As the major oil companies have shifted their upstream investment commitments to targets outside the United States, other, typically smaller companies have become more prominent in U.S.
oil and gas production. Between the collapse of oil prices in 1986 and 1989, U.S.-based major
petroleum companies' (see box entitled "Defining the Majors, Nonmajors, and Independents") (in PDF format)
foreign exploration and development expenditures nearly doubled, while their U.S. expenditures
declined by 14 percent. Since 1991, the majors' foreign exploration and development expenditures
have exceeded their U.S. exploration and development expenditures. Costs, fiscal regimes,
regulations, and other factors directly affecting profitability, as well as geology and attitudes
toward foreign investment, all contributed to this shift in investment
(see endnote 1).
Although the majors' primary upstream (exploration, development, and production) investment targets shifted abroad, the reduced role for the majors in U.S. oil and gas production did not become strongly apparent until the 1990's (Figure 1). Reductions in spending and production by other U.S. producers responding to the oil price collapse of 1986 and its aftermath, together with lags inherent between exploration and development activity and production accounted for this delay. Also, the majors did not become net sellers of U.S. oil and gas reserves until the 1990's (see endnote 2). After the late 1980's, the role of other producers increased. Their share of combined U.S. oil and gas production (crude oil equivalent (COE)) (see endnote 3), on a net ownership basis (see endnote 4), rose from 39 percent in the 1986-1988 period to 45 percent in 1993.
Investment exhibited an even sharper upward trend. Producers other than the majors accounted for only about a third of total U.S. exploration and development expenditures in 1988-1990
The increasing dependence of U.S. oil and gas development on the typically much smaller nonmajor companies raises a number of issues. Did those companies gain increased prominence largely through the reduced commitments of the majors or have they been significantly adding to the U.S. reserve base? What are the characteristics of surviving and growing producers compared with companies exiting the U.S. oil and gas business? Differences between the majors' development strategies and those of other U.S. oil and gas producers appear considerable (see endnote 6). As the mix of exploration and development strategies in U.S. oil and gas increasingly reflects the decisions of smaller, typically more specialized producers, what consequences can be seen regarding the costs of adding to U.S. reserves? How are capital markets accessed? Are U.S. oil and gas investments by the nonmajors likely to be undertaken only with higher costs of capital? The remainder of this report analyzes these issues.
(see endnote 5). In recent years, the comparable share has risen to nearly 50 percent.