An integrated oil and gas industry are basically a company entity which engaged in the exploration, development, refinement, and production of oil and gas rather than companies that specialize only in one segment. In most cases, integrated oil and gas companies divide their different operations into distinct categories: upstream, downstream, and midstream. The upstream sector of the industry focuses on the extraction and processing of crude oil and gas from the ground up. This sector also involves several processes such as pipeline construction, land drilling, and production scheduling and has the biggest financial risk.
The second main category is what is called downstream or “down-sides”. Downside companies do not directly own the production, but they are part of a corporation that extracting oil and gas from the wells. The midstream companies involved do not directly own the wells, but they are still involved in the exploration for, and production from, the wells.
Many oil and gas companies engage in both aspects of the industry – they have rigs on the ground as well as people working on the rigs. However, some oil companies only operate in the upstream sector, while others in the downstream operations. There are even some independent oil and gas companies that only focus on the upstream industry. Some of these companies are able to build large processing facilities which allow for offsite transportation of products to market.
While the big players all have major players on their balance sheet and have similar financial metrics, the structure of their balance sheet is different. Big oil companies usually own a handful of rigs operating in several regions of the world. They also have thousands of employees spread out over many geographic locations. Consolidated oil and gas production companies, on the other hand, have operations which include a single rig that operates in a number of different countries or regions. Consolidated midstream and downstream operations typically have fewer companies involved in their overall oil and gas production as compared to the large upstream segment.
While there are similarities between the upstream and downstream segments of the industry, there are also differences between the two segments. Midstream companies generate and deliver the initial raw material for oil production, which is generally lower priced than oil and gas production from the larger upstream producers. In addition, midstream companies typically have a lower cost per barrel of production than the bigger upstream producers. Midstream companies also need to incur costs related to shipping and handling petroleum products between locations as well as pay royalties to the government and landowners for the use of their water, land, and natural gas properties.
While many smaller companies are unable to afford the high costs of operating in the mid-and upstream sectors, there are still companies that have a sufficient amount of cash to survive in this tough business environment. Many midstream and small cap oil companies are developing new processes and products to help them obtain new supplies of oil and gas. Some of these methods include geophysical drilling, which involves using drilling machines to test for and find previously unsearchable deposits. Or, there are companies that conduct vertical wells to locate oil pockets in older sedimentary rock layers. With the use of technology and new know-how, even midstream and small cap companies can compete with the larger upstream companies.