SIC 1311
CRUDE PETROLEUM AND NATURAL GAS



This industry consists of companies that are primarily engaged in the operation of properties for the recovery of hydrocarbon liquids and natural gas. These companies may perform any or all of a broad range of activities. They may explore tracts onshore and offshore for crude petroleum and natural gas; drill and complete wells; equip wells for production; supply services to increase or maintain the recovery of oil and gas; or provide any of the other services necessary to prepare the product for shipment from the production site. This industry includes companies that produce oil and gas from oil shale and oil sands, or that recover hydrocarbon liquids and natural gas through the gasification and liquefaction of coal. The industry also encompasses firms that are responsible for operating oil and gas wells for others on a contract basis. Oil field service companies that perform services for operators are classified in SIC 1382: Oil & Gas Exploration Services.

NAICS Code(s)

211111 (Crude Petroleum and Natural Gas Extraction)

Industry Snapshot

The crude petroleum and natural gas industry was highly volatile during the late 1990s, which has directly impacted the industry in the early 2000s. Between 1998 and 2001, natural gas prices doubled—for a brief time, quintupled—and then returned to 1998 levels. During the same time the number of natural gas drilling rigs fell off by 40 percent, rebounded to produce at record levels, and then declined again. The petroleum industry also felt effects from the events of the late 1990s. Asia, a large importer of petroleum, underwent an economic crisis that curtailed demand. At the same time, petroleum production worldwide was increasing, causing an oversupply that pushed prices down.

By 1999 production had been curtailed, and prices rebounded, but the fallout from the situation remained. In the United States 35,000 jobs were lost, but only 7,000 were replaced, when balance returned to supply and demand, and of the 331 oil rigs that had ceased production, only 67 were put back on-line. This, in turn, led to a decrease in reserves, which, coupled with an increase in demand, drove prices higher.

During the early 2000s, the U.S. oil and gas industry was being affected by several other current conditions. First, the sluggish economy and unusually warm weather caused a decrease in demand. Second, on December 2, 2001, Venezuela's exports fell off drastically due to a strike. Finally, the U.S. war with Iraq in 2003 caused market volatility that put the industry on edge.

Organization and Structure

Two types of companies are involved in the crude petroleum and natural gas business: the independents and the majors. The majors are large, vertically integrated companies that explore, produce, refine, and sell oil and gas to end consumers. These companies benefit most from the economies of scale. In contrast, the independent operators produce oil and gas to sell to others who then refine and distribute it.

While major oil companies usually funded drilling programs out of their own resources, independents relied heavily on outside investors. Favorable tax treatment for investors in oil and gas limited partnerships helped fuel an unprecedented boom of exploration and drilling in the late 1970s and early 1980s. In a limited partnership there are two kinds of partners, limited and general. General partners, like limited partners, invest money and share the risk of drilling programs. Unlike limited partners, general partners handle the day-to-day management of the business. Usually, there are several limited partners, but only one general partner.

Company Size. The companies in the crude petroleum and natural gas industry range from enormous conglomerates that employ 100,000 people and generate revenue of more than $100 billion, to companies reporting less than $1 million in revenue with few employees. Despite the fact that some firms are very large, 53 percent have fewer than five employees and report revenues of $50 million or less. The industry reported 325,900 employees in 1998.

Regulatory Climate. Historically, the federal government has both helped and hindered the industry. The 1990 Omnibus Budget Reconciliation Act encouraged production by granting a tax credit for projects using enhanced recovery. It expanded the use of deductions for intangible drilling costs and the percentage depletion allowances, and provided a special deduction for independent oil and gas producers to apply against the alternative minimum tax. The decision to cancel the 1990 sale of leases for exploration on the outer continental shelf off California, the Gulf Coast of Florida, and the Northeast, however, hindered the discovery of new oil. The Oil Pollution and Liability Act of 1990 prohibited oil and gas exploration off the coast of North Carolina. That same law also hampered production by imposing federal liabilities on vessels and facilities for oil spills. In addition, the act allowed states to impose their own forms of liability independently. As a result, drillers paid higher insurance rates for their offshore activities.

Background and Development

Crude petroleum has been used since ancient times. It has caulked boats, cured ailments and aches, and lit the lamps of home and the fires of war. But it was the demand for lamp oil that triggered the creation of the oil and gas industry. In the mid-nineteeenth century, overfishing had decimated the whale population, the primary source of lamp oil. Experts speculated that the supply of kerosene, made from petroleum collected at ground seepages, could be increased and solve the problem. A group of investors, led by George Bissell, a New York attorney, and James Townsend, a banker from New Haven, Connecticut, decided to finance the drilling of the first petroleum well.

