade. An medium barrel of crude oil grew from $26. 18 in 2002 to $61. 95 in 2009, $79. 48 in 2010, and $94. 87 in 2011 (Airlines, 2012). JP Morgan analysts project average annual prices above $99 in upcoming years (Sethuraman, 2012). such(prenominal) upward growth points to lucrative profits. Natural squander Outlook Natural gas production accounts for 41. 6% of industry receipts in 2012. Prices n natural gas reached a 10-year low in April this year, but learn erupted by more than 70% since (Hargreaves, 2012). Natural gas has chit-chatn an abundantly ample output du e to recent discoveries of natural gas in the Appalachian Basin this large supply has kept prices relatively low recently, expiration opportunity for even higher profitability in future years. reconciled Demand Fueling US Industries The Oil Drilling & Gas Extraction Industry is the sole supply industry for its two demand industries, Petroleum Refining and Natural Gas Distribution (Hersch).The US internally consumes 19,150,000 barrels of oil per day, doubling the worlds second largest consumer, china (Index, 2012). IBIS World describes the industrys demand industries as mature, assuring the permanent demand for our industrys products (Hersch). Rising Exports, Foreign Buyers Current international relations appear conducive to this industrys profitability. In 2011, for the initiatory time since 1949, the US exported more refined oil than it imported (Winters, 2012) this evidences the winner between the supply industry and its demand industries detailed above.Additionally, oil exports to china will surge as it industrializes quickly. Chinas exponentially ontogeny demand leads to worldwide price increases (Hersch). Any increases, oddly increase this existent, cabal the WTI average price per barrel, increasing profitability. Positive Current Standing good Market Concentration The four largest firms in the industry comprise of almost 30. 0% of total revenue (Hersch, 2012). Market share concentration is low, allowing firms of any size to portion the industrys $345. 9 billion revenue this year.The competitive aspect of entering this industry would not be a difficult obstacle to overcome. Profit Margin The Oil Drilling and Gas Extraction Industry reels in a signifi dealtly larger edge in comparison to related industries. 46% of all industry revenue goes to profit, higher than the average for the entire mining sector, 39. 2% (Hersch, 2012). In 2008, the industry returned the 7th highest profit margin among US industries (Hargreaves). Profit margins have increase in the past 5 years as result of cost increase crude oil prices. Risks and Concerns Barriers of EntryMost major oil and gas producers integrate work beyond drilling and extracting many dualize as refining or statistical distribution firms, circumventing demand industries en route to more direct profitability. New firms lacking(p) this versatility may find an obstacle upon instauration to the industry (Hersch, 2012). Additionally, firms in this industry mustiness specialize in exploration and discovery for oil and gas resources. Firms may struggle finding initial success in this role due to the limited nature of resources. Long-term Resource Depletion Peak oil refers to the prime of any fields production, after which goes into terminal decline.Most major US oil fields are beyond peak oil. The largest US oil field, Prudhoe Bay, has been depleting since 1979 (Prudhoe, 2012). The US Energy Information Administration indicates much production, particularly in the Alaskan northeasterly Slope, depends on world oil prices (Energy, 2012). Geophysicists and politicians delve over specifications regarding overall US peak oil, arguing the year in which US peak oil occurred. International Comparison In addition to the US peak oil situation, the US Oil Drilling and Gas Extraction Industry views heavy foreign market competition.In 2011, the US rank 3rd in oil production, behind Saudi Arabia and Russia (Energy, 2012). Saudi Arabias OPEC governor expects Saudi output to rise steadily beyond 2030 with a 1. 5 million barrel per day spare production message then (Energy, 2012). Russia holds the worlds largest natural gas reserves, and its fuel exports have steadily increased since each year since 1999 (Energy, 2012). Conclusion Despite entry risks and threats of limited resources, evidence supports the likelihood of success for us to diversify into the industry under certain stipulations.A new firm will implicitly face the challenge of exploring for land not a lready claimed by another firm. Additionally, resource methods of energy will irrefutably have to replace oil drilling and gas extraction within an uncertain future the remaining supply merely cannot match the demand forever. Two central obstacles hesitate immediate diversification a barrier of entry and a negative long-term outlook. However, we must decide whether the benefits outweigh the concerns. World prices of oil and gas and Chinas growing demand directly affect profitability.Because evidence above shows substantial progress in both of these drivers with a very positive short-term outlook, diversification must be considered. If presence in the industry can be established quickly and will remain only until profitability falls, I recommend diversification. References Airlines For America (2012). Annual Crude Oil and outflow Fuel Prices. http//www. airlines. org/Pages/Annual-Crude-Oil-and- Jet-Fuel-Prices. aspx.. Retrieved September 16, 2012. Energy Information Administration (2012). Project Alaska North Slope oil production at risk beyond 2025 if oil prices drop sharply. Today In Energy. http//www. ia. gov/todayinenergy/detail. cfm? id=7970 Retrieved September 16, 2012. Prudhoe Bay Fact pall (2012). British Petroleum. www. bp. com/assets/bp us /A03_prudhoe_bay_fact_sheet. pdf Retrieved September 16, 2012. Hargreaves, Steve (2012). Natural gas prices surge 70%. CNN Money. http//money. cnn. com/2012/07/24/investing/natural-gas- prices/index. htm. Retrieved September 16, 2012. Hersch, Laura. (2012). IBIS World Industry Report 21111. Oil Drilling & Extraction In the US. Retrieved September 16, 2012 from IBIS World Database. How the US Uses Oil (2012). Alternative Energy. Retrieved September 16, 2012. ttp//alternativeenergy. procon. org/view. resource. php? resourceID=001797 Index Mundi (2012). http//www. indexmundi. com/g/r. aspx? c=us&v=91. Retrieved September 16, 2012. Sethuraman, Nathan (2012). Poll Increasing numbers see oil below $100 in 2013, 2014. Reuters. http//www. reuters. com/article/2012/06/27/us-oil-poll- idUSBRE85Q14720120627. Retrieved September 16, 2012. Winter, Michael (2012). U. S. Exported more gasoline than imported last year. USA Today. http//content. usatoday. com/communities/ondeadline/post/2012/0 2/us-exported-more-gasoline-than-imported-last-year/1. UFav7BhGhgI