Oil & Gas Exploration & Production
Companies in this industry develop and operate fields to extract crude petroleum and natural gas. Major companies include ConocoPhillips and ExxonMobil (both based in the US), as well as BP and Shell (both based in the UK), LUKOIL and TATNEFT (both based in Russia), National Iranian Oil Company (Iran), PETROBRAS (Brazil), and Saudi Aramco (Saudi Arabia).
The global oil and gas exploration and production industry produces about 45 million barrels of oil per day, and produced about 4 trillion cubic meters of natural gas in 2022 alone, according to Investopedia and Statista, respectively. The largest oil-producing countries are the US, Saudi Arabia, and Russia. The largest natural gas producers are the US, Russia, and Iran, according to Investing News Network (INN).
The US oil and gas exploration and production industry consists of about 6,500 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $230 billion. Changes in world prices for oil and gas can cause revenue to fluctuate significantly from year to year.
Competitive Landscape
Companies with greater access to capital, which enhances their ability to secure drilling rights, purchase or lease equipment, and acquire smaller companies, enjoy competitive advantages. Efficiency in locating new, productive wells as well as continuing extraction from existing wells are the keys to profitability. Demand comes from oil and gas refiners and transporters, which are driven by consumer and industrial demand for petroleum products including gasoline, heating oil, lubricants, chemicals, and natural gas.
Oil and gas compete with other energy sources, such as coal, nuclear power, and hydroelectric power, for industrial and home heating applications. Renewable fuels, such as ethanol and biodiesel, and hybrid-electric vehicles, which use stored electricity from batteries instead of or in addition to gasoline or diesel, are emerging alternatives for transportation applications.
Competitive Advantages:
Embracing Technology - With oil prices still well below highs seen in 2014, companies are working to enhance efficiency. Producers who are able to use drones, software, and other technology to lower costs have a distinct advantage.
Diversified Assets - Companies with active assets in oil as well as gas production are protected from adverse conditions in one market. Likewise, companies operating in multiple geographic regions are less affected by regional events like earthquakes, hurricanes, or political unrest. Greater diversification effectively disperses the risk that comes with high capital requirements.
Companies to Watch:
ExxonMobil Upstream Research Co. is the exploration and production innovation component of the petroleum major tasked with bringing new thinking to the industry. Its efforts have included a super-computing project with the National Center for Supercomputing Applications to better predict the location of oil and gas reservoirs, a joint development project with Hunting to produce autonomous drilling tools, and the creation of a revolutionary method for extracting water from natural gas.
Suncor is one of a few companies that have stayed in the tar sands fields as larger multinationals have moved on. The Canadian company recently said it could maintain profitable operations even if oil prices drop to $40 per barrel, according to Bloomberg. Shale production is even less expensive, but there's less competition in tar sands, which also tend to have larger deposits. Canada's Fort McKay First Nation has invested in a Suncor storage tank farm, a project that could be a blueprint for, and give the company an advantage in, dealing with indigenous people across the country.
Pemex, Mexico's state-owned oil and gas company, has been given a $4 billion cash infusion to expand operations, including exploration. After decades as a monopoly, the company has been working to compete in the last few years as production shrank due to low oil prices and a lack of investment.
Products, Operations & Technology
Major products of the oil and gas exploration and production industry are crude petroleum oil which accounts for more than 55% of revenue and natural gas
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