Boom and Bust. On August 27, 1859, the well was completed in Titusville, Pennsylvania, by Edwin L. Drake. Drake's success triggered a frantic search for oil in the area, and boomtowns sprang up quickly. While the first wells required that petroleum be pumped from the ground like water, it wasn't long until the first flowing well, producing 3,000 barrels per day, was discovered several miles from Drake's well. New refineries were built closer to the wells, and existing refineries increased capacity. Soon, hundreds of small companies were involved in drilling for oil.

Seven years later, however, the once-bustling streets of Titusville were nearly deserted. A legal loophole, "the rule of capture," led the fledgling oil companies to take as much oil as possible from the ground as quickly as possible. This practice promptly ruined the oil-producing capabilities of the underground field, and the wells ceased to produce. The industry had completed its first boom/bust cycle.

The cycle was a phenomenon that the industry has been unable to shake for more than 100 years. After the Civil War, the United States began a period of massive economic expansion and development. The need for petroleum and its products greatly increased.

Standard Oil Trust. In 1871 the industry was in a panic; too many wells were producing too much oil. The price of kerosene fell by more than half, and many refineries were losing money. This alarmed a commodities trader-turned-refiner named John D. Rockefeller. He decided that the best way to save the industry was to limit the intense competition by combining most of the refineries into one company. Eventually, Rockefeller's Standard Oil Trust controlled 90 percent of the refining capacity in the United States. But the company's questionable business practices came to light and, in 1890, the Sherman Antitrust Act was passed by Congress. In 1911 the U.S. Supreme Court ordered that Standard Oil be dissolved. The trust was divided into 33 independent companies. Among these were Standard Oil of New Jersey (which later became Exxon); Socony and Vacuum Oil Co., Inc. (the two later merged to form Socony-Vacuum, which became Socony-Mobil Co., Inc., and finally the Mobil Corporation); Standard Oil of California (later known as Chevron Corporation); Standard Oil of Ohio (which became Sohio and later was bought by the British Petroleum Company p.l.c. as part of its BP America subsidiary); Standard Oil of Indiana (which became Amoco Corporation); and Atlantic Petroleum (which merged with Richfield to become Atlantic Richfield Company, also known as ARCO).

The quest for oil led westward. The first large find in California was made in the 1890s. By 1903 that state was leading the nation in oil production. But to the east lay a larger discovery. In the Texas town of Corsicana, south of Dallas, civic leaders were upset when they discovered oil while drilling for water in 1893. The new well marked the beginning of the Texas oil industry.

It was south of Corsicana, however, that the Texas oil industry had one of its grandest openings. On January 10, 1901, Lucas No. 1 on Spindletop Hill near Beaumont blew in at 75,000 barrels per day, a real Texas gusher. Spindletop was followed by other major discoveries in Texas, Oklahoma, and Louisiana. The result was a surplus of U.S. oil that would last for nearly 70 years.

New Market. Originally, the quest for petroleum was driven by the need for kerosene, a cheap lamp fuel. Yet when Thomas A. Edison invented the electric light, the need for kerosene decreased. The budding auto industry, however, needed gasoline. By 1910 gasoline sales exceeded kerosene sales. William Burton, a Standard Oil scientist, was working on a new process—thermal cracking—that more than doubled the yield of gasoline from a barrel of oil. When Standard Oil was dissolved, Burton's new employer, Standard Oil of Indiana, began using his discovery. Soon the process was licensed at refineries across the country, and petroleum production soared.

Natural Gas. After World War II, the nation implemented the lessons it had learned: petroleum had figured mightily in the success of the Allies. It was clear that measures to conserve the resource had to be taken, and exploring the possibilities of natural gas seemed a logical avenue. In the Southwest, where it was produced, natural gas was used to heat communities near the gas fields. Most of it, however, was burned in bright flares on the high plains. Transporting natural gas to the major markets in the industrial Northeast required a 1,300-mile pipeline.

In 1947 the government sold the "Big Inch" and the "Little Inch," two petroleum pipelines that had carried crude oil and gasoline from the Southwest to the Northeast during World War II. Texas Eastern Transmission Co. immediately converted them to gas pipelines. El Paso Natural Gas brought gas to Los Angeles, California, through another pipeline called the "Biggest Inch." In 1950 gas consumption rose to 2.5 trillion cubic feet (tcf), more than doubling the consumption of four years earlier.

Offshore Exploration. While most oil men were busy drilling on land, some saw the potential off the coast of the United States—especially Louisiana. Because of their state's abundance of marshes, Louisiana oil men had been drilling over water since the early 1900s. The first over-water rigs were land derricks built on wooden platforms supported by creosoted pilings. It was a costly method, but the rewards from the rich Louisiana reservoirs could be worth the expense.

