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.