April 28, 2014 (Chinavestor) Competition within the domestic US tight oil industry is moderate. There are six regions in the US with shale formations and are relatively well covered by mining companies. While there is a finite amount of acreage for potential tight oil extraction, competition intensity is moderated by the exclusivity of drilling permits. The companies occupying these regions include large established oil companies as well as junior miners.
The supply of oil within the established acreage is finite and is set to last until beyond 2040. There is an abundant supply of extractable tight oil, however a key factor is discovering the ‘sweet spots’ for extraction within the acreage. Continental owes royalties to the owners of the lands in which it conducts its exploration. Loyalties are paid to the owners to the privately owned land.
The customers of tight oil are concentrated in the transport and petrochemical industry. Customer power is low as the oil price is determined by the amount of supply available, rather than customer demand. Oil price spikes are often caused by supply shortages in the large oil producing nations.
The effect of new entrants has a negligible effect on the competition intensity of the industry. The regulation of drilling permits creates a barrier to entry into the tight oil acreage zones.
The attractiveness of tight oil extraction is due to the increasing difficulty of extracting onshore and offshore oil using traditional methods.