In 1945 a controversy arose over whether the southern states or the federal government owned the rich oil fields on the continental shelf in the Gulf of Mexico. At stake were billions of dollars in potential revenue. If the land belonged to the states, as they claimed, the taxes, royalties, and other revenue would make them among the wealthiest in the nation. On November 14, 1947, the first deep offshore oil well was completed in the Gulf of Mexico, 45 miles south of Morgan City, Louisiana. Three years later, the value of the area was confirmed, as five more major oil fields were discovered.

In 1950 the U.S. Supreme Court declared the offshore waters the province of the federal government. The question of how the lands would be managed was settled by Congress. It passed two acts, the Submerged Lands Act and the Outer Continental Shelf Lands Act, firmly establishing the federal government as the owner, yet allowing leasing of the land for exploration. The Court decision created a major revenue source for the federal government. Between 1970 and 1989, the federal government received a total of $55 trillion from its offshore oil and gas leases. In 1983 alone, the offshore oil industry turned over more than $6 trillion to the U.S. Treasury.

Although oil had been discovered and produced off the shores of other states, Louisiana remained the undisputed U.S. leader in offshore oil wells. In 1990 there were 3,612 oil and gas platforms in federal waters off Louisiana. Marathon Oil and Texaco announced in December 1996 that they made a new oil discovery 130 miles south of New Orleans in the Gulf, and this single well field was expected to recover about 10 million barrels of oil equivalent. The Vermilion 279 property was producing 979 barrels of oil and 4.2 million cubic feet of gas per day from two wells. The Gulf of Mexico was the only place where production was slated to increase in the United States.

Using the Oil Weapon. On October 6, 1973, the high holy day of Yom Kippur, Egypt and Syria launched surprise attacks against Israel. When the Soviet Union resupplied Egypt and Syria with weapons, it was clear that Israel was in danger. When the United States sent supplies, the Organization of Petroleum Exporting Countries (OPEC) retaliated with an oil embargo. Other countries were granted varying amounts of oil, depending on their relations with OPEC. For those who could buy OPEC oil, the price jumped from $2.90 per barrel in September to $11.65 in December. Non-OPEC nations also raised their prices. The nations of the world faced a global recession that rivaled the Great Depression.

New Era. By mid-1974, the Yom Kippur War was over. The effects of the embargo lingered for a long time, however. Besides forcing a settlement in the war, the embargo signaled that the OPEC nations controlled their own oil. Soon after the fighting ended, the OPEC countries nationalized their petroleum industries. The OPEC-member countries would pay the oil companies for operating the oil fields and refineries, but those companies no longer had an equity interest in the oil.

This shift in control forced the companies to rethink where and how they would obtain their oil. What they decided shifted the balance of petroleum power again. By the late 1970s, the U.S. demand for oil began to drop for the first time since the 1930s. Stringent conservation measures, especially a mandatory increase in automobile fuel efficiency, had made the nation less dependent on OPEC oil. Moreover, new non-OPEC fields in Alaska, Mexico, and the North Sea were coming on stream. The surge in prices brought in a great deal of money for the oil companies, creating an exploration boom. At the peak of the boom, more than 4,000 rigs drilled for oil both onshore and offshore the United States.

High energy prices intensified the search for more secure sources of petroleum in oil shale and tar sands. Oil shale contains kerogen, an organic material that forms oil when the shale is heated to high temperatures. An estimated 550 billion barrels of recoverable oil existed in the oil shale deposits of the western United States. Researchers realized that if the cost of recovering it compared favorably with the price of crude oil, it would ensure the energy security of the nation. Experiments were initiated in the 1960s, but were shelved when energy prices dropped in the 1980s. Nonetheless, the federal government continued low-level research in the area. Another area of exploration was tar sands, deposits of very thick crude petroleum. Three experimental projects in tar sand production were successful, but additional research was funded at a very low level.

Coal gasification was used to make almost all the fuel gas sold for residential and commercial use from the late 1800s to the 1940s. As natural gas became more available, the market for coal gas diminished to near zero. Yet, interest in gasification was revived after the 1973 oil embargo. The high crude oil prices made the cost of gas made from coal competitive again. Out of all the projects, only one actively produced synthetic natural gas for pipeline distribution in the early 1990s—the Great Plains Synfuels Plant in North Dakota. In another project of the early 1990s, the federal government funded an experimental coal liquefaction plant in Wyoming to produce synthetic fuel gas and formcoke—made from coal char and much like ordinary coke.

