Basics of Oil and Gas Industry

Though the Oil & Gas industry is divided into three segments: Upstream, Midstream, and Downstream. But, there is more to it. We have to also consider the industry that provides the equipment and services. So, we can say the entire sector comprises two sub-industries:

  1. Oil & Gas Industry and,
  2. Equipment and Services Industry.

We start with Oil & Gas Industry first. The industry consists of companies that are involved in exploration, production, refining, and marketing.

Those companies which are in the oil and gas exploration and production business are part of the Upstream segment. Upstream companies perform well if there is a rise in oil and gas prices. The more hydrocarbons they produce the more it is sold at higher prices which ultimately improves their financials.

The oil & natural gas companies have produced needs to be transported. Companies that store and transport hydrocarbons are Midstream companies. Though it may seem that Midstream companies aren’t much affected by the volatility in oil and gas prices. But, that isn’t the case. If the prices fall and it isn’t viable for Upstream companies to explore and produce. Then, Upstream companies may wind their operations down temporarily. And, that would affect the volumes Midstream companies ship.

Then there are Downstream companies that refine and manage the marketing of oil and gas. Downstream companies help make the product usable. Their profit margins can get squeezed if oil and gas prices rise and they can’t pass on the rise to the end users.

Lastly, there are companies that are involved in all three segments i.e. Upstream, Midstream, and Downstream. Such companies are known as Integrated Oil and Gas companies.

Then we have the Equipment and Services Industry. Companies in the Equipment and Services Industry help Upstream companies by providing them with the necessary equipment to explore and produce oil. The services offered by such include drilling, pumping, and flowback services.

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