Why oil and gas is an economic engine

The report, commissioned by the American Petroleum Institute, said the oil and gas industry currently supplies more than 60 percent of the nation’s total energy demands and more than 99 percent of the fuel used by US motorists in their cars and trucks, while 900 of the next 1000 US electric power plants are projected to use natural gas.

The industry is one of the largest employers in the country, with millions of people in exploring, producing, processing, transporting and marketing oil and natural gas. "Millions of jobs in other industries are supported by the oil and natural gas industry's purchases of intermediate inputs and capital goods from other US producers," the report said. "These businesses include equipment suppliers, construction services, management services, food services, and many other types of support services. These supporting businesses, in turn, purchase goods and services, spurring additional economic activities. Further, employees and business owners make personal purchases out of the additional income that is generated by this process, sending more new demands rippling through the economy."

At the national level, the study found each job in the oil and gas industry supported more than three jobs elsewhere in the US economy in 2007, the most recent year for which data are available. In terms of operational impact, it directly and indirectly contributed over 7.8 million full-time and part-time jobs to the national economy.

Further, the industry's capital investment contributed an additional 1.4 million jobs to the national economy. Combining both operational and capital investment impacts, the oil and natural gas industry's total employment contribution to the national economy amounted to 9.2 million full-time and part-time jobs in 2007, accounting for 5.2 percent of total US employment.

Associated labor income, including proprietors' income, was estimated at $558 billion, or 6.3 percent of total national labor income. The industry's total value-added contribution to the national economy topped $1 trillion, accounting for 7.5 percent of US gross domestic product for 2007.

"The economic impact of the oil and natural gas industry reaches all 50 states and the District of Columbia," PwC reported. The total number of jobs directly or indirectly attributable to the industry's operations ranged from a low of 12,815 (in the District of Columbia) to more than 1.7 million (in Texas). The top 15 states, in terms of the total number of jobs directly or indirectly attributable to the oil and natural gas industry's operations in 2007 were Texas, California, Oklahoma, Louisiana, New York, Pennsylvania, Florida, Illinois, Ohio, Colorado, Michigan, Georgia, North Carolina, Virginia and New Jersey."

PwC said the industry accounted for four percent or more of total employment in another group of 15 states, including Wyoming (18.8 percent), Oklahoma (16.3 percent), Louisiana (13.4 percent) and Texas (13.1 percent); Alaska, New Mexico, West Virginia, Kansas, Colorado, North Dakota, Mississippi, Montana, Utah, Arkansas and Nebraska are the others.

As Congress debates greater domestic oil and gas access and higher energy taxes, legislators should keep in mind the oil and gas industry's importance to the US economy and in states well beyond traditional oil and gas-producing regions, said API President Jack Gerard. "Congress should remember that some of the energy tax and climate change legislation it has proposed would have a devastating impact on the industry and many of the 9.2 million American jobs it supports, as well as on the American economy and energy security," he said.

"The people in the US oil and natural gas industry are the backbone of our economy," Gerard said. "They provide most of the nation's energy, spurring growth and job creation across America. At a time of economic recession, the oil and natural gas industry is actually responsible for creating more jobs and generating more revenue to the economy. Irresponsible proposals to pile new taxes on the industry threaten these jobs and the nation's ability to produce more of its own energy. We should not put any jobs at risk, but especially not when millions of Americans already are unemployed and economic recovery remains uncertain."

Deals in North America

The fall in North America O&G deal volume from its 2006 $164.7 billion high accelerated sharply in 2008. Total deal value fell 43 percent, from $129.7 billion in 2007 to $73.6 billion in 2008. Deal numbers were down by eight percent but it was a halving of the number of big transactions that really hit total value. There were just 15 deals in 2008 worth $1 billion or above, for example, compared to 31 in 2007. This alone accounted for $49.4 billion of the total $56 billion year-on-year fall in total deal value.

Upstream activity experienced the smallest fall of all the sectors but still saw total value down by 27 percent. Between them, two companies - Chesapeake and XTO - accounted for $22.4 billion of the total $59.6 billion upstream deal value. The difference was that, while XTO was on the acquisition trail with nine purchases in 2008 totaling $10.6 billion, Chesapeake was a seller as it responded to a closing of the debt markets with a series of eight cash-raising deals that yielded a total of $11.8 billion. As well as the sales to StatoilHydro and Plains Exploration, two further $1 billion plus deals saw BP acquire tight gas assets from Chesapeake totaling US$3.65 billion. The contrasting deal context was matched by their timing. Six of the nine XTO purchases were made in the first half of the year as the oil price remained buoyant while all but two of Chesapeake's sales came in the second half of the year as the financial market deterioration intensified and commodity prices collapsed.

The largest XTO transaction was the US$4.2 billion acquisition of Hunt Petroleum and associated entities. The deal gives XTO an estimated 1.05 trillion cubic feet of gas equivalent in East Texas, Louisiana, the Gulf Coast and non-operating assets in the North Sea. Hunt is an 80-year private company founded by legendary wildcatter, the late Haroldson Lafayette Hunt. The Hunt sale was the second largest North American deal after Royal Dutch Shell's $5.8 billion Duvernay purchase. It was a sign of straitened debt market conditions that these were the only two corporate deals among the five largest North American O&G deals.

The remaining three transactions were the Chesapeake asset sales and, indeed, 2008 was a year in which asset deals were much more common. Moves by foreign buyers for North American assets continued to catch the eye in 2008 with the Shell, BP and StatoilHydro purchases accounting for three of the five biggest North American deals.

Deals outside of the upstream sector were down very sharply, with total value shrinking by more than a half of its 2007 level in the case of the downstream sector. The fall was even greater in the midstream and service sectors - total deal value in both sectors plummeted to around a quarter of 2007 totals. One of the most striking contrasts with the preceding years was the relative absence of service sector plays. The services sector had attracted investors as demand for services grew but anticipation of reduced demand has dampened sentiment. Oilfield services deals had leapt from $5.9 billion in 2006 to $22.9 billion in 2007 with four such transactions among the 12 largest 2007 North American deals. Only one service sector deal - Precision Drilling Trust's $1.6 billion acquisition of drilling rig assets from Grey Wolf - featured so high in 2008