After nationalization, OPEC's announced strategy was to stabilize prices by persuading its members to reduce production. But decreased production meant less income, and the OPEC countries had become accustomed to large profits. One by one, the members of OPEC broke ranks, selling more oil than the agreed-upon amount. As a result, prices began to tumble. When the price of oil hit bottom, it was less than $10 per barrel, a far cry from the $30 per barrel OPEC had commanded at the peak of its power. In the United States, the number of rigs drilling for oil plummeted, until they were counted by the hundreds instead of the thousands.

Even in their disagreement, the OPEC oil ministers controlled prices. If they lowered their income, they also seriously slowed the discovery of new sources of oil outside OPEC. Steadily rising consumption would eventually increase the world's dependence on their oil.

Shifting Sites. The U.S. crude petroleum and natural gas industry moved into a period of decline after 1986, when production hit 8.35 million barrels per day. Three major factors figured in the decline: a shift away from petroleum as an energy source, low crude oil prices, and increasingly stringent environmental regulations—including drilling bans in some of the most promising areas of development. The number of rotary rigs drilling in the United States in 1995 was 723, a decrease of 52 rigs from 1994. This was the second-lowest count since World War II, and a drastic decrease from the nearly 4,000 that were in operation in 1981. But in the first nine months of 1996, the number rose to 761, with 39 percent drilling for oil, 60 percent for gas, and 1 percent miscellaneous. As a result, the major thrust of drilling and exploration moved outside of the United States. Low crude oil prices also curbed the development of other sources of hydrocarbon liquids, such as oil shale, tar sands, and coal liquefaction.

Despite the fact that oil supplied a smaller percentage of the total U.S. energy demand, that demand increased significantly. As a result, the absolute amount of oil used by the United States continued growing (at a time when worldwide use remained stable). By 1992 nearly 2 million miles of gas pipelines linked wells with consumers. Dependence on foreign oil imports reached a record-high 48.2 percent of domestic demand in 1993, up from 31.5 percent in 1985. In 1992 the amount of natural gas consumed rose 4.1 percent to 19.83 trillion cubic feet (tcf). The figure rose to 21.99 tcf in 1996, and consumption for 1998 was estimated at 23.25 tcf.

Americans increased their dependence on foreign oil, from 45 percent in 1993 to 53 percent in 1998. In 1998 the United States imported an average of 8.55 million barrels of crude petroleum per day. After remaining flat for a few years, in 1998 crude oil production in the United States began to fall, from 6.45 million barrels per day in 1997 to 6.24 million barrels per day in 1998. By February 1999 the production levels were the lowest in 50 years, dropping from 6.38 million barrels per day in February 1998 to 5.94 million barrels per day. While production declined, the reserves of crude oil rose, to 222.5 billion barrels in 1997, an increase of 2.4 percent.

The industry in the United States also changed where it got its petroleum. In 1974 the United States produced 8.8 billion barrels per day, with 81 percent from the lower 48 states, 2 percent from Alaska, and 17 percent from offshore. In 1998 the output was 6.4 billion barrels per day, and the percentages were: the lower 48 with 57 percent, Alaska with 19 percent, and offshore with 24 percent. The forecast for the year 2005 was 5.8 million barrels per day, with 54 percent from the lower 48, 16 percent from Alaska, and 30 percent coming from offshore drilling. The Gulf of Mexico was the area where nearly all offshore drilling occurred in the United States. The increase in offshore drilling was attributed to advances in deepwater production and drilling, and legislation aimed at providing royalty relief to the crude oil companies.

In the first six months of 1999, the large integrated oil companies of the United States cut back spending on exploration and production by 10 percent, compared to the same time in 1998. Companies had cut back their upstream spending in the United States by a quarter, while maintaining or increasing the spending in foreign countries. Some analysts, noting total upstream budgets, expected the spending to rise dramatically in the second half of 1999. Some smaller firms were being more aggressive in upstream investment, with some spending more than 75 percent of their yearly upstream budget in the first six months of 1999, with the implication that they would go over budget by the end of the year.

While natural gas production rose in the United States—averaging 18.97 trillion cubic feet in 1998, up from 18.90 tcf in 1997—imports rose 4 percent during that period, due to increased demand. Production was expected to increase in the United States over the next few years, with improved technologies for recovery and storage. The forecasts for natural gas production were 20.27 tcf in 2000 and 22.25 tcf by the year 2005.

Consumers are demanding ever more efficient energy sources, and this will push demand for natural gas to about 2 percent per year. With more Americans choosing products based on environmental considerations, natural gas wins over petroleum products. The combination of deregulation and plans for more electricity generation plants to be powered by gas will lead to increased demand.

