Failure in the Oil Patch: An Examination of the Production and Oil Field Services Industries

Abstract

A substantial share of domestic energy supplies is produced by the oil and gas production industry. The oil field services industry provides valuable assistance to these exploration and production companies. The failure rates in both industries have increased recently. Failure rates in the two industries were modeled as a function of general economic conditions, industry financial conditions, and, in the case of the service industry, the failure rate in the production industry. The failure rate in the production industry was most sensitive to general economic conditions; while changes in the rate of drilling success led to the largest percentage change in the failure rate in the oil field services industry. The oil field service industry’s failure rate was also significantly related to the failure rate in the production industry, thus indicating a spillover effect. Policymakers and lending institutions that finance and regulate these vital energy supply industries may benefit from the empirical results.