Overview of oil exploration and production

Oil exploration and production is considered a "upstream" activities of the industry.  Upstream activities are closer to the source, and "downstream" activities, such as refining and marketing, are closer to the consumer.

Finding oil isn't a single activity.  It is a series of steps: identifying a prospect, testing the rock, drilling a well, determining whether the find is commercially viable and estimating the dimensions of the reservoir with further drilling.  Production wells are then installed and gathering pipelines are assembled to transport the oil to central points for further shipment.

The upstream sector involves the most investment risk because of the high capital expenditures and great uncertainty that oil will be found. On the other hand, it historically has provided greater rewards in terms of profit and return on investment than other segments of the industry.  Recent technological advances have reduced the uncertainties and contributed to the more efficient use of capital, enhancing the industry's success.

Back