Oil Drilling and Gas Extraction Industry in the US Analysis

interpret kinfolk 16, 2012 TO Patricia Bennett, Supervising Principal FROM Connor Sims, pertain SUBJECT embrocate Drilling & assail extraction Industry in the US Analysis (21111) This report presents information regarding the sedulousness, the essential operator of c over and accelerator welkin properties. The intentness fuels its key buyers, the immanent tout Distri to a greater extentoverion (22121) and the Pet voiceum civilization (32411) industries, with down-to-earth embrocate and indispensable shooter. The manufacturing ceaselessly battles a shortage of available inunct. In addition, legion(predicate) major anele field have been in use for decades, belatedly waning.Currently, the diligence grosses among the most profitable in the US despite these and similar obstacles. The benefits of put here potentially outweigh concerning risks. Because of the prise value of the industrys products, conformable regard for its products, and its positive near- pr oximo outlook, diversification into this industry whitethorn produce rewarding favourableness in the short-run. High Product abide by Crude petroleum Prices The key scotch driver for the Oil Drilling & fuck up stemma Industry, bounderish cover prices, determines much of its profitability according to ply and requisite.Price trends in West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, come forwardance the growth of its value in the medieval 3 years and past decade. An bonnie pose 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 view average annual prices preceding(prenominal) $99 in upcoming years (Sethuraman, 2012). such(prenominal) upward growth points to lucrative profits. Natural attack Outlook Natural mishandle production accounts for 41. 6% of industry tax income in 2012. Prices n congenital gas reached a 10-year low in April this year, but ha ve erupted by to a greater extent than 70% since (Hargreaves, 2012). Natural gas has seen an abundantly enceinte output due to recent discoveries of natural gas in the Appalachian lav this large supply has kept prices comparatively low recently, leaving opportunity for even up higher profitability in future years. Consistent Demand Fueling US Industries The Oil Drilling & Gas Extraction Industry is the sole supply industry for its two pauperization industries, Petroleum Refining and Natural Gas Distribution (Hersch).The US internally consumes 19,150,000 barrels of oil per day, two-base hit the worlds second largest consumer, china (Index, 2012). IBIS World describes the industrys read industries as mature, assuring the stable demand for our industrys products (Hersch). Rising Exports, conflicting Buyers Current international relations appear conducive to this industrys profitability. In 2011, for the first time since 1949, the US exported more refined oil than it imported (W inters, 2012) this leavens the victory between the supply industry and its demand industries detailed above.Additionally, oil exports to China forget wallow as it industrializes quickly. Chinas exponentially growing demand leads to ecumenic price add-ons (Hersch). Any increases, curiously increase this substantial, raise the WTI average price per barrel, change magnitude profitability. Positive Current Standing affirmative Market Concentration The four largest firms in the industry comprise of approximately 30. 0% of total revenue (Hersch, 2012). Market divvy up concentration is low, allowing firms of any size to constituent the industrys $345. 9 one million million million revenue this year.The competitive aspect of come in this industry would not be a difficult obstacle to overcome. Profit boundary line The Oil Drilling and Gas Extraction Industry reels in a importantly larger margin in comparing to related industries. 46% of all industry revenue goes to profit, high er than the average for the whole 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 conflate services beyond drilling and extracting many dualize as refining or dispersion firms, circumventing demand industries en route to more direct profitability. New firms lacking this versatility may find an obstacle upon entry to the industry (Hersch, 2012). Additionally, firms in this industry must vary in exploration and discovery for oil and gas resources. Firms may struggle determination initial success in this role due to the limited nature of resources. long-run Resource Depletion Peak oil refers to the prime of any fields production, later on which goes into terminal decline.Most major US oil fields are beyond crown oil. The largest US oil fie ld, Prudhoe request, has been depleting since 1979 (Prudhoe, 2012). The US readiness Information Administration indicates much production, particularly in the Alaskan unification Slope, depends on world oil prices ( ability, 2012). Geophysicists and politicians debate over specifications regarding overall US account oil, literary argument 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 nerves heavy hostile market competition.In 2011, the US ranked third in oil production, behind Saudi-Arabian Arabia and Russia (Energy, 2012). Saudi Arabias OPEC governor expects Saudi output to rise steady beyond 2030 with a 1. 5 million barrel per day spare production cleverness 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). deduction Despite entry risks and threats of l imited resources, evidence supports the likelihood of success for us to branch out into the industry under certain stipulations.A clean firm will implicitly face the challenge of exploring for land not already claimed by another firm. Additionally, alternative methods of nil will irrefutably have to replace oil drilling and gas extraction at bottom an uncertain future the watching supply simply cannot match the demand forever. ii central obstacles hesitate immediate diversification a barrier of entry and a negative long-term outlook. However, we must try 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(prenominal) of these drivers with a very positive short-term outlook, diversification must be considered. If figurehead in the industry can be established quickly and will remain only until profitability falls, I barrack diversification. Ref erences Airlines For America (2012). Annual Crude Oil and Jet Fuel Prices. http//www. airlines. org/Pages/Annual-Crude-Oil-and- Jet-Fuel-Prices. aspx.. Retrieved folk 16, 2012. Energy Information Administration (2012). Project Alaska North Slope oil production at risk beyond 2025 if oil prices angle of dip 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). substitute(a) 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). pate Increasing numbers see oil below $100 in 2013, 2014. Reuters. http//www. reuters. com/ phrase/2012/06/27/us-oil-poll- idUSBRE85Q14720120627. Retrieved September 16, 2012. Winter, Michael (2012). U. S. Exported more natural gas than imported last year. USA Today. http//content. usatoday. com/communities/ondeadline/ part/2012/0 2/us-exported-more-gasoline-than-imported-last-year/1. UFav7BhGhgI