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There are several things that an oil and gas company has to focus on for financial success, with
an ever changing business environment. Companies have to be nimble and forward thinking to
predict future trends or pitfalls. The industry has increased domestic oil production capacity by
1.2 million barrels since 2009. We lead the world in Natural Gas production with 65 billion
cubic feet per day (IHS Global Inc., 2013). The 4 major pillars that impact the financial success
of a company are Portfolio Management, Operational Efficiency, Financial Management and
Sustainability.
I. Portfolio Management
According to the International Energy Agency, a significant growth is estimated in
energy demand over the next coming 25 years by consumers. Between now and 2030, world
primary energy demand mostly supplied by oil is expected to grow by 45% - an average growth
rate of 1.6% per year. In order to meet this demand, the companies in energy industry have to
grow their portfolio and develop new financial strategies by focusing on commodity prices and
mineral rights (Sing, 2010).
Commodity Prices
Why the commodity prices have a significant importance in the global economy?
Energy is one of the most important and vital cost factors for companies, energy prices are
strictly observed by economists and policy makers in terms of being the most powerful inputs in
the entire economy. It is an important resource for heating homes and commercial travel.
Since oil and gas commodity prices are traded on the open market and fluctuate daily,
and the importance of oil and gas in our daily lives. The fluctuations affect our economy and our

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purchasing power. The price of crude oil per barrel sold for $50 in early 2007, it went up to $145
within eighteen month. Since the global crisis in 2008, the price of crude oil went back to $35
and currently selling for $108.48 per barrel on the open market. Due to these uncertainties about
oil prices and their potential effects on the economy, policy makers and investors watch the
market intensely.
Inflation affects the economy by causing commodity prices to be more expensive,
overwhelmingly to those of food and crude oil. An increase in the commodity prices creates
downward pressure on the economic growth of the country, and forces inflation to go up (Başçi,
2012). Therefore, the rise in commodity prices require monetary policy changes in the economy
made by the central banks which has a significant impact in the global economy based on the
inflation forecasts.
Mineral Rights
Mineral Rights are associated with mineral resources such as valuable rocks, minerals,
copper, coal, and oil and gas found within the earth. The ownership of mineral resources
originally given to organizations or the individuals whom own the surface with both “Mineral
and Surface Rights” is called the complete private ownership which is also known as a “Fee
Simple Estate”. In fee simple ownership, the surface, the subsurface and the air above a property
are governed by the private owners whom can either sell, rent or transfer those rights to others
individually or entirely (King, 2013).
Transferring mineral rights from one to another, the mining and drilling activities are
subjected to laws in most states which differ from one state to another. The owner of the
property has the ability to sell the mineral rights of his land but maintain ownership of the land.

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Buying and selling the mineral rights are completely different than mineral resources.
When the mineral rights are purchased, production companies also have the rights to enter the
property and transport the oil and gas off the property. During this period, the original owner of
the land has no right to interfere in these actions regarding where the drilling will be occur and
what will be done to rebuild the property.
In the energy industry, the rights to any oil and natural gas which exist above a property
are often included in mineral rights and can be sold or leased to others. Since there is no certainty
of finding oil and gas on the property, the lessee generally prefers to lease the surface by paying
small amount of money rather than paying a larger portion of amount and purchase the land.
Signing a lease agreement for the land gives lessee a right to test the property by drilling and
using other methods. In the event of a large quantity of oil or gas found at the site, it can be
produced directly from the exploratory well (King, 2013).
Mineral Rights negotiations are critically important to become successful and depends on
the following abilities; knowledge, skill, and patience. If you do not have these strengths, you
can easily fail in making successful mineral rights deal and lose a lot of capital. Having those
skillsets makes an enormous difference in the transactions.
II. Operational Efficiency
For a company to be successful you have to be efficient in your operation. It is the little
things that keep you from hitting your financial projections.
People are our most valuable asset, without the skillsets our people have we would not be
energy independent and the market landscape would look significantly different. We have to
continually train and provide internships for our future professional staff and apprenticeships for

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future skilled labor. We are in a highly competitive environment and companies are going to
compete for the same labor in some markets. It is important to build a positive culture that
allows people to grow, learn, and support people when they make mistakes.
Being able to get your products to market in a reasonable time frame and cost, is a
problem that every oil producer, farmer, and manufacturing companies all have to focus on. It is
projected over the next 12 years the oil and gas industry will spend over 890 billion in storage
and infrastructure (IHS Global Inc., 2013). With the correct infrastructure in place, a company
can hedge against a drop in commodity prices like Koch industries did in 2008 when oil prices
were $145 a barrel in July and plummeted to$35 a barrel in December. Koch industries held the
oil in rented oil tankers that had capacity of up to 2 million barrels, taking supply off the market
to raise prices and selling the cheap oil at a nice return (Fang, 2013). From a production point of
view, being able to produce oil in easy to access locations with moderate climates makes
employment retention higher. In addition you can substantially reduce your production cost by
not having to bring in aggregate or a contractor to build a temporary road. This provides less
wear on your equipment and can reduce your down time. Infrastructure is something most
Americans take for granted but if you look at Williston, North Dakota. U.S. Census Bureau
named Williston the fastest growing micropolitan area from April 1, 2010 to June 1, 2011
(Williston Economic Development, 2013). The town has doubled since 2008 and it is projected
they will need 625 million in infrastructure improvements. This lack of infrastructure is
affecting other industries and we have to be careful of our public perception. The Chrysler
minivans inventory has gone down from 75 day supply to close a 50 day supply a drop of 33%
due to the railroads transporting oil from the Bakken shale (Kreindler, 2014).

