Update of Selected Tables and Figures Available (updated February 2004)
The production of oil in the United States has been declining since 1986, as higher cost projects have been abandoned in the wake of that year's price collapse. In 1998, the average annual imported crude oil price (in real terms) was for the first time below that of 1973, the year of the OPEC oil embargo. This low price is one of the major reasons that crude oil production in the United States in 1998 was at its lowest level since the early 1950's. Sustained low crude oil prices have led many domestic independent producers to either shut in or idle their wells in 1998. (Note 1)
The effects of lower oil prices have been in part offset by the increased productivity of U.S. exploration, development, and production activities, which is reflected in the decline in the cost of producing oil and gas (lifting costs) and, except for the past few years, the decline in the cost of adding reserves (finding costs). Declines in exploration, development, and production costs appear to be due largely to technological advancement in the industry. Lifting costs in the United States for the major U.S. petroleum companies have been generally declining moderately since 1986. Adjusted for inflation, domestic lifting costs for these companies in 1997 were 38 percent lower than their level in 1986. (Note 2) Over the same time period, finding costs fell even more, 54 percent. However, between 1995 and 1997, domestic finding costs for the major U.S. petroleum companies have increased, especially in the offshore. It is too early to tell if this apparent reversal in trend will continue, or whether technological advances will again continue to lower finding costs over the long run.
The structure of the petroleum production industry in the United States has also been changing. Smaller companies have continued to gain a larger role in the development of U.S. oil and gas resources. The share of production from non-majors (including independent oil and gas producers, pipeline companies, foreign-based companies, and a variety of other companies) has been generally increasing since at least 1986. (Note 3) Oil production by non-majors from the lower 48 onshore part of the United States has exceeded that of majors since the early 1990's. These smaller companies tend to drill smaller fields and have faster depletion rates than the majors. (Note 4) However, with access to advanced technologies, the smaller companies have been able to reduce their finding costs to levels comparable to those of the majors.
The share of oil and gas produced by non-major companies (on a barrel of oil equivalent basis) rose from 44 percent in 1993 to 47 percent in 1997 (on a net ownership basis (Note 5) ) (Figure 1). Production of oil (crude oil and natural gas liquids) by the major integrated U.S. energy companies has generally declined since 1987. While the major companies' domestic production of gas (dry natural gas) has increased, it has not grown any faster over the past decade than has gas production by the non-major companies.
In 1997, the non-major companies produced an estimated 44 percent of U.S. oil, up from 39 percent in 1993. Non-major companies produced 49 percent of U.S. gas in 1997, the same share as in 1993 (Figure 2 and Figure 3). Non-major companies have also increased their amount and share of U.S. oil and gas reserves in recent years. The amount of the non-major companies' U.S. oil reserves increased 22 percent between 1994 and 1997. The major companies' U.S. oil reserves fell 6 percent over the same period; their U.S. oil reserves have fallen every year since 1988. The amount of the non-major company gas reserves increased 10 percent from 1995 to 1997. The major companies' gas reserves decreased 6 percent over the same period. At the end of 1997, the share of U.S. gas reserves held by non-major companies was almost as much as their share of gas production, but their share of oil reserves, at 38 percent, was less than their share of oil production.
From 1993 through 1997, the non-major companies improved their exploration and development results substantially. This was true for oil and gas, both in the onshore and offshore. Purchases of the major companies' castoff properties are no longer necessary as a strategy to maintain reserve levels (Figure 4). This is not to say that the non-major companies have ceased all reserve purchases from the major companies. Overall, such purchases have continued, especially for additions to oil reserves in the lower 48 States. (Table 1).
Domestic crude oil production peaked in 1970 and generally has been falling since 1986. In 1998, it was at its lowest level since 1950. Historically, low returns on investment in oil and gas production operations account for much of the long-term decline in U.S. exploration and development activity. Despite higher rates of return in the last couple of years, (Note 6) domestic crude oil production has not revived. Production (Table 2) may still decline in the near term, in part because of the relatively high finding costs and lifting costs in the United States.
The Gulf of Mexico and California are two areas in the United States where crude oil production might increase notably in the next several years. Most of the crude oil reserve additions from new fields and new reservoirs in 1997 were in the Federal offshore areas of the Gulf of Mexico. (Note 7) In the deepwater Gulf, major U.S. operators continue to evaluate and develop large prospects using the newest in deepwater technology. In California, the largest part of its reserve increase in 1997 was from revisions and adjustments in the heavy oil fields of the San Joaquin Basin. The application of the continuous-injection steam flood process is expected to increase production and lower per-barrel production costs over the next three years in the Basin's Kern River Field.
The possibility of increased oil production in the Gulf of Mexico is in large part based on advances in seismic technology, which have lead to a drilling renaissance of vast proportion there. (Note 8) As a result of these advances, the percentage of wells drilled in the Gulf where 3-D technology has been employed increased from 5 percent in 1989 to 80 percent in 1996. (Note 9) Another indicator of the usefulness of 3-D seismology and other improvements in exploration technology is the dramatic increase in the success rate of exploratory wells drilled in the offshore. Over the period 1985 through 1997, the offshore exploratory success rate for the major U.S. companies increased from 36 percent to 51 percent, despite the fact that the price of oil, which historically has tended to have a positive influence on the success rate, declined by 50 percent in real terms (Figure 5). (Note 10)
Through the use of 3-D seismic technology, a geologist can construct a three-dimensional (3-D) image of the earth beneath the surface before drilling and thus significantly increase the probability that the drilling prospects will yield sufficient reserves and production rates to warrant development. In addition to the deepwater region, the technology has been indispensable to exploration in the subsalt play of the Gulf. This region spans a vast area south of Louisiana totaling approximately 36,000 square miles that is characterized by tabular salt bodies or salt sheets. Prior to the development of 3-D seismic, the salt prevented geologists from obtaining a detailed image of the subsalt geology (Figure 6).
Geologists began to experiment with 3-D seismic in the 1970s. However, commercialization of the technology was inhibited by its huge data processing requirements. Prior to 1990, the computations associated with processing 3-D seismic data could tie-up the largest processors for weeks. New processing algorithms, more powerful workstations, and advances in satellite positioning have dramatically reduced the amount of time required to collect and process the data.
Natural gas production in the United States occurs chiefly onshore, but offshore production had been generally increasing its share of the total. The two areas that produce the most natural gas are the Gulf of Mexico and Texas. As previously noted, drilling in the deepwater Gulf has increased greatly in the past few years; however, in 1997, Texas had the most reserve additions by extensions at already discovered reservoirs.
Increases in U.S. natural gas production have lagged increases in demand in recent years, leading to increased imports (Table 3). Canada accounts for virtually all U.S. natural gas imports because natural gas is generally cheaper to transport via pipeline, and Canada has an extensive and growing gas pipeline system that is integrated with the U.S. pipeline system. Between 1986 and 1996, Canada more than doubled its dry natural gas production, (Note 11) while U.S. production experienced only modest growth. Canada is expected to continue increasing its exports of natural gas to the United States in the future. An additional expansion of the Transcanada pipeline near the end of 1999 and the new Alliance pipeline to the U.S. Midwest, to be completed in 2000, are expected to allow for increased imports, beginning in 2000.
Natural gas consumption in the United States is expected to grow over the next few years. Most new electricity generation capacity planned for the next five years is expected to be natural gas-fired. There are several reasons that may account for this. New technologies are expected to allow natural gas-fired electricity generation to be as cheap as, if not cheaper than, coal-fired generation, formerly the least-cost fuel for generation. Natural gas has an environmental advantage over coal and crude oil. In addition, gas-fired generation has much lower capital costs, which gives it a financial advantage in the uncertain environment surrounding electricity deregulation.
In 1997, four of the world's twenty largest crude oil producing companies were U.S.-based, investor-owned companies, two were European-based, investor-owned companies (both of which had affiliates among the major U.S. oil companies), and 14 were state-owned. (Note 12) If the planned merger between Exxon and Mobil is completed (no date for the merger has yet been proposed), there will be only three U.S.-based companies and 15 state-owned companies in the worldwide top 20.
Nonetheless, opportunities for U.S. multinational petroleum companies to explore, develop, and produce crude oil and natural gas in many areas of the world continue to increase. Since the oil price crash of 1986, the major U.S. petroleum companies have more than doubled their foreign exploration and development spending in nominal terms. Domestic exploration and development expenditures by these companies have not evidenced a similar pattern, but they did increase extraordinarily in 1997, exceeding foreign expenditures again after falling behind in 1995 and 1996 (Table 4). (Note 13) For every year since 1977 (Note 14) save two, OECD Europe (primarily the North Sea) has been the leading area for the U.S. majors' foreign exploration and development expenditures, followed by Canada, Asia and the Pacific Rim, and Africa.
North Sea. OECD Europe (principally the North Sea) continues to be largest target of the major U.S. petroleum companies' overseas oil and gas exploration and development spending. It accounted for about 39 percent of such expenditures in 1997. While spending by these companies on their upstream North Sea operations should continue to be substantial in the years ahead, the area has exhibited the highest lifting costs and among the highest finding costs of any region in the past few years. These high costs may constrain future exploration and development in the region, especially in an era of low crude oil prices.
