In the previous chapter, companies were only distinguished by whether or not they could be classified as major petroleum companies. This gross dichotomy was necessary in order to review the overall role of nonmajor U.S. oil and gas producers in the context of the entire industry. However, far from being a homogeneous group, the nonmajors are diverse in a number characteristics such as degree of specialization and corporate structure. Specialized companies, generally termed the "independents," were mainly responsible for the nonmajors' growth in oil and gas production, as reported in the previous chapter.
Most oil and gas producers are privately owned companies, which tend to be much smaller than publicly traded oil and gas producers. For example, in 1992, when the majors produced a per company average of 345,000 barrels per day (COE), the other publicly-traded oil and gas companies included in this report produced an average of 10,000 barrels per day, and the remaining oil and gas companies produced an average of only 300 barrels per day (see endnote 18). These small private producers are quite numerous, accounting for about 7,400 of the nearly 8,000 companies reporting oil and/or natural gas production in the United States in 1992 (see endnote 19). In the same year, 427 publicly traded corporations disclosed that Standard Industrial Code (SIC) 1311 (oil and gas extraction) was one of the industries in which they operate, of which 327 stated that SIC 1311 was their primary industry (see endnote 20).
The publicly traded producers annually disclose their oil and gas reserves, production, and exploration and development expenditures. The firm of Arthur Andersen and Company has compiled these disclosures for the 1981-1993 period. These compilations, together with other corporate financial disclosures, will be utilized throughout the remainder of this report. Since oil and gas producers are subject to the same market forces, regardless of ownership structure, it is reasonable to expect that findings based on data for publicly traded independent producers apply to the privately owned independent producers as well.
Companies in the Arthur Andersen and Company database were classified (for purposes of this report) as follows, based on the companies' disclosures of their primary and secondary SIC codes: "independent producers" (primary industry code SIC 13) and "other producers" (primary SIC other than SIC 13, but reporting oil and/or gas production). Other publicly traded oil and gas producers were further subdivided (based on primary SIC's) into refiners, pipelines/utilities, Canadian or other foreign-based, or diversified companies.
Among U.S. oil and gas producers, the independents have gained an increased role in the industry following the oil price collapse. The publicly traded independents' share of U.S. oil and gas production, on a net ownership basis, increased from 7 percent in 1985 to 8 percent in 1993 while the privately owned producers' share increased from 26 percent to 31 percent.
The majors' share fell from 61 percent to 56 percent. The share for other publicly traded producers decreased from 6 percent to 5 percent.
Apart from the majors, diversified companies showed the most retrenchment in U.S. oil and gas production following the oil price collapse (Table 3 and Figure 7). Pipelines and utilities also reduced their commitment to upstream production. Overall, refiners and Canadian-based producers showed little change in their role in U.S. oil and gas production.
Although entry and exit into the ranks of the majors are infrequent, the rest of the U.S. oil and gas industry has experienced considerable comings and goings of companies. The Arthur Andersen and Company database was reviewed and the independentss were in production in 1985 and 1993), nonsurvivors (companies that were not in production in 1993), and entrants (companies that were in production in 1993 but not in 1985). For the independents overall, total assets declined by about a third between the end of 1985 and the end of 1993 (Figure 8). All of this decline was attributable to exiting companies. Excluding these nonsurvivors, total assets of the independents grew by about a third. Entrant companies accounted for most of the growth. Independents that survived the period as intact corporate entities and are still producing oil and gas showed a modest decline in total assets during the 1980's but have clearly registered some growth in assets in the 1990's.
The U.S. oil and gas industry exhibited considerable dynamism following the oil price collapse. In order to better understand the current and future development of the industry, it is worth inquiring as to what factors contributed to the patterns of growth, decline, and exit following the oil price collapse.
The sources of growth and decline in U.S. oil and gas production are rooted in companies' ability to add efficiently to their reserves. This report turns next to a review of resource development costs. The analysis is directed to the relationships between resource development costs and changes in industry structure and some of the consequences of these relationships for future development of the U.S. oil and gas industry.