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The Myth of Big Oil

e21 | 02/25/2014 |

A key feature of America’s ongoing oil and gas production renaissance is that the vast majority of the jobs created have not come from the “Big Oil” companies, but from small businesses.

Manhattan Institute senior fellow Mark Mills shows the dramatic effect of small businesses on oil and gas production and vice versa in his new report, “Where the Jobs Are: Small Businesses Unleash Energy Employment Boom.”

The five large oil companies operating in the United States (Exxon, BP, Chevron, Shell, Conoco) account for only ten percent of direct oil and gas jobs. The vast majority of jobs come from more than 20,000 other firms directly involved in the oil and gas industry which produce over 75 percent of America’s oil and gas output. Excluding gasoline stations—which are overwhelmingly owned by small business and together employ nearly 1 million people—the median independent oil and gas firm has fewer than 15 employees. 

 

 

While many smaller oil and gas companies have experienced spectacular growth in recent years and have become quite large, they are all still small by global standards. The majority of the approximately 60 companies that fit in this category have an average market cap of about $1 billion, making them by definition “small-cap” companies. Even the biggest of these companies (Anadarko, Apache, Pioneer, EOG, EQT, Devon, and Continental) have market capitalizations that are a fraction of the world’s largest oil and gas companies’. 

Small oil and gas companies work almost entirely onshore. The multibillion-dollar deepwater offshore rigs are left in the domain of global, large corporations. All the dramatic growth in production and employment in recent years has occurred on onshore shale fields.

Though none of the thousands of small oil and gas companies are household names, they have played central roles in igniting job growth throughout the country. As Mills makes clear, “the enormous expansion in employment, exports, and tax revenues from the domestic oil and gas revolution is largely attributable to a core and defining feature of America: small businesses.”

In total, about 10 million Americans are employed directly and indirectly in a broad range of businesses associated with oil and gas. Even more jobs are being created indirectly because of the availability of abundant, low-cost energy. This gives America a strong international competitive advantage. As with the oil and gas industry itself, the majority of these businesses will continue to be small businesses.

Most Americans are employed by firms with fewer than 500 employees (see graphic). American small businesses employ half of all workers and generate nearly half the nation’s economic output.  

 

 

Small businesses are not only the core engines of growth, but they also grow more rapidly than large companies. Taking into account the painfully slow economic recovery, there could not be a more critical time to find ways to foster more small businesses of all kinds. Recent history shows that oil and gas-related jobs can be created quickly. Small businesses display large amounts of flexibility which help contribute to rapid growth.

Small businesses in general have long contributed disproportionately to job growth. More than 60 percent of all net new jobs over the last 40 years have come from small businesses.

The new American shale oil and gas boom—and the associated jobs bounty—has come mainly from small businesses using new technologies and deploying private capital, almost entirely on state and private lands. 

U.S. oil production has increased 53 percent over the past 5 years to nearly 8 million barrels a day, but federal acres leased for mineral rights decreased over that same period. Only 40 million acres of federal land are now leased, whereas 130 million acres were leased 30 years ago.

The remarkable gains in production on state and private lands across the country are not guaranteed to continue. They are at risk if new federal restrictions that would lower productivity and growth

If common-sense policy changes such as opening up the vast federal lands for energy exploration were adopted, more jobs and more small businesses could arise and help grow the economy.

Mills ends his report with a call to action for policymakers. He states, “Policymakers at state and federal levels do not need to fund pilot projects, raise taxes, or otherwise create government programs to stimulate yet more output and jobs from the oil and gas sector. To expand the bounty, policymakers should ameliorate, suspend, or remove regulations that create impediments to the creation, survival, and growth of small businesses generally and to domestic hydrocarbon businesses in particular.”

If the economy is to regain its footing and enter a prolonged period of strong growth, let us hope policymakers heed Mills’s call. 


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