The oil and gas industry is divided into three major sectors: upstream, midstream, and downstream.
Upstream oil and gas production and operations identify deposits, drill wells, and recover raw materials from underground to the surface. This sector is also widely known as the exploration and production (E&P) sector. This sector also includes related services such as rig operations, feasibility studies, machinery rental, and extraction of chemical supply. Schumberger and Halliburton are two giants as service companies in the upstream sector.
Many of those employed in this part of the industry include geologists, geophysicists, service rig operators, reservoir engineers, scientists, seismic and drilling contractors. These people are able to locate and estimate reserves before any of the onsite activity starts as well as optimize exploitation processes enhancing hydrocarbons recovery and reducing the cost.
Midstream operations link the upstream and downstream entities, and mainly are resource transportation and storage services for resources, such as pipelines and gathering systems.
Downstream operations are oil and gas processes that occur after the production phase to the point of sale. The downstream sector is the final step in the production process, the refining of petroleum crude oil and the processing and purifying of raw natural gas, as well as the marketing and distribution of products derived from crude oil and natural gas.
The products that consumers use every day come directly from downstream production, including diesel, natural gas, gasoline, heating oil, lubricants, pesticides, pharmaceuticals, and propane.
For better understanding take a look inside the oil and gas journey from discovery to the end consumer and the fundamentals of all sectors with these videos (videos credit to the owners):
Fundamentals of Upstream, Midstream and Downstream:
Fundamentals of Upstream in oil and gas industry:
Fundamentals of Midstream in oil and gas industry:
Fundamentals of Downstream in oil and gas industry:
Why upstream is the most important sector for oil and gas companies?
The upstream profitability is the difference between crude oil and gas sales revenues and upstream cost, hence the revenue from upstream operations has been collapsed in recent years as the oil and gas price went down. The reason upstream operations are considered the most important part and paid more attention is that they are risky, complex and bring more profit for oil and gas companies compares to mid and downstream, the challenges therefore are big and it is critical of employing cutting edge technology to ensure effectiveness in exploration and production processes.
Onshore and offshore operations
It is worth noted that, there are differences between onshore and offshore in upstream operations, including profits, cost, timelines for drilling operations and safety. While offshore operations cost significantly higher than onshore, the payout with offshore production is also higher due to the wells produce more hydrocarbons per day and it continues over a long period.
Four stages of oil and gas extraction
Oil and gas extraction can be classified into four major process stages:
1) exploration (determine potential hydrocarbons field),
2) well development (where to locate, how deep and how far to drill, well design and construction),
3) production (maximizing the recovery of hydrocarbons from reservoir),
4) site abandonment.
Exploration involves the search for rock formations associated with oil or natural gas deposits, and involves geophysical prospecting and exploratory drilling.
Well Development is proceeded after exploration has located an economically recoverable field, and involves the construction the wells from the beginning to either abandonment if no hydrocarbons are found, or to well completion if hydrocarbons are found in sufficient quantities.
Production is the process of extracting the hydrocarbons and separating the mixture of liquid hydrocarbons, gas, water, and solids, removing the constituents that are non-saleable, and selling the liquid hydrocarbons and gas. Production sites often handle crude oil from a group of well. Oil is processed at a refinery, natural gas can be processed to remove impurities either in the field or at a natural gas processing plant.
Abandonment involves plugging the well and restoring the site for environmental purposes when an exploratory well lacks the potential to produce economic quantities of hydrocarbons, or when a production well is no longer economically viable.
Within the 4 stages of E&P, Oil & Gas Operators contract with a wide range of suppliers covering hundreds of different category or service lines needed during the lifecycle of the field. For example, drilling services, data acquisition and interpretation services, well design etc…
What need to focus on for oil and gas operators and service providers in the current industry environment?
Over the past few years, value in upstream operations has shifted from gaining access to new fields and delivering development projects to delivering excellent operational performance. Harsh economic environment for oil and gas operators means that better operational efficiency and performance both in costs and production volumes will play a significant role in delivering positive returns in the coming years. In order to do that, oil and gas operators must work closely with service companies to find new technological solutions, and services companies have to continuously optimize every offering solution, to anticipate the evolving needs of customers and industry.