Upstream; An Important Section of Oil & Gas Industry

Technological and structural changes in the global economy and in the energy sector are

among the requirements to diversify analytical studies of the energy economy, management and investment in industries, especially the oil industry. The upstream segment of the oil industry includes studies and actions related to exploration, drilling, exploitation, conservation of oil resources, transfer, storage or any activity that leads to the optimal and maximum withdrawal of oil resources, and feeds the downstream industries. According to a previous study by the author, using the AHP methodology to prioritize investment in the Iranian oil industry based on key investment criteria (value added, attracting foreign investment, risk management, and linking to the domestic economy) and using the “Expert Choice” software has been calculated. In this industry, the investments mostly are focused on the upstream section. One of the specific upstream segments is rig operation industry.

Drilling Market Structure

Peter Drucker, the father of modern management science, states that each company has two main tasks: innovation and marketing. If one looks at the most successful global brands in every part, including industrial and retail, or production and services, the meaning of Drucker’s words becomes clearer. All industries in the economy have diverse markets and the structure of the market is the nature and extent of competition between similar firms in an industry. An essential factor in determining the effective and appropriate tools for marketing in an industry is to know the market structure of that industry.

  • The perfect competition market is a market for competition, where many independent buyers and sellers informant of different situations (prices, etc.) exchange similar products. The perfect competition market is very idealistic, and this kind of market is not fully materialized in the real world. The perfect competition market has several conditions: a large number of buyers and sellers, full details of the parties, freedom of entry and exit, standard and similar products, and the independence of buyers and sellers. Sellers admit prices at this market and cannot determine the price.
  • In monopolistic competition, all perfect market conditions exist, except the condition of standard goods. In other words, the products offered by vendors can be distinct.
  • In oligopoly competition, several buyers and sellers are active. If the number of vendors is few, sale oligopoly happens and, if the number of buyers is limited, a purchase oligopoly occurs.
  • The monopoly occurs when there is only one supplier on the market. In this case, the strength of the firm in controlling the market and the price are almost complete. Monopoly results from three factors: geographic factors, technology, and natural factors.

The market for drilling rigs is in the state of oligopoly competition according to the features proposed in the supply and demand segment. One of the key features of oligopoly competition is the difficulty of entering the industry, which is due to the nature of the capitalism of the industry. Entering this market requires high investment and compliance with certain standards and laws and therefore leaving the industry has a high inertia. In the next part of this article, we will analyze the state of the rig operation industry with the concepts of competition and competitive strategies in business management and through the five-factor Porter model.

Author: Melika Mohammadpour – Master of Energy Economic from Tarbiat Modares University

Source of Picture: Iran Drilling Website

برچسب ها: