ABSTRACT
This chapter discusses the issue of why the oil companies have chosen not to integrate vertically, at least to any great extent, into the provision of intermediate inputs supplied by the offshore oil supply industry. The reasons will be found to be consistent with the predictions derived from the transaction cost paradigm. The oil companies, certainly the so-called “majors’ such as BP, Shell and Exxon, display similar features of vertical structure which may be characterized as vertical integration through the stages of production forward from crude oil production into refining and retail marketing. However, even the giant oil companies –which are amongst the largest companies in the world – do not produce ‘inhouse’ much of the inputs necessary for oil exploration, development and production. That is, they tend to ‘buy in’ most of the services and equipment needed to discover and to gather crude oil and natural gas. As a result, an entire industry has sprung up which is geared to servicing the needs of the oil companies for intermediate inputs. This is the offshore oil supply industry (OOSI).
