Upstream is a term that refers to the operational stages in the oil and gas industry that involve exploration and initial production. Oil and gas entities are commonly divided into three segments: upstream, midstream, and downstream. Companies in the upstream sector primarily focus on the phases of exploration and early production.
Many large oil corporations are termed ‘integrated’ as they encompass upstream activities along with midstream and downstream operations, which score from production through to final sale.
Essential Insights
- Upstream signifies the earliest points in the production process.
- Known as Exploration and Production (E&P), the upstream segment is the furthest from the consumer in the oil and gas supply chain.
- Key activities of the upstream sector include exploration, drilling, and extraction.
- Following upstream activities, the phases proceed to midstream (transportation of crude oil) and downstream (refining and distribution) sectors.
- Most large oil firms today are integrated, managing upstream, midstream, and downstream units.
Exploration and Production: The Upstream Sector
The upstream sector includes all steps from preliminary exploration through the extraction of resources. Upstream companies may be involved in all or specific stages of this phase. Another commonly used term for the upstream sector is exploration and production (E&P). E&P companies primarily locate and extract commodities from the earth.
The Exploration Phase
The exploration process begins with searches for hydrocarbons—the primary components of petroleum and natural gas. Land surveys are conducted to identify areas that show promise. Geologists study formations and sediment layers within the soil to ascertain the presence of oil or gas. This phase may involve seismology, which utilizes machinery or explosives to create seismic waves, helping pinpoint reservoirs.
Drilling and Extraction
Once potential reserves are confirmed, test drilling begins. Upstream companies measure production in barrels (bbl), where one barrel equals 42 U.S. gallons. Production is often reported as barrels per day or per quarter. Companies that discover and extract these reserves constitute the upstream sector in the industry.
The Oil Exploration Process
Oil and gas exploration is a sophisticated realm of the upstream sector, constantly evolving with advances in technology. Starting in area rich in potential, geophysical and geochemical analyses are conducted using various techniques such as induced polarization (IP) surveys, drilling analysis, and electrical currents.
If potential resources are found, exploratory wells are drilled for further testing. Successful exploratory wells lead to the construction of fully operational wells for resource extraction. Upstream companies run the wells, bringing crude oil or natural gas to the surface, with indicators like rig count and utilization rates reflecting industry activity.
Midstream and Downstream Phases
Upon extraction completion, the focus shifts to midstream and downstream sectors. Midstream companies transport raw resources through pipelines, railways, or tankers to refineries. The downstream phase transforms raw crude oil into finished petroleum products, and involves selling and distributing products derived from crude oil.
Midstream
Constituting the second major stage, the midstream sector covers processing, storing, transporting, and marketing oil, natural gas, and natural gas liquids. Midstream companies oversee the storage and transport of oil and gas to downstream operations.
Downstream
Representing the closest link to consumers, the downstream sector converts oil and gas into finished products such as gasoline, natural gas liquids, and diesel. The downstream segment handles refining and distribution.
Exemplary Upstream Companies
Companies in the upstream oil and gas industry undertake deposit identification, well drilling, and raw material recovery. Roles include geologists, geophysicists, rig operators, engineers, scientists, and drilling contractors. Examples of large firms specializing in upstream services include China National Offshore Oil Corporation and Schlumberger. Modern global oil giants often integrate upstream, midstream, and downstream activities, with notable operators like Exxon-Mobil and Chevron exemplifying diversified oil and gas firms.
Frequently Asked Questions
What Does Upstream Mean in the Oil and Gas Industry?
Upstream pertains to the early stages of oil and gas production, encompassing the exploration, drilling, and extraction of crude oil and natural gas.
What Is the Difference Between Upstream and Downstream?
While upstream involves initial oil and gas production stages, downstream includes refining and distributing end-products like gasoline.
What Are the Three Sectors of the Oil and Gas Industry?
Beyond upstream and downstream, the midstream sector transports oil and gas via pipelines, ships, trucks, or trains to refineries.
Who Are Examples of Upstream Companies?
Upstream companies specialize in exploring and extracting oil or gas. This sector also includes service firms in rig operations, machinery rental, and chemical supply necessary for extraction.
Is a Refinery Upstream or Downstream?
A refinery is categorized under the downstream sector.
Related Terms: midstream, downstream, integrated oil companies, hydrocarbons, rig count.
References
- Library of Congress. “Oil and Gas Companies”.
- Library of Congress. “Upstream: Production and Exploration”.
