The upstream oil and gas industry was caught flat-footed by the Corona Virus pandemic, and you are paying for the short-sightedness of the sector today.
That oil and gas industry is in a crisis in 2020 is an under-statement today.
In the middle of a price war among the industry’s BIG boys, the virus crept into people’s lives. What followed was a reactive approach to a pandemic that was to wreck havoc in the entire industry. The global economic has slowed down and lockdowns have led to a collapse of the oil demand in the world.
The sub-sector activities include exploration, drilling and extraction of the oil and gas resources. These activities have slowed down, and most projects delayed or stopped altogether.
The current covid-19 pandemic has damped this industry and we are witnessing a cut in expenditure across the upstream value chain.
What is Upstream in Oil and Gas Industry?
If you are a beginner in the oil and gas industry, upstream is a word that refers to the operations that involve exploration and production.
Oil and gas companies or operations can be segmented into three; upstream, midstream and downstream.
In this regard, upstream business primarily deals with the exploration and initial production stages of the oil and gas industry.
What is Upstream and Downstream in Oil & Gas?
As mentioned above, oil and gas industry is divided into three segments which are upstream, midstream and downstream.
- Upstream sector involves the extraction of oil and natural gas from the ground to the surface. This is both onshore and offshore.
- Midstream oil and gas is all about transporting and processing the oil or gas resources in a safe manner. This helps to process and convert the raw crude oil or gas into finished petroleum products ready for consumption by the consumer.
- Downstream oil and gas involves taking the finished petroleum products to the market and to you the consumer. It incorporates such activities as undertaken by the oil marketing companies
Upstream Oil and Gas Process
Exploration and production processes are an important part of the upstream industry. Exploration requires use of techniques to get the oil out fo the ground. Under the current economic conditions, and the depressed crude oil prices, there is need for use and application of technology to spur exploration activities.
Normally, exploration starts in an area that has high potential to hold a resource, usually due to the local geology and known nearby petroleum deposits. In a high-potential area, further exploration is completed to delineate a resource.
Geophysical and geochemical analysis is done using techniques including induced polarization (IP) surveys, drilling and electrical currents, and so on.
In the exploration phase, the goal is to locate and estimate the potential of a resource. If an area shows potential to host a resource, exploratory wells are drilled to test the resource.
In the oil and gas sector, test drilling is an important component of the exploration phase. In the event that the exploratory well is successful, the next step is to construct wells and extract the resource. Upstream companies also operate the wells that bring the crude oil or natural gas to the surface.
Upstream Sector at Crossroads Today
Today, an upstream company is faced with very tough choices on how to move forward. To survive, certain key decisions should and must be made by the business leaders.
It is sad that some oil and gas professionals are or will lose jobs, upstream businesses are closing or filing for bankruptcy. It is a good sign that many companies are re-organizing with the hope of keeping their operations going.
It is important to note that an upstream company or business deals primarily with exploration and early-stage production activities.
However, we also have several large companies that are integrated. Integrated oil and gas companies today, who combine upstream activities with midstream and downstream operations.
In conclusion, upstream industry is one of the most complex sub-sectors in the oil and gas value chain.
It is important to note that upstream investments are a high-risk game because of the unpredictability of the well drilling campaign.
The forces of supply and demand economics also play a significant role in the oil and gas industry.