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Technology is another important sector we cannot lose focus on. We are able to produce
this new quantity of oil and gas due to our ability to hydraulically fracture in places that were
formerly uneconomically viable. Instead of using rotary drilling the industry is using pneumatic
drilling which is safer, faster and many times more economical than traditional drilling.
Pneumatic drilling can drill at rates that are 2 to 5 times faster than traditional drilling with
tricone bits. The limitation is how fast you can clear the debris from the cutting head. This new
technology can also be applied to directional drilling which allows you to drill on an X axis not
just a Y axis. These new pneumatic hammer bits have a motor that allows the head to pitch up or
down to control the radius (Marcus, 2014).
Dual fuel engines are traditional diesel engines that have been retrofitted to operate on
either 100% diesel or a mixture up to 70% natural gas and 30% diesel ratio. This option allows
the customer to maintain the same service intervals but can use “field gas” when applicable. The
engines require extra hardware like tubing and a scrubber skid that cleans the “field gas”. This
application has a projected payback of less than a year depending on how many wells the
operator is pumping. In a 45 day period Southwestern Energy Company was able to save
$100,000 in diesel fuel cost (Sharon Holling, 2013). Every major engine manufacture has a dual
fuel option out to decrease the cost of production.
If it is not measured, it cannot be improved is especially important in a production
capacity. Having usable quantitative data that is accurate is the new norm for an oil and gas
company. The use of data capture on a rig has allowed companies to improve their efficiencies.
Today’s control and monitoring systems can reduce accidents through automated safety systems
(Aitchison, 2014). This is capable of providing automated warning or safely shut down

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equipment before a potential disaster occurs. The company is able to find inefficiencies in the
production and apply corrective action, before the behavior becomes a frozen behavior.
IV. Sustainability
When working with nonrenewable energy sustainability is a catch 22 because we are
using a product that has a finite supply. Under sustainability we have included government
regulations and public perception of oil companies.
Government regulations are a constant and every changing factor for the oil and gas
industry. The rulings of one industry can have a significant impact on profits for a company.
The memo that OSHA (Occupational Safety and Health Administration) released in 2010
requiring workers to wear fire resistant suits caused an issue because they bypassed the rule
making process and implemented this program (Baram, 2010). It is important that we self-
regulate to keep negative attention from becoming law. Collaborating with policy makers and
other key influencers will help us keep a positive relationship with in the governing body.
Tier 4 engines will require a reduction of 62% fewer NOX (nitrogen oxides) and a 90%
reduction in PM (particular matter) in engines than engines built before 2000. In order to get
these reductions engine manufactures will have to incorporate SCR (Selective Catalyst
Reduction) technology and cEGR (Cooled Engine Gas Recirculation). The added expense and
possible complexity could hurt production in the initial stages of the equipment usable life. This
standard will go into effect on January 1, 2015 for off road engines that produce 751 horsepower
(DieselNet, 2013). This change was released back in 2000, but the technology will be an
expense that will probably hurt profits for the near future for producers that are in the need of
new frac pumping units.

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Public perception of Oil and Gas industry must do a better job on reducing the external
influencers’ voice. We need to tell our own story of how we benefit communities that people
live in. The industry needs to keep the focus on energy independence along with job creation
and economic growth for the communities we work in. Simple things like putting tier 4 stickers
on equipment that tell people that we are reducing our emissions and impact on the environment.
We have to be patient with people that do not understand how we operate and have been feed
incorrect information. We need to explain how we are energy independent by using the
techniques we use. We have to remember Americans are going to be passive environmentalists
(Bowman, 2010). They care about the environment but only after a crisis.
We must work with community leaders, industry leaders, government and regulatory
personnel, and the environmental community to make sure we are spreading our message, not
defending our actions. We have to limit our Exxon Valdez, Mayflower, Arkansas, Deepwater
Horizon or the most recent spill on Lake Michigan that released an estimated 15 barrels of oil
into the drinking water of Chicago (Hawthorne, 2014). Even though we cannot prevent
everything from happening we have to be extra critical of our own industry. If we are to get
better as an industry.

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Works Cited
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requirement. Retrieved May 4, 2014, from upstreampumping.com:
http://upstreampumping.com/article/special-sections/feb-2014/adding-technology-rigs-
no-longer-option-requirement
Baram, M. (2010, September 23). Oil And Gas Industry May Sue OSHA Over Flame-Resistant
Clothing Requirement. Retrieved May 3, 2014, from huffingtonpost.com:
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Fang, L. (2013, July 22). Not Just Goldman Sachs: Koch Industries Hoards Commodities as a
Trading Strategy. The Nation, pp. http://www.thenation.com/blog/175387/not-just-
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gas rights. Retrieved May 2, 2014, from geology.com:
http://geology.com/articles/mineral-rights.shtml
Kreindler, D. (2014, April 24). Chrysler Vans Sitting Idle As Oil Boom Robs Rail Capacity. The
Truth About Cars, pp. http://www.thetruthaboutcars.com/2014/04/chrysler-vans-sitting-
idle-as-oil-boom-robs-rail-capacity/.
Marcus, J. (2014, Feburary 27). Two Faster Directional Alternatives to Tricone Bits.
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http://www.cat.com/en_US/news/press-releases/caterpillar-
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gas rights. Retrieved May 2, 2014, from geology.com:
http://geology.com/articles/mineral-rights.shtml
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decades of Energy Challenges. Cambridge: Massachusetts Institute of Technology.