Asia and the Pacific Rim. As shown in Table 4, the Other Eastern Hemisphere region (essentially Asia and the Pacific Rim) is one of the two next most important targets of the major U.S. petroleum companies' exploration and development spending, comprising about 17 percent of total foreign expenditures in 1997. Since 1990, the Other Eastern Hemisphere region has been in second place for foreign expenditures. However, in 1997, foreign expenditures in the region fell by 28 percent, in part because one transaction, Mobil's acquisition of Ampolex Ltd. (Australia), had added $1.4 billion to expenditures in 1996. Expenditures in 1997 also may have been reduced in part as a response to the Asian economic crisis, especially for liquefied natural gas projects. (Note 15)
Africa. The U.S. majors' foreign exploration and development spending in Africa were about the same as that in Asia and the Pacific Rim in 1997. In the earlier part of the current decade, expenditures by the majors in this region rose from forth to third place. The U.S. majors' African exploration and development spending more than doubled between 1994 and 1996, while increasing just 7 percent in 1997. At least two countries in Africa have recently opened their upstream petroleum assets to foreign investment, Algeria and Angola. Part of the impetus for both of these countries is to encourage new investments incorporating advanced technologies.
Latin America. Exploration and development expenditures by the U.S. majors in 1997 in the Other Western Hemisphere region (principally Latin America) maintained their 1996 level, an increase of 87 percent from the previous year. Petroleum assets in Latin America have been privatized as part of recent free market economic reforms. The extent of the reforms adopted has varied among countries. For example, Argentina has completely privatized its formerly state-owned petroleum company, while Mexico (Latin America's second largest crude oil producer) has given more latitude to foreign investors in the petrochemical industry, but has still largely maintained its state-owned monopoly in petroleum. (Note 16) For a discussion of reforms in the largest crude oil producing country in Latin America, Venezuela, see "Venezuela Offers Full Market Value to Encourage Foreign Investment in Oil."
Canada. In 1997, Canada was a leader in the worldwide upswing in developmental drilling. (Note 17) One of the factors contributing to this increase was the ongoing increase in the export of natural gas from Canada to the United States. Several major U.S. petroleum companies have played a role in this increase. Enron is actively developing gas fields in Alberta, Manitoba, and Saskatchewan. At the end of 1997, Mobil made its first shipment of oil from the vast Hibernia field, located in eastern Canada, offshore Newfoundland. Hibernia could prove to be the largest North American project since the development of the Prudhoe Bay, Alaska deposits. Mobil also reported continued progress in the development of the enormous gas fields in the Sable Island area, 125 miles off the coast of Nova Scotia. Unocal has received government approval to expand its natural gas storage facilities at Aitken Creek in British Columbia (Note 18) and Exxon has heavy oil projects in Cold Lake, Alberta.
Former Soviet Union and Eastern Europe. The breakup of the Soviet Union opened up this area to substantial investment by U.S. companies. However, unlike other parts of the world, this investment started virtually from ground zero less than a decade ago, and it has often taken time for U.S. companies to learn how to do business in this region. For example, an official for Texaco said in 1998, "[Texaco is] hopeful to get off the ground [sic] in Azerbaijan." (Note 19) Not surprisingly, investment by the U.S. majors in the Former Soviet Union and Eastern Europe was less than 4 percent of total foreign exploration and development expenditures by the U.S. majors in 1997 (Table 4). Other problems plague this region. An undeveloped infrastructure hinders the transportation of produced oil and gas to consumers. Although the Russian government has taken some steps in recent years towards privatizing their oil industry and attracting foreign investment to it, federal and regional governments within Russia have continued to impose high taxes on petroleum revenues, have not approved Production Sharing Agreements that would insulate companies from changes in tax regimes, and otherwise have failed to pass laws protecting foreign investments in oil and gas. In addition, recent trouble in the Russian economy likely has slowed foreign investment there.
Larry Spancake, Energy Information Administration, (202) 586-8597, June 1999.
This material was prepared by the Energy Information Administration (EIA), the independent statistical and analytical agency of the Department of Energy. The information herein should not be construed as advocating or reflecting any policy position of the Department of Energy or any other organization.
For information on EIA short-term forecasts, see the projections in EIA's Short-Term Energy Outlook. Longer-term forecasts can be found in EIA's Annual Energy Outlook and International Energy Outlook. Links to these and other EIA publications can be found on EIA's web site.
See Energy Information Administration, "The U.S. Petroleum Refining and Gasoline Marketing Industry" (June 28, 1999), for a review of the domestic downstream petroleum industry.
Energy Information Administration, Oil and Gas Developments in the Early 1990's: An Expanded Role for Independent Producers, DOE/EIA-0600 (Washington, DC, October 1995).
Energy Information Administration, Performance Profiles of Major Energy Producers 1997 (PDF-format), DOE/EIA-02069(97) (Washington, DC, January 1999).
Energy Information Administration, Privatization and the Globalization of Energy Markets, DOE/EIA-0609 (Washington, DC, October 1996).
Energy Information Administration, U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 1996, DOE/EIA-0216(96) (Washington, DC, November 1997).
Energy Information Administration, U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 1997, DOE/EIA-0216 (Washington, DC, December 1998).
Text last modified: April 17, 2001
File last modified: January 22, 2008
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