For the industry as a whole, the rotary rig count declined to 502 as of March 1999, the lowest ever. Of those 502 rigs, 78 percent drilled for natural gas and 22 percent for oil. In 1998 there was a drop of 13 percent in well completions—10,711 for gas, 8,720 for oil, and 5,453 dry wells.

Current Conditions

Crude petroleum. At the end of 2002, workers at Petroleos de Venezuela, the national oil company, went on strike, causing the nation's oil exports to fall from 3 million barrels a day to around 400,000. Venezuela supplies 14 percent of U.S. imports—about nine times as much crude oil as Iraq. With the United States on the brink of war with Iraq, the situation in Venezuela helped to further destabilize an already volatile market.

The U.S. war with Iraq in early 2003 caused continued uncertainty in the market, in both worldwide production levels and price. As the war approached, prices jumped from $20 a barrel to $40 a barrel, before declining to the mid-$20 range. In April 2003 crude oil prices fell to a five-month low, and inventory was running high. "We're getting a huge influx of crude," Marshall Steeve, an analyst with Refco Group Ltd., told The America's Intelligence Wire. "It's obvious that the big producers are pumping as much as they can." U.S. inventories stood at 286.2 million barrels, and the Energy Department was concerned that another oil glut could occur over the next months.

In 2001 the United States imported 55 percent of petroleum consumed domestically. In 2000 domestic crude petroleum production totaled 2.1 trillion barrels, with a value of $56.9 billion. The U.S. Department of Energy's Energy Information Administration (EIA) predicts that dependence on petroleum imports will reach 68 percent by 2025. Crude oil production in the United States is expected to increase slowly over the next several years, before beginning to decline in 2008. Increases in production will mostly be driven by offshore rigs. According to the EIA, U.S. production of crude petroleum will grow from 4.8 billion barrels per day in 2001 to 5.3 billion barrels per day in 2007 and then decline to 4.2 barrels per day by 2025. As consumption increases and domestic supply decreases, the United States will become more dependent on petroleum imports.

Natural gas. The natural gas industry is expected to see growth in exploratory and development drilling that should lead to increases in domestic production levels. According to the EIA, additions to natural gas reserves are expected to peak in 2018 at 25.8 trillion cubic feet, before gradually declining to 22.4 trillion cubic feet in 2025. Improved technology will drive natural gas production from unconventional sources (tight sands, shale, and coalbed methane), with production from these sources jumping from 5.4 trillion cubic feet in 2001 to 9.5 tcf in 2025.

With natural gas increasingly fueling the generation of electricity, the sector is posed for significant growth in the coming years. Whereas the United States produced under one-tenth of the world's crude petroleum at the turn of the century, domestic production of natural gas totaled one-fifth of the world's dry, marketable gas. Natural gas liquids produced domestically accounted for one-third of the world's supply. In 2000 domestic production of natural gas totaled 20 tcf, valued at $73.6 billion.

Industry Leaders

In 2002 the top production companies were Exxon Mobile Corporation, with sales of $178.9 billion; BPp.l.c. (formerly BP Amoco), with sales of $178.7 billion; Royal Dutch/Shell, with $179.4 billion; and Chevron Texaco, with $91.7 billion.

Exxon was the flagship of the Standard Oil Trust and was incorporated in 1882. It was the world's largest publicly owned integrated oil company. Mobil Oil, the second largest in the United States and third largest worldwide, started in 1866 in Rochester, New York, as Vacuum Oil Co. and was also part of the Standard Oil Trust. It merged with Socony in 1931, became Socony-Mobil in 1955, and Mobil Oil in 1966. In 1998 Exxon and Mobil agreed to merge into a new company called Exxon Mobil.

BP was a result of a merger in 1998, the world's largest between industrial companies. William Knox D'Arcy founded BP in the early 1900s. D'Arcy was convinced (and eventually proven right) that there were large oil deposits in Iran (then Persia). BP remained a heavy presence in the Middle East for 60 years, before concentrating in the United Kingdom and the United States. Amoco was founded by John D. Rockefeller in 1889 and folded into his giant Standard Oil. In 1911 Amoco became an independent company. Scientists at Amoco developed the process that increased octane levels in gasoline in 1912.

Shell had humble beginnings as a bric-a-brac shop in 1833, with part of its enterprise the sale of exotic sea shells. When owner Marcus Samuel died, the thriving business was continued by his sons, and had its first foray into the oil industry in 1878, handling consignments of cased kerosene, and eventually became Shell Transport. Standard Oil made several unsuccessful attempts to buy or control Shell, and in 1907 Shell and Royal Dutch merged, with Royal Dutch holding 60-percent ownership and Shell Transport 40-percent ownership—exactly as it stands today. The Royal Dutch/Shell Group is the second-largest petroleum company in the world.

