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Craft Oil: The Lesser Known Side of America’s Energy Industry

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Craft Oil Infographic

Craft Oil: The Lesser Known Side of America’s Energy Industry

Go back a decade, and America’s energy industry was quite the hot button issue.

Oil prices were soaring past $100/bbl, the country was still reliant on OPEC for imports, and a lack of energy independence was becoming a costly issue. Meanwhile, the United States was being outclassed on the energy production front by both Saudi Arabia and Russia.

However, in the short span of eight years – and thanks to the use of technologies like horizontal drilling and hydraulic fracturing – the United States quickly went from having a questionable energy future to being in a clear position of strength. Today, even with lower prices, U.S. field production of crude is at a 43-year high.

America’s Independent Oil Producers

Since 2016, the U.S. has produced close to the equivalent of 30 million bpd in oil and natural gas, making the United States a champion of global energy production.

Today’s infographic from Jericho Oil focuses on a key part of the turnaround in the U.S. energy sector that often gets overshadowed by Big Oil players like ExxonMobil or Royal Dutch Shell. It covers the role of “Craft Oil” in the industry, an umbrella that includes many small, independent, and focused companies across America that produce oil and gas on a domestic basis.

The thousands of companies in this group, many which are community-driven or family-owned, actually drill 95% of the country’s oil wells to yield 54% of onshore oil and 85% of onshore gas production.

Comparing Big Oil to Craft Oil

Below is a comparison of ExxonMobil to the profile of an average Craft Oil company:

 
Big Oil
Craft Oil
Employees
71,300
12
Years in Business
108 years
23 years
Annual Gross Revenues
$218.6 billion
$9.25 million
Ownership
Publicly traded
75% private, 25% public
Level of Integration
Typically fully integrated, combining upstream and downstream activities to get the most out of the value chain
Usually a pure play, focused upstream on oil exploration and production
Focus
Produce, transport, refine, and market oil products
Develop new plays, and drive upstream trends such as technological innovation
Production
Domestic and international
Mostly domestic

Most Craft Oil companies are very small in comparison – but together, they contribute to a very significant portion of U.S. production, as well as the economy.

Investing in Craft Oil

Do these independent producers provide a strategic opportunity for investors?

Yes, but here are a few areas investors should consider evaluating before taking any action:

Location of Assets:
In the U.S. and Canada, independent oil companies undergo strong regulatory scrutiny to make sure their reporting and numbers give transparency to their operations.

Cash and Debt:
How much does the company have in cash? Will they have to raise more money soon?

Companies operating in junior oil and gas should not have more than 2x more debt than their current cash flow.

Management Team:
The strength of any management team is linked to their connections, past experience, and skill set. If the management team has built and sold successful projects in the past, that is a good sign of strength.

Economics:
Investors need to be aware of key metrics to gauge if junior oil and gas companies can make money in the current or projected cost environment. These include IRR (Internal Rate of Return), NPV (Net present value), and payback period. Companies that make their money back fast and with a good return can re-invest that capital into additional projects.

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Energy

Visualizing U.S. Energy Use in One Giant Chart

This interesting diagram breaks down all U.S. energy use by both source and industry, and everything that happens in between.

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Visualizing U.S. Energy Use in One Giant Chart

If you feel like you’ve seen this diagram before, you probably have.

Every year, it’s assembled by the Lawrence Livermore National Laboratory, a research center founded by UC Berkeley and funded primarily by the U.S. Department of Energy.

The ambitious aim is to chart all U.S. energy use in one Sankey diagram, including the original energy source (i.e. nuclear, oil, wind, etc.) as well as the ultimate end use (i.e. residential, commercial, etc.) for the energy that was generated.

U.S. Energy Use in 2018

According to the research center’s most recent published version of the diagram, U.S. energy use totaled 101.2 quads in 2018.

In case you are wondering, a single quad is equal to 1 quadrillion BTUs, with each quad being roughly equivalent to 185 million barrels of crude oil, 8 billion gallons of gasoline, or 1 trillion cubic feet of natural gas.

