While the oil and gas market can be seen as including pipeline and distribution operations, petroleum and petroleum product wholesalers, fuel oil dealers and even gas stations, the dominant North American Industry Classification System class in this sector is arguably oil and gas extraction (NAICS 21111).
This class generates in excess of $1 billion in all lines premiums and is comprised of more than 90,000 enterprises. The story of this market segment is one of high volume, low premium on one hand and relatively low volume, high premium on the other given the mix of account sizes in the class.
Oil and gas extraction (NAICS 21111), includes firms primarily engaged in operating and/or developing oil and gas field properties that focus on recovering liquid hydrocarbons from oil and gas field gases. Their activities may include exploration; drilling, completing and equipping wells; operation of separators, emulsion breakers, desilting equipment and field gathering lines for crude petroleum and natural gas; as well as all other activities in the preparation of oil and gas up to the point of shipment. Businesses in this industry operate oil and gas wells on their own account or for others on a contract or fee basis. Not included in NAICS 21111 are firms performing support services for well operators or firms manufacturing acyclic and cyclic aromatic hydrocarbons from refined petroleum or liquid hydrocarbons.
The data in this article are based on the location and size of firm headquarters, rather than operating locations. Since insurance-buying decisions are typically made at the headquarters level, these data will provide a good overview of the oil and gas extraction production opportunity available in various states.
Considering total accounts and total all lines premium, Texas and Oklahoma are by far the largest markets for oil and gas extraction accounts. These tier 1 states represent 55 percent of all oil and gas extraction enterprises and some 64 percent of the segment’s U.S. premium volume. Texas has 35,148 enterprises in this class which produced in excess of $600 million in all lines premium. Oklahoma has 15,560 oil and gas extraction enterprises generating almost $93 million in premium.
When you factor in account size and average premium into the mix, however, the potential of the oil and gas extraction market in Texas and Oklahoma appears very different. More than 90 percent of the accounts in each state are non-employer firms (companies that file no payroll taxes and are staffed by owners) which generate an average premium of less than $500.
This pattern of account size composition prevails across the country for this class. In fact, excluding the non-employer firms from the oil and gas extraction market reveals just 6,416 enterprises in the United States. Total available all lines premium, however, remains in excess of $1 billion.
On a total accounts and premium basis, healthy production potential in oil and gas extraction also exists in Kansas, California, New Mexico, Wyoming and Colorado, as well as in Ohio, Louisiana, West Virginia, Michigan, Pennsylvania, Kentucky, Illinois and Mississippi. Each of these tier 2 states offers between 1,000 and nearly 6,000 oil and gas extraction enterprises. Premium potential ranges from a low of $6.3 million (Kentucky) to a high of about $63 million (California). Significantly, this group of states also enjoys the strongest employment growth forecast (1.30 percent through 2010).
In the tier 2 states, as in the tier 1 states, non-employers comprise more than 90 percent of total accounts. In these states non-employers generate just $15 million in premium. Small commercial accounts, defined for our purposes as firms having between 1 and 50 employees, represent the next largest group of potential accounts and produce in excess of $120 million in premium.
States with a smaller overall market for oil and gas extraction accounts, such as Arkansas, Florida, Indiana, Montana, New York, Alabama, Missouri, North Dakota, Utah and Nebraska can still offer reasonable potential. In Arkansas, for example, there are some 923 oil and gas extraction firms. They generate $4.6 million in premium, but the bulk of this potential sits in Washington, Sebastian, Union and Columbia counties. In New York approximately $32 million in premium is generated by oil and gas extraction firms, the majority of which are located in Erie County. The physical proximity of accounts in certain states could make them attractive prospects for the right program and producer.
The market for oil and gas extraction business covers a surprisingly broad geography and is characterized by a noteworthy consistency in account size distribution. For firms with programs appropriate to the high volume, low premium segment of the market, or to the low volume, high premium segment, oil and gas extraction may represent solid potential.
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