The industry was being held to an increasingly higher environmental standard, especially offshore. Drilling and production wastes once held acceptable were declared toxic. For example, a machine shop that removed scale from the inside of drilling pipes found out the scale was radioactive. The oil companies that sent the pipe to the shop agreed to a multimillion-dollar settlement out of court. Early estimates were that thousands of workers and their families might have been exposed to harmful radiation, and clean-up costs might reach several hundred million dollars.

Environmentally related situations continue to plague petroleum companies. In 1989 the largest oil spill in U.S. history took place in Prince William Sound, Alaska. Seven years later, a U.S. District Court judge ordered Exxon to pay compensatory damages of more than $5 billion. Exxon filed an appeal. In January 1997, Ecuador's attorney general stated that Texaco Oil was responsible for unprecedented and continuing damage to the health and well-being of Ecuadorian Indians. They joined a $1 billion class-action lawsuit against Texaco. Shell Petroleum in Nigeria was accused of environmental devastation and exploitation in Ogoni, a small, highly populated area of the Niger Delta. There have been several well-publicized incidents and community disruption to Shell Nigeria's operations.

The bad publicity from environmental disasters continues to afflict the oil industry. Russell Mokhiber of Corporate Crime Reporter and Robert Weissman of Multinational Monitor compiled a list called the "Top 100 Corporate Criminals." The list appeared in an article written by Michelle Bier in the Oil Daily, and oil companies were featured prominently. Exxon, in making the list twice at numbers 5 and 96, was called a "criminal recidivist corporation." The two incidents involving Exxon were the spill in Prince William Sound and a spill of 567,000 gallons of home heating oil. The latter spill occurred in Arthur Kill, a waterway between New York and New Jersey, and resulted in Exxon pleading guilty to federal charges in 1991 and paying a $200,000 fine.

But Exxon had company on the list. Chevron Corporation was placed at number 41, when it pleaded guilty to discharging oil and grease off a drilling platform in Santa Barbara, California. The company was fined $8 million. At number 77 was Unocal Corporation, which leaked oil at its field in Guadalupe, California. It was estimated that the company leaked as much as 8.5 million gallons. Five other oil or petroleum-related companies made the list.

Workforce

According to the U.S. Department of Labor, Bureau of Labor Statistics, the oil and gas industry employed 125,370 people in 2001. Among the job titles were administrators, accountants, civil engineers, insurance specialists, human resource specialists, public relations practitioners, and marketing and sales managers. Peculiar to the industry are gas engineers, geologists, geophysicists, seismic surveyors, derrick men, drillers, floormen, mud engineers, mud loggers, mud men, nipple chasers, petroleum engineers, roughnecks, roustabouts, swampers, tank strappers, and wildcatters.

Wages in the industry ranked above average. The mean annual salaries in 2001 for those who worked in the United States were: petroleum engineer—$90,240; roustabout—$26,710; surveyor—$61,740; rotary drill operators—$32,950; and derrick operators—$33,010. Whereas most professionals were not unionized, other employees were often represented. Two prominent unions in the industry were the Associated Petroleum Employees Union and the Oil, Chemical, and Atomic Workers International Union.

Job opportunities remained fair to poor, due to industry restructuring and consistently low prices for crude petroleum. Restructuring produced layoffs from the rig floor to the boardroom. Long-term oil prices, however, were expected to rise, as reservoirs were depleted and the need for additional exploration increased, possibly necessitating more workers. Because the number of degrees granted in the field has traditionally been low, the number of job seekers was not likely to exceed the number of positions available in the early 2000s. Recent setbacks were offset by the increased demand for these professionals in environmental protection, reclamation, cleaning up contaminated sites, and in assisting private companies and government comply with more numerous and complex regulations. Job prospects for geoscientists were expected to grow 10 to 20 percent through 2005. In addition, overseas opportunities existed for many of the skilled and technical professions.

America and the World

The United States has been a leader in international oil exploration and production. U.S. companies have played roles in the discovery and production of oil in major fields in Mexico, Venezuela, Saudi Arabia, Kuwait, and Libya. While exploration and oil drilling have decreased in the continental United States and Alaska, all of the major American oil companies have increased their presence overseas. It is important to note that more than 75 percent of proven oil reserves are controlled by OPEC, although the vast majority of oil is consumed by non-OPEC nations—therefore giving OPEC a tremendous influence on the world oil and gas market.

American oil exploration, and that of other non-OPEC countries, slowed in contrast to OPEC exploration. Meanwhile, the major U.S.-based petroleum companies became increasingly involved in foreign exploration. In the early 1990s, money allocated to foreign exploration and development topped 50 percent of all exploration spending, as compared to 27 percent in the mid-1980s. In 1998, for example, Exxon spent about 45 percent on production in the United States and about 55 percent in the rest of the world. World political and economic developments of the 1990s made it more feasible and profitable to increase American investment in foreign exploration. U.S. companies increased their investment in many areas of the world, particularly in Latin America. The natural gas industry in Central and South America presented great potential. With the exception of Argentina and Venezuela, the industry was underdeveloped, with reserves equivalent to those found in North America.

The dissolution of the Soviet Union provided increased opportunities for investment in that area's oil reserves. The CIS (Commonwealth of Independent States) saw the rise of joint exploration and drilling ventures, especially in Russia, between U.S. and Russian companies. While instability in the former Soviet Union slowed the natural gas industry, this was seen as a short-term problem.

Another area of increasing American investment was Southeast Asia, where U.S. exploration spending grew the most from the mid-1980s to the mid-1990s. The economies of Asian countries have become increasingly industrialized since the late 1990s, and many governments in Asia, including China and Vietnam, actively courted foreign investment and participation in local drilling by outside companies. Deepwater fields offshore in the Philippines showed great promise as well.

After decades of being a net exporter of petroleum, the United States crossed the line into international interdependency sometime in 1970, when production hit its peak and the last of the oil surplus that had guaranteed energy independence had been pumped into the pipeline. Other countries, particularly South Africa and Canada, were leaders in developing technology for the use of coal as a source of petroleum and gas. South Africa had the largest commercial coal gasification plant and the only commercial coal liquefaction plant in the world. But while oil production decreased, natural gas production in America was increasing and was expected to remain on an upward swing until 2015. As the largest supplier of natural gas after Russia, American companies were putting more effort into drilling for gas domestically rather than petroleum.

Research and Technology

In the crude petroleum and natural gas industry, research and development occurs in both the laboratory and on the drilling rig. Directional drilling and enhanced oil recovery have been two of the latest areas of research and development. Directional drilling rapidly gained importance by allowing several wells to be drilled into different areas from a single derrick. The technique proved especially valuable offshore, where the cost of establishing a platform ran into the hundreds of millions of dollars. Onshore, directional drilling also limited environmental damage by reducing the number of rig locations needed.

Another advantage to directional drilling was the ability to drill a well horizontally across the top of a formation to maximize oil or gas recovery. Directional drilling is done with steerable drill bits that allow drillers to change the direction of the hole from the surface at any depth specified. A turbine motor, powered by the pressurized drilling mud circulating through the well, provides a high-speed twist to the drill bit.

Enhanced oil recovery—the third phase of oil recovery—became increasingly important as oil fields matured. In primary recovery, natural gas or water pressure drives the oil through the rock formation into the well. Sometimes the pressure is high enough to raise the crude to the surface, but often it must be pumped out. Production reduces the pressure until the driving force can no longer push the oil through the formation fast enough for economical recovery.

In secondary recovery, gas or water pressure is added to push the oil to the well. Enhanced, or tertiary, recovery begins when secondary recovery methods no longer produce enough oil to make the well profitable. Tertiary recovery uses a variety of techniques to wring the last bit of recoverable oil from the rock formation. The techniques fall into four categories: thermal—combustion, steam soak, steam drive, steam flood, hot water drive, and electromagnetic; gas—hydrocarbon gas, carbon dioxide, nitrogen or flue gas; chemical—alkaline, foam, and polymer; and other—microbial.

Oil Shale, Tar Sands. In the early 1990s the attempt to produce liquids from oil shale involved several steps. The shale was mined, crushed, and heated in a retort to produce shale oil. Major problems with the technique included how to dispose of spent shale. In an oddity of nature, when oil is recovered from shale, the shale expands. Research in oil shale technology, like that for tar sands technology, had been all but completely shelved because of low oil prices.

Coal Gasification, Liquefaction. In the early 1990s, the $2.1 billion Great Plains Synfuels Plant in North Dakota produced more than 171 million cubic feet of synthetic natural gas per day using lignite (soft) coal mined in the state. The gas was then sold to a pipeline company for distribution in the eastern United States. Design of the plant began in 1973 as an effort to reduce the nation's dependence on foreign energy.

The success of the plant was costly. The federal government guaranteed $2.02 billion in loans to build the plant, and private sector partners agreed to provide up to $740 million of their own funds. Four years after construction began, the private sector sponsors withdrew and defaulted on the loans, despite the fact that the plant was earning revenue in excess of operating costs. The plant was sold in 1988 with $84 million and a share of future profits going to the federal government.

