Question

Jill Parker owns​ 2,000 acres of ranchland in Iowa.​ Recently, a supply of natural gas was discovered on her property. Not knowing much about the marketing​ environment, she asks you what she should do. Which of the following is the BEST​ advice?
A. Jill should focus on negotiating with a local gas company for personal consumption.
B. Jill should focus on ranching and ignore trying to commercialize or sell the natural gas.
C. Jill should focus on the business market and license the natural gas rights.
This is the correct answer.
D. Jill should try to find propane reseller markets.
E. Jill should focus her attention on the government markets.

Answer 1

Answer: C. Jill should focus on the business market and license the natural gas rights.

Explanation:

Option C is indeed the right answer. Focusing on the Business Market will get her a better deal because larger companies will be involved.

It would be very advantageous to license the rights as there will be various bids for the license with the largest bid getting it and only for a period of time.

Going with this option can get Jill a better deal all round.

Answer 2

Answer:

C) Jill should focus on the business market and license the natural gas rights.

Explanation:

Oil and gas companies are usually very large corporations that have tons of money simply because the process to obtain either natural gas or oil is extremely expensive and costs millions. It is a very complex process that starts with upstream activities (oil or gas exploration and prospecting, preparing the rig site, start to drill, then testing the site, fracking techniques for extracting gas) and downstream activities (production and recycling of fracking fluids, storing and transporting gas, distribution processes). Each stage costs millions, that is why many oil and gas companies are considered regional monopolies due to the high costs.

Unless Jill has a ranch as a hobby and has many millions in a bank account, he should probably license the exploitation rights to a large corporation that can carry it out. He will still make a lot of money (average royalty rights are 12.5%), since total revenues are very high.