SIC 3533 Oil Field Machinery

SIC 3533

This category covers establishments primarily engaged in manufacturing machinery and equipment for use in oil and gas fields or for drilling water wells, including portable drilling rigs. Establishments primarily engaged in manufacturing offshore oil and gas well drilling and production platforms are classified in SIC 3731: Ship Building and Repairing.

NAICS CODE(S)

333132

Oil and Gas Field Machinery and Equipment Manufacturing

INDUSTRY SNAPSHOT

The health of the oil and gas field machinery industry is inextricably tied to capital expenditures in the oil and gas extraction industries whose health in turn is dependent on the price of oil. Fortunes of the oil industry are also very cyclical. The later years of the 1990s saw a plethora of oil and gas field industry acquisitions and mergers. Companies were attempting to diversify products, capitalize on new technologies and innovations, improve efficiency, and reduce costs. The value of shipments by oil and gas field machinery and equipment manufacturers totaled $6.3 billion in 2001, up from $5.6 billion in 2000.

In the 1970s the Organization of Petroleum Exporting Countries (OPEC) produced more than half of the world's oil. For a variety of reasons, most of which had little to do with supply and demand, OPEC began aggressively pricing oil and consumers were willing to meet their price. But OPEC could not maintain production quotas amongst its members. Subsequently, the market was soon glutted with oil and prices fell. Demand for OPEC oil fell from 31 million barrels a day in 1979 to 17 million barrels a day in 1985. In 1997 and 1998 OPEC again boosted production as demand growth stagnated due to global economic problems.

The oil industry suffered further volatility during the early 2000s, caused by global oversupply and the U.S. war against Iraq in 2003 that led oil prices to spike as high as $40 a barrel. Usually, high oil prices provoke increased exploration and drilling, which, in turn, fuels the oil and gas field machinery industry. However, because economic uncertainty remained high and consumer confidence low, during 2003 higher prices did not instantly spur new oil and gas field development. A gradual uptrend in the economy is expected, and as consumer, commercial, and industrial sectors pick up steam, an increase in energy demand is anticipated. Once consumer confidence returns, oil and gas companies will be more apt to sink money into oil and gas field services and equipment.

ORGANIZATION AND STRUCTURE

The oil and gas field machinery industry includes field tools, oil derricks, drilling rigs and tools, well logging and surveying equipment, and general gas well and oil field machinery and equipment. Many companies exist in the United States that make specialty drilling equipment and other related machinery. Other companies, such as machine tool makers, produce smaller parts either for assembly at the more specialized companies or to meet replacement needs while the rig is in service. The companies producing drilling rigs usually maintain a field service department. Private consulting firms, however, may also specialize in field repair of all oil field related equipment. Oil and gas field machinery companies thus provide equipment and services to the oil industry that are used in drilling, testing, and finishing oil and gas wells, as well as enhancing existing wells. Equipment may be premanufactured or it may be built and assembled in the field. These companies may also provide on-site service once a well begins operating. Customers of the industry are oil and gas producers and drilling companies. In the United States, approximately 97 percent of the drilling rigs are owned by drilling contractors, not the oil and gas producers.

The oil industry finds itself variously controlled, compromised, regulated, influenced, and lobbied for or against by organizations like the Organization of Petroleum Exporting Countries (OPEC), the American Petroleum Institute, the ever volatile geopolitics of the Middle East, and the vagaries of the American consumer. Domestically, the industry is also controlled, to a great extent, by regulations imposed by the U.S. government and the governments of international competitors. The Environmental Protection Agency has begun to place stringent restrictions on companies selling crude oil, which ultimately affects the cost of producing oil. This can drive profits downward, especially if coupled with low oil prices. Given these conditions, oil drilling is being performed more and more by major oil-selling companies like Exxon, Texaco, and Citgo. This is in sharp contrast to the early 1980s, when drilling rigs were common sights in the front yards of southern and mid-western private homes.

Any decrease in drilling activity world-wide adversely effects the oil and gas field machinery industry. Smaller support machinery businesses that thrived in the early 1980s amidst high oil prices either went out of business or were bought out. This trend continued throughout the 1990s and by the end of the decade the industry consisted mostly of very large, well-diversified companies. For example, IRI National of Houston and Norways's HitecASA merged to form IRI Hitec, which focused on the design, engineering, and manufacturing of technically advanced offshore and land-based drilling equipment. In 1997 the Halliburton Company acquired the Numar Corporation and in 1998 acquired Dresser, making Halliburton the largest provider of oil field services. Halliburton purchased Dresser so as to bring together oil field, engineering, and construction services. Numar was purchased because of its patented Magnetic Resonance Imaging Logging tool that evaluates...

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