Onshore independent natural gas and oil producers supported almost 400,000 direct workers and generated $263 billion in gross economic output in 2010, the Independent Petroleum Association of America (IPAA) said Monday.

The 62-page study, commissioned by the IPAA, was issued by IHS Global Insight (USA) Inc. at the association’s Oil & Gas Investment Symposium in New York City.

“Since the drilling of the Drake well in 1859, independents have played a major role in the development of America’s oil and natural gas industry,” said the authors. “Independents were the first to drill offshore. They were the first to drill and open many of America’s major hydrocarbon provinces, including areas such as East Texas Basin, the Williston Basin, the Denver-Julesburg Basin and Permian Basin.”

In addition to extending the life of many U.S. producing basins, it was the “independents that opened the shale plays, beginning with Mitchell Energy’s entry into the Barnett. These shale plays are now spreading across North America and the globe. Much of this is a result of independents’ entrepreneurial spirit and willingness to take on risk. It is this spirit which earned independents the early name of ‘wildcatters.'”

According to the authors, close to 18,000 independents operating in 32 states contribute to the U.S. economy in three ways: direct contributions by independents; indirect contributions of their supplier networks; and contributions induced by income of the direct and indirect employees.

Independents were found to have created four million U.S. jobs last year, which was more than 3% of the total domestic workforce.

“The headline here isn’t just that independent oil and natural gas producers know how to create jobs; we’ve been doing that since Col. Drake spudded his first well back in the 1850s,” said IPAA CEO Barry Russell. “The headline is that independent producers are delivering jobs — millions of them — and billions in annual tax and royalty revenue for state, local and federal governments at a time and place when they have perhaps never been needed more.

“Throughout our history, innovation has been the driver of that progress — and so it is again, with independents applying the best in science and engineering to develop an onshore resource base that [10 years ago] was considered almost entirely out of reach.”

Dollar-wise the independents contributed “nearly $580 billion in total economic activity” in 2010, which accounted for 4% of U.S. gross domestic product, noted Russell. Over the next 10 years, “the contribution of U.S. independents is slated to be in the trillions.”

The study defined independents as those companies with only upstream activities. IHS Herold tracking data was used to focus on small, medium and large independents. “Generally the medium and large are better known to a wider public; but the small independents also play an important role as they operate most of America’s marginal wells (less than 16 boe/d), which account for about 80% of America’s 800,000 producing wells.”

“Our analysis indicates that the onshore independents represent a significant and growing portion of the economic value of the upstream oil and gas onshore industry, and a large portion of the mid/downstream activities in the oil and gas industry,” said the authors. “Furthermore, in a forward-looking framework, taking into account the baseline forecasts during the 2010-20 period, the onshore independent producers of the industry are projected to remain significant participants in the overall industry.”

In the past five years, data indicated that independents’ share of production and investment in the United States has risen steadily, both in liquids and natural gas.

“Currently, onshore independents account for 65% of total natural gas production and close to 45% of total oil production in the United States. Over the next 10 years these figures are expected to continue to increase as shale plays ramp up,” said the authors.

The increase in output, particularly liquids output, also has followed the development of tight formations that include the Granite Wash and Wolfberry plays in Texas, and the Niobrara and Bakken shales, they said. New technology, regulation, taxes, investment or new discoveries all could influence future growth, positively or negatively.

“The amazing thing here, of course, is that the findings in this study are limited only to onshore activity,” said IPAA Chairman Bruce Vincent, who also is president of Swift Energy Co.

The unconventional resource plays, said “have reset the marginal cost of America’s hydrocarbons and also have increased the average production rate and estimated ultimate recovery per well,” the study noted. “The result of this new productivity is that it takes fewer wells to produce the same amount as before.

“For example, prior to 2008 more than 31,000 annual new natural gas wells were required to sustain 58 Bcf/d of natural gas production; now it is possible to produce almost 63 Bcf/d with the drilling of only 19,000 new natural gas wells per year.”

Independents’ share of drilling activity over the coming decade is expected to drop slightly from a peak in 2010.

“This is due to the individual well productivity increase, maturity of the plays and entry of majors and national oil companies into the plays,” said the authors.

The independents’ direct upstream value of output is expected to grow to $351 billion in 2020 from $263 billion today, according to the study. Midstream/downstream value also is expected to be higher at $685 billion in 2020 from $518 billion today. Total upstream jobs are expected to increase to 2.6 million in 2020 from 2.1 million in 2010.

The study, when combined with an IHS study last year on the offshore, indicated that independents collectively produce 54% of domestic oil and 85% of U.S. natural gas, accounting for 67% of total U.S. production (see Daily GPI, July 23, 2010).

The new onshore study is available on IPAA’s website highlighting independents’ contributions at www.oilindependents.org.