Investors can be quickly overwhelmed by the complex jargon and unique metrics used throughout the oil and gas industry. This introduction is designed to help anyone understand the fundamentals of companies involved in oil and gas by explaining key concepts and standards of measurement.

About Hydrocarbon 

Crude oil and natural gas are naturally occurring substances that are found in rock in the Earth's crust. These organic raw materials are created by the compression of the remains of plants and animals in sedimentary rock such as sandstone, limestone, and shale.

Key Takeaways

• Exploration and production (E&P) companies find hydrocarbon reservoirs, drill oil and gas wells, and sell these raw materials to companies that refine them.
• Drilling companies contract their services to E&P companies to extract oil and gas.
• Well-servicing companies conduct related construction and maintenance activities on well sites.

The sedimentary rock itself is a product of deposits in ancient oceans and other bodies of water. As layers of sediment were deposited on the ocean floor, the decaying remains of plants and animals were integrated into the forming rock. The organic material eventually transforms into oil and gas after being exposed to specific temperatures and pressure ranges deep within the Earth's crust.

Engine Oils are less dense than water, so they migrate through porous sedimentary source rock toward the Earth's surface. When the hydrocarbons are trapped beneath less-porous cap rock, an oil and gas reservoir is formed. These reservoirs of oil and gas represent our sources for crude oil and gas.

Hydrocarbons are brought to the surface by drilling through the cap rock and into the reservoir. Once the drill bit reaches the reservoir, a productive oil or gas well can be constructed and the hydrocarbons can be pumped to the surface. When the drilling activity does not find commercially viable quantities of hydrocarbons, the well is classified as a dry hole, which is typically plugged and abandoned. 

Exploration and Production (E&P) Companies  

Exploration and production (E&P) companies find hydrocarbon reservoirs, drill oil and gas wells, extract these raw materials, and sell them to be refined by other companies into products such as gasoline.

This activity is often referred to as upstream oil and gas activity. Today, hundreds of public E&P companies are listed on U.S. stock exchanges. Virtually all cash flow and income statement line items of E&P companies are directly related to oil and gas production.

Understanding Oil Production Numbers

E&P companies measure oil production in barrels. One barrel, usually abbreviated as bbl, is equal to 42 U.S. gallons. Companies often describe production in terms of bbl per day or bbl per quarter.

A common methodology in the oil patch is to use a prefix of "m" to indicate 1,000 and a prefix of "mm" to indicate one million. Therefore, 1,000 barrels is commonly denoted as mbbl, and one million barrels is denoted as mmbbl. For example, when an E&P company reports production of seven mbbl per day, it means 7,000 barrels of oil per day.

Gas Production Numbers Explained

Natural gas production is described in terms of cubic feet. Similar to the convention for oil, the term mmcf means one million cubic feet of gas. Bcf means one billion cubic feet and Tcf represents one trillion cubic feet.

Note that natural gas futures trade on CME Group futures exchange, but are not measured in cubic feet. Instead, the futures contract is based on one million British thermal units, or mmbtu, which is roughly equivalent to 970 cubic feet of gas. For this reason, investors frequently think of an mcf of gas as being roughly equivalent to one mmbtu.

E&P companies often describe their production in units of barrels of oil equivalent (BOE). To calculate BOE, companies usually convert gas production into oil equivalent production. In this calculation, one BOE has the energy equivalent of 6,040 cubic feet of gas or roughly one bbl to six mcf. Oil quantity can be converted into gas quantity in a similar fashion and gas producers often refer to production in terms of gas equivalency using the term mcfe.

E&P companies report their oil and natural gas reserves—the quantity of oil and gas they own that is still in the ground—in the same bbl and mcf terms. Reserves are often used to value E&P companies and make predictions for their revenue and earnings. However, since the value of reserves is not a GAAP figure, it might not be reflected in a company's financial statements.

Of course, new reserves are an essential source of future revenue, so E&P companies spend a lot of time and money exploring for new untapped reservoirs. If an E&P company stops exploring, it will have only a finite amount of reserves and a depleting quantity of oil and gas. Revenue will inevitably decline over time. In short, E&P companies can only maintain or grow revenue by acquiring or finding new reserves.

Drilling and Service Companies  

E&P companies do not usually own their own drilling equipment or employ a drilling rig staff. Instead, they hire contract drilling companies to drill wells for them and the contract drilling companies generally charge for their services based on the amount of time they work for an E&P company. Drillers do not generate revenue that is tied directly to oil and gas production, as is the case for E&P companies.

Once a well is drilled, various activities are involved in generating and maintaining its production over time. These activities are called well servicing and can include logging, cementing, casing, perforating, fracturing, and maintenance. Oil drilling and oil servicing thus represent two different business activities within the oil and gas industry.

As is the case for drilling, many public companies are involved in well service activity. The revenue of service companies is tied to the activity level in the oil and gas industry. Rig count and utilization rates are indicators of the amount of activity happening in the United States at any given time.

Oil prices have slightly edged higher on China’s factory data but are on track for a weekly loss.

Brent crude futures were down $0.27 at $59.89 a barrel, while US West Texas Intermediate (WTI) crude futures were down $0.32 at $54.50 per barrel, reported Reuters.

Reuters said that concerns on global economy and Engine Oils demand are affecting the market, while a 16-month trade dispute between the US and China continues.