Here is how the recent figure compares to previous years:

YearU.S. Energy Consumption% Fossil Fuels in Mix
2018101.2 quads80.2%
201797.7 quads80.0%
201697.3 quads80.8%
201597.2 quads81.6%
201498.3 quads81.6%

As you can see in the table, U.S. energy use has been generally increasing, eventually topping 100 quads per year by 2018. During this time, the total percentage of fossil fuels in the mix has dropped, but only from 81.6% to 80.2%.

Taking a closer look at the data, we can see that the largest percentage increases in the mix have come from solar and wind sources:

Source20142015201620172018Change ('14-'18)
Solar0.4270.4260.5870.7750.949+122%
Wind1.731.782.112.352.53+46%

Energy use measured in quads (1 quadrillion BTUs)

Solar use has increased 122% since 2014, while wind jumped 46% over the same timeframe. Not surprisingly, energy derived from coal has fallen by 26%.

Dealing With the Rejects

One interesting thing about the diagram is that it also shows rejected energy, which represents the energy that actually gets wasted due to various inefficiencies. In fact, 68% of all energy generated is not harnessed for any productive use.

This makes sense, since gasoline engines are usually only about 20-40% efficient, and even electric engines are 85-90% efficient. Put another way, a certain percentage of energy is always released as heat, sound, light, or other forms that are hard for us to harness.

As electric cars rise in popularity and as modern gas-powered engines also get more efficient, there is hope that the amount of this rejected energy will decrease over time.

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Energy

Mapped: Fossil Fuel Production by Country

These four animated cartograms show the nations leading the world in fossil fuel production, in terms of oil, gas, coal, and total hydrocarbons.

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Fossil fuels exist as a double-edged sword for most countries.

On one hand, they still make up a dominant piece of the current energy mix, and oil is still seen as a crucial resource for achieving geopolitical significance. It’s also no secret that fossil fuels are a driver for many economies around the world.

But with governments and corporations counting carbon emissions and mounting concerns about climate change, reliance on these same fuels will not last forever. As attitudes and policies evolve, they will continue to see a reduced role going forward.

Visualizing Fossil Fuels by Country

So, which countries are pumping out the most hydrocarbons?

Today’s cartograms come from 911Metallurgist, and the animated maps resize each country based on their share of global fossil fuel production.

Below, you’ll see four cartograms that cover oil, gas, coal, and total fossil fuel production.

Crude Oil Production

The United States leads this category, producing about 18% of the world’s total oil:

Oil production by country

Although the U.S. is the number one producer globally, it should be noted that the country doesn’t have the same quantity of oil reserves as other leading nations.

Weirdly, Venezuela has the exact opposite problem. The country has the most oil reserves in the world, but currently only sits as its 12th biggest producer.

Natural Gas Production

In terms of gas, the U.S. leads again with a 20% share of global production. Russia is also a gas powerhouse, with a 17.3% share.

Natural gas production by country

After the U.S. and Russia, it’s a fairly steep dropoff in terms of natural gas production. Countries like Iran, Canada, Qatar, and China are the next most significant players, but they each only produce 4-6% of the global total.

Coal Production

Coal use may be on the decline, but China still produces a whopping 45% of the world’s coal.

Coal production by country

China’s current relationship with coal is an interesting one.

Every year, coal has become less important in China’s energy mix – in 2011 it represented 70% of energy consumption, and by 2018 it had fell to 59%.

Despite this meaningful progress, China’s economy has grown so fast, that coal use has essentially held steady in absolute terms. Meanwhile, the country’s production of coal has actually grown slightly over the same timeframe.

Total Fossil Fuel Production

Finally, here is the sum of all three above categories, converted to metric tonnes:

Total fossil fuel production by country

The United States produces 20% of all global fossil fuels, with Russia and Iran rounding out the top three. After that comes Canada, which produces just under 5% of all fossil fuels globally.

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