The oil and gas sector plays an important role in the economy by drilling, extracting, and processing oil and gas. Because operating expenses vary widely with the size of oil and gas companies, average operating expenses tend to be meaningless. Financial professionals typically assess the average operating expenses by looking at the average operating expenses margin, which is expressed as the percentage of operating expenses in the sector's total revenues. In July 2015, the average operating expenses margin for the oil and gas industry was approximately 33%. Given the average revenue of $60 billion over the last four quarters, the average operating expense in the oil and gas sector stands at approximately $19.5 billion per company.
Oil and Gas Sector
The oil and gas sector consists of fully integrated companies such as BG Group and QEP Resources and companies that specialize in the following:
- Refining and marketing
- Exploring and producing
- Providing oil and gas-related services and equipment
- Transporting oil and gas through pipelines
Of all the industries within the oil and gas sector, oil and gas exploration and production has the largest number of firms, with 458 companies competing in the industry. The integrated gas and oil industry has the lowest number of companies, which stands at 11 firms worldwide in July 2015.
Operating Expenses Margin
The operating expenses margin differs widely in the oil and gas sector. Oil and gas drilling companies have the highest margin among all companies, at 85% of their total revenues, resulting in a negative operating income margin of 24%. Oil and gas refining and marketing companies boast the lowest operating expenses margin of 12.4%. The largest determinant of the size of the operating expenses margin is depreciation expense and the ability of oil and gas companies to manage their fixed costs such as selling, general and administrative expenses (SG&A).