Oil Drilling and Gas Extraction Industry in the US Analysis

DATE phratry 16, 2012 TO Patricia Bennett, Supervising Principal FROM Connor Sims, link up SUBJECT fossil crude Drilling & Gas lineage Industry in the US Analysis (21111) This report presents information regarding the manufacture, the primary operator of crude and splatter celestial sphere properties. The persistence fuels its key buyers, the earthy Gas statistical distribution (22121) and the Petroleum Refining (32411) industries, with crude anoint and natural gas. The industry unceasingly battles a shortage of available fossil oil. In addition, umteen major(ip) oil palm rush been in use for decades, slowly waning.Currently, the industry grosses among the almost profitable in the US despite these and similar blockages. The benefits of investing hither potentially outweigh concerning risks. Because of the esteemed observe of the industrys products, coherent demand for its products, and its positive near-future outlook, diversification into this industry may produ ce honour profitability in the short-term. High Product Value Crude Oil Prices The key economic driver for the Oil Drilling & Gas Extraction Industry, crude oil expenditures, determines much of its profitability according to supply and demand.Price trends in West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, display the outgrowth of its value in the past 3 years and past decade. An average drum 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 in a higher place $99 in upcoming years (Sethuraman, 2012). Such upward growth points to lucrative profits. Natural Gas Outlook Natural gas doing accounts for 41. 6% of industry r blushue in 2012. Prices n natural gas r for each oneed a 10-year low in April this year, but have erupted by much than 70% since (Hargreaves, 2012). Natural gas has seen an abundantly greathearted siding payable to recent discoveries of natural gas in the Appalachian Basin this large supply has kept prices relatively low recently, leaving opportunity for even higher profitability in future years. Consistent Demand supply US Industries The Oil Drilling & Gas Extraction Industry is the furbish up supply industry for its two demand industries, Petroleum Refining and Natural Gas Distribution (Hersch).The US internally consumes 19,150,000 drumfishs of oil per day, multiply the worlds second largest consumer, China ( mogul, 2012). IBIS sphere describes the industrys demand industries as mature, assuring the stable demand for our industrys products (Hersch). Rising Exports, Foreign Buyers Current international relations appear contributing(prenominal) to this industrys profitability. In 2011, for the first time since 1949, the US exported to a greater extent refined oil than it imported (Winters, 2012) this evidences the success between the supply industry and its demand industries detailed abo ve.Additionally, oil exports to China will surge as it industrializes cursorily. Chinas exponentially growing demand leads to worldwide price increases (Hersch). Any increases, particularly increase this substantial, raise the WTI average price per barrel, increase profitability. Positive Current Standing Favorable Market Concentration The cardinal largest firms in the industry comprise of approximately 30. 0% of total tax 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 entrance this industry would not be a difficult obstacle to overcome. pelf Margin The Oil Drilling and Gas Extraction Industry reels in a significantly larger permissiveness in comparison to think industries. 46% of all industry revenue goes to profit, higher than the average for the inbuilt mining sector, 39. 2% (Hersch, 2012). In 2008, the industry returned the 7th highest profit margin among US industries (Hargreaves). Profit margins have increased in the past 5 years as result of rising crude oil prices. Risks and Concerns Barriers of EntryMost major oil and gas producers integrate services beyond drilling and extracting many dualize as refining or distribution firms, circumventing demand industries en itinerary to more direct profitability. New firms lacking this versatility may find an obstacle upon first appearance to the industry (Hersch, 2012). Additionally, firms in this industry must specialize in exploration and discovery for oil and gas resources. Firms may struggle determination initial success in this role due to the limited genius of resources. Long-term Resource Depletion Peak oil refers to the prime of any fields merchandise, 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 button Information Administration indicates much production, particularly in the Alaskan unification Slope, depends on world oil prices ( nada, 2012). Geophysicists and politicians debate 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 faces lowering foreign market competition.In 2011, the US ranked 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 capacity 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 in the altogether firm will implicitly face the challenge of exploring for land not already claimed by another firm. Additionally, alternative methods of energy will irrefutably have to replace oil drilling and gas extraction within an enigmatic future the remaining supply simply cannot match the demand forever. devil 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 like a shot affect profitability.Because evidence above shows substantial progress in twain 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 the States (2012). Annual Crude Oil and Jet Fuel Prices. http//www. airlines. org/Pages/Annual-Crude-Oil-and- Jet-Fuel-Prices. aspx.. Retrieved family 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 Sheet (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, Nath an (2012). Poll increase numbers see oil below $100 in 2013, 2014. Reuters. http//www. reuters. com/ denomination/2012/06/27/us-oil-poll- idUSBRE85Q14720120627. Retrieved September 16, 2012. Winter, Michael (2012). U. S. Exported more gasoline than imported last year. regular army Today. http//content. usatoday. com/communities/ondeadline/post/2012/0 2/us-exported-more-gasoline-than-imported-last-year/1. UFav7BhGhgI