Coproducts had become important sources of revenue for the Great Plains Synfuels Plant. The plant produced 35 million pounds of phenol annually for plywood and chipboard resins. From the facility's oxygen plant, commercial quantities of xenon and krypton gases were being recovered and sold to lighting manufacturers. Other products included anhydrous ammonia, sulfur, and liquid nitrogen.

Coal liquefaction, also called mild gasification, began to emerge from the purely experimental stage in the early 1990s. While promising technologies had been discovered, they required crude oil prices in the $38-per-barrel range to be feasible. The price of crude ranged between $12.50 per barrel (1986) to about $20 per barrel in the early 1990s. Commercialization may depend on making commercial quantities of high-value chemical coproducts. The solid product of mild gasification can be made into formcoke and used in blast furnaces. Because the product would come from new plants meeting the most stringent environmental standards, instead of traditional coke ovens, the environment would benefit as well.

Also in the early 1990s, a Wyoming project that received federal funding under the U.S. Department of Energy Clean Coal Technology Program was to produce two products, one solid, the other liquid. The solid product was a low-sulfur, high-energy, coal-like fuel able to be burned in power plants and meet strict emissions standards. The liquid fuel could be used directly as a boiler fuel or as a refinery feedstock to produce gasoline and diesel. When fully operational, the plant was expected to produce 180,000 tons of high-energy solid fuel and 150,000 barrels of liquid each year using 1,000 tons of subbituminous coal per day. In all, 32 coal gasification and liquefaction projects were in various stages of development across the United States. But as crude oil prices increased, the economic benefits of coal liquefaction were beginning to attract attention. The Sierra Pacific Power Company's Pinon Pine Project was a showcase demonstration plant, showing how clean, affordable electricity could be generated from coal, one of America's most abundant resources. In its gaseous form, coal can be cleaned of more than 95 percent of its sulfur pollutants and virtually all of its ash impurities. The project began in 1992 and was scheduled to run until 2000. By 2010 technological improvements will be able to lower the cost to 75 percent of what it is today.

Further Reading

Brier, Michelle. "8 Industry Firms Qualify for Ranking among Top Corporate Criminals." Oil Daily, 4 October 1999.

Coy, Peter. "A Shocker from the Oil Patch." Business Week, 30 December 2002, 44.

Creswell, Julie. "Oil Without End?" Fortune, 17 February 2003, 46ff.

"Crude Petroleum." WEFA Industrial Monitor 1999-2000. New York: John Wiley and Sons, 1999.

"Crude Petroleum and Natural Gas." U.S. Industry & Trade Outlook '99. New York: McGraw-Hill, 1999.

"EIA Sees Higher Prices." Global Markets, 17 March 2003, 4.

Galarza, Pablo. "Investing/Stocks/The Deal: Exxon and Mobil Cheap Oil Isn't the Only Reason that the Biggest Merger Ever Makes Sense." Money, 1 February 1999.

Independent Petroleum Association of America. "State of the U.S. Oil and Natural Gas Industry." Available from http://www.ipaa.org .

Merolli, Paul. "Majors' Spending Declines 10 Percent from Last Year." Oil Daily, 30 July 1999.

"Natural Gas." WEFA Industrial Monitor, 1999-2000. New York: John Wiley and Sons, 1999.

"Oil Prices Boosted by 'War Premium,' but How Long Will It Last?" The Oil Daily, 19 February 2003.

"The Power Behind Energy Stocks." Business Week Online, 23 January 2003.

Ratish, Robert. "Crude Oil Falls on Soaring U.S. Inventories." The America's Intelligence Wire, 24 April 2003.

Tippee, Bob. "Hope for 2003 Lies in Forecasts for Little Change." The Oil and Gas Journal, 6 January 2003, 68.

U.S. Department of Energy, Energy Information Administration. Annual Energy Outlook 2003 with Projections to 2025: Market Trends—Oil and Natural Gas. Available from http://www.eia.doe.gov .

——. U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 2001 Annual Report. Available from http://www.eia.doe.gov .

——. Weekly Petroleum Status Report, 25 April 2003. Available from http://www.eia.doe.gov .

U.S. Department of Labor, Bureau of Labor Statistics. 2001 National Industry-Specific Occupational Employment and Wage Estimates. Available from http://www.bls.gov .

"U.S. Refining Margins Remain Strong." The Oil Daily, 18 March 2003.

Yergin, Daniel, and Cybele Weisser. "The New World of Oil." Money, 1 May 2003, 50.



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