National Australia Bank commodity research head Lachlan Shaw told Reuters: “There’s renewed doubts about a US-China trade deal… and at the same time we’ve had inventory lifts quite a lot more than expected at the crude level out of the US this week.”

US crude stock rose by 5.7 thousand barrels (Mbbls) in the week ended on 25 October, compared to analyst expectations for a gain of 494 Mbbls.

A Reuters survey found that output from OPEC recovered in October from an eight-year low, with production ramp-up and oil recovery in Saudi Arabia following drone attacks on the nation’s oil in September. More Information on

According to government data, US crude production surged nearly 600,000 barrels per day in August to a record of 12.4m, buoyed by a 30% gain in the output from Gulf of Mexico.

The recovery happened due to several factors. One of them is the success of the production restraint agreement between OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC countries, which is in force since the beginning of first half of 2017. Other factors that influenced the recovery of the oil and gas markets are the less oil coming to the market from challenged producers and the ongoing global demand growth estimated by the EIA.

EIA stands for Energy Information Administration, and the global demand growth for 2018 was estimated at 1.6 million b/d.

Oil and Gas Industry in 2019

In the latest Deloitte annual survey, they asked oil, gas and chemicals executives the following question:

The questions resulted with a confidence in recovery, which results with high expectations for increased economic growth, commodity prices and investments overall. This is supported by the increase in energy demand above the average levels, as the US and global economy continue to display strong growth rate.

Below we can elaborate in more details the top 10 trends in the Oil and Gas Industry, presented by GlobalData researchers.

Oil and Gas Industry Trends in 2019

The top oil and gas Stegron Inc industry trends of 2019, were identified by GlobalData researchers, and in their research they use data on online engagement, the number of mentions on Twitter, and different expert analysis.

The main trend in the Oil and Gas Industry to watch for in 2019, is the Oil and Gas supply. There are several problems that will influence the Oil and Gas supply such as, the problems with Venezuela and Iran, as well as Qatar’s exit from OPEC.

The second trend to watch for is the Energy Outlook. In the past couple of years, the input of gas influencers online, industry whitepapers and journalism give a better and more realistic, expert overview of what is happening and future expectations in this sector.

Energy policies are the third trend listed in the GlobalData research, which includes the decisions, from the US Department of Energy and by other organizations as well. What will influence the oil production in 2019, is the rise of the federal oversight regarding the methane and wastewater, and the return of more autonomy to Oil-production parts in the United States. What can make the situation unpredictable, are the changes to the ranks of OPEC, especially in the part of how the countries manage their energy policies, as well as the political situation in the UK that can affect the policies related with the North Sea oil exploration and nuclear energy in Scotland.

Many are anticipating the Natural Gas supply to be at the forefront and expecting that in 2019, the global LNG (Liquefied Natural Gas) supply will outstrip demand, for few reasons. One is the development in China, of their own Natural Gas Infrastructure and the investments in LNG imports.

Next comes, the output of OPEC as a trend. As it has been stated in the beginning of this article, the OPEC has committed to pulling oil from the market. The reduction in oil production, still doesn’t scare many experts in the industry.

Other identified top trends are related with the Oil Price, Fracking, Oil Demand and inventories of oil, natural gas and goal. You can read more for these trends on the link.

Oil and Gas Supply Chain

The oil and gas global supply-chain includes activities such as domestic and international transportation, ordering and inventory visibility and control, materials handling, import/export facilitation and information technology.

Every Supply Chain in large industries involves configuration, management and continuous improvement of sequential set of operations that includes multiple parties. The goal in Supply Chain Management (SCM) is to deliver maximum service to the customer at the lowest cost possible.

The Oil and Gas Supply Chain can be analyzed through three different industry sectors:

• Upstream
• Midstream
• Downstream

Upstream vs Midstream vs Downstream sector

When somebody wants to describe where a company or a service is in the Oil and Gas Supply chain, they usually use the generic business terms “Upstream” and “Downstream”. As companies or services get closer to servicing the end user, the more downstream they are located in the supply chain.

Each of these sectors have their own characteristics which will be elaborated in more details, further on in this article.

The upstream sector is also known as the E&P (Exploration and Production) sector. It is consisted of processes and operations that involve searching for potential underground or underwater crude oil and natural gas fields, drilling of exploratory wells, and subsequently drilling and operating the wells that recover and bring the crude oil and/or raw natural gas to the surface. In recent years, there is an evident shift towards the inclusion of unconventional gas as part of the Upstream sector. This also affects the developments in processing and transporting Liquefied Natural Gas (LNG).

The midstream sector is usually combined in the literature with the downstream sector. This segment in the supply chain, involves the transportation, storage and marketing of various oil and gas products. Transportation options can vary from small connector pipelines to massive cargo ships making trans-ocean crossings, depending on the commodity and distance covered.

When we are discussing the transportation of oil and natural gas, most oil can be transported in the current state, while the natural gas must be liquefied or compressed.

When it comes to the downstream sector, it encompasses the refining, processing, distillation and purification before turning it into usable, sell-able and consumable products e.g. fuels, raw chemicals and finished products etc. All the afore-mentioned services transform crude oil into usable products such as gasoline, fuel oils, and petroleum-based products. Retail marