Components of oil and gas industry
Oil and gas industry works on simple business model - find, extract, refine and sell oil and gas, refined products and related products. On the basis oil and gas industry is divided into different sectors and each sector focus on specific process in the value chain
A. Exploration & Production/Upstream:
The Exploration & Production sector involves all business associated with finding and extracting oil and gas. This sector can be broken out into the exploration and production components and timing of these two components usually take years. This sector is also known as upstream sector and also typically referred by its acronym E&P.
Upstream activities comprise of the exploration and discovery of hydrocarbon reserves and resources and their subsequent extraction.
Resources: Those estimated volumes that are present in the ground, which may or may not be recoverable
Reserve: Those resources that are anticipated to be commercially recoverable from accumulation. Reserve can be classified as
· Proved reserve (1P) – Highly certain (90% chance of actual reserve will be larger than estimate), Further divided into Proved developed and Proved Undeveloped.
· Probable reserve (2P) – 50% chance of technically and economically producible
· Possible reserve (3P) – Less than 50% chance of technically and economically producible
Note: Under US GAAP only proved reserve are allowed to be bookd, Under IFRS - proved and probable reserve are allowed to be booked
B.Transportation & storage
The transpiration and storage sector involves all operations associated with storage of oil and gas and transporting it from field to refineries and processing plant. This sector is also known as midstream sector because it creates a link between E&P and refining and marketing operations.
Oil and gas can be transported by pipeline, oil tankers and truck
C. Refining and marketing
The refining and marketing sector involves all activities link with refining crude oil into petroleum products and marketing them to end users. This sector is also known as downstream sector and also typically referred by its acronym R&M
D.Oil field services
The oil field services sector involves activities associated with drilling or assists drilling in setting up oil and gas wells. Their services usually include manufacture, repair and maintain equipments used in oil extraction and transport.