With the US Congress presently embroiled in a debate over legislation that would become the nation's energy policy—all in the wake of the terrorist events that occurred more than a year ago—the importance of a steady, reliable supply of domestic oil and natural gas has come to the forefront as a key issue.
It goes without saying that US independent exploration and production companies will continue to play a crucial role in finding and producing the nation's future oil and gas supplies. And while doing so, today's independent producers—large and small alike—will face some of the same obstacles that independent firms have had to tackle in decades past. In many ways, however, today's independents are better equipped to meet these, and other, challenges.
Presently, E&P firms can range in size from a market capitalization of a few million dollars to ones with a market cap of several billion dollars, as illustrated by OGJ's top 10 fastest-growing independents (based on shareholders' equity), which are profiled in a special report beginning on p. 18. Some US independents today have, in fact, amassed a size that industry would have classed as a major oil firm back in the early 1980s.
This vast range in size speaks to the ever-evolving shape of the field of US independents: There currently exists a company to fill every niche in industry; whereas, even as recently as 20 years ago, this was not necessarily the case.
Then vs. now
According to its US Petroleum Statistics sourcebook, compiled by the Independent Petroleum Association of America, the number of US operating companies—which in this case includes a handful of integrated firms as well as E&P independents—reached a peak of 13,014 in 1982. In 1999, this number plummeted to a nadir of slightly more than 2,000.
In 1982, those operators were completing a total of about 25,800 wells/year and had a total of roughly 783,800 wells producing oil and gas, IPAA reported. In 1999, though, the much smaller number of operators were completing more than 38,000 wells/year with more than 860,700 producing wells.
Drilling costs have ballooned for operators as well, at least in nominal terms. IPAA reported an average drilling cost of about $514,000/well in 1982, while operators were paying, on average, more than $850,000/well to drill in 1999. Drilling costs have risen especially sharply since the mid-1990s.
IPAA reported that in 1982 operators were adding to the US energy slate an average of 35,200 bbl/well of oil reserves and 920 MMcf/well in natural gas reserves. In 1999, these numbers for oil and gas reserves climbed to about 512,100 bbl/well and 1.75 bcf/ well, respectively.
This transformation, in a little less than 20 years' time, suggests that industry in general—and US independents in particular—has had to adapt to rising costs while finding and producing more oil and gas more efficiently. This is being done, of course, using more advanced technologies and fewer people.
Changing company profiles
In addition to IPAA's petroleum statistics, the association also surveys its member companies every few years to ascertain the changing profile of the US independent producer. Due to personnel and economic restraints, the association did not conduct a survey this year. The most recent survey was conducted in 2000 (see table, OGJ, Oct. 22, 2001, p. 63).
IPAA's first survey, conducted in 1992, stated, "Despite the modern image of independents as efficient entrepreneurs, it is important to remember that the typical independent still operates as a small business owner." During that year, IPAA's survey found that about 32% of all US independents had 1-5 employees, and about two thirds of those surveyed had a workforce of 20 or fewer. About 3% of US independents surveyed had more than 1,000 workers. "Clearly, the independent company faces all the constraints and problems of any small business person on Main Street, USA," the report stated.
No easy answers
As today's independents strive to continue to grow, they will need to do so by borrowing from past lessons learned as well as by tapping into the knowledge base that's gradually leaving the industry, according to Frederick J. Lawrence, IPAA's director of economics and international projects.
And advancing technologies—al- though assisting independents to do more while using less—will not provide all of the answers, Lawrence said. "There are no easy answers," he added.
