Energy Industries in the U.S. (written in 2011)

There are 502 companies participating in the energy industry now and half of them are pure players, meaning they generate 100% of revenue in energy business purely. Around one quarter of the 502 companies have market capitalization less than $1 billion (refer to the chart below).

Under Revere’s proprietary classification system, all these companies are categorized into three major groups: Downstream, Midstream and Upstream.

Upstream is the first phase of the petroleum production process. Upstream companies involve in Oil/Gas Exploration and Production (E&P), as well as providing associated services, including seismic reporting and drilling, service rig operation, and engineering/construction.

There are 172 focused players in Crude Oil and Natural Gas Exploration/Production. The largest players are  Exxon Mobil Corporation (XOM), PetroChina Company Limited (ADR)( PTR),   Royal Dutch Shell PLC (RDS/A), Chevron Corporation (CVX),  BP PLC (BP), Total SA (TOT), and Ecopetrol S.A. (ADR) (EC), with Market Cap. greater than $100 billion.

Midstream companies engaged in oil/gas gathering, storage, also known as terminalling, and transportation. These companies own the storage facilities and pipelines. Midstream defines the industry processes that occur between the upstream and downstream sectors.

There are 64 focused or pure players in Midstream sector, and the largest companies are Enterprise Products Partners L.P. (EPD, $41B Market Cap.), TransCanada Corporation (USA TRP $29B Market Cap.) and Kinder Morgan Energy Partners LP (KMP, $29B Market Cap.)

Downstream is the final phase of the petroleum manufacturing process. Companies engaged in the refining and marketing of petroleum products to end-users are categorized to the Downstream group.

27 focused or pure players belong to this sector, among them, the largest ones are China Petroleum & Chemical Corp. (ADR) (SNP), Ultrapar Participacoes SA (UGP), Valero Energy Corporation (VLO) and Marathon Petroleum Corp (MPC).

Above analysis sheds light on the general view of this energy industry. Big players are mostly in upstream – crude Oil/Gas Exploration and Production (E&P). Recently, unconventional oil, such as shale gas, coalbed methane, tight gas, oil sands and tight oil, became a hot topic because of the technology advancement, “fracking”, which involves forcing below ground chemically treated water under high pressure to smash through layers of rock, thus freeing the gas to flow upward is a well-known technology for unconventional energy drilling.

Seventy-five percent of the oil- the unconventional energy is trapped in rocks, indicating that the huge potential of business opportunity ahead once the technology becomes more matured. Even though investors are not sure about when is the perfect time to tap this market opportunity, invest big chunk of money into a package of the companies that are direct or indirect beneficiaries of unconventional energy would not be a wrong decision.

Companies like Chesapeake Energy Corporation (CHK), Southwestern Energy Compamy (SWN), Quicksilver Resources Inc (KWK), Encana Corporation (ECA) disclosed advantages in this area and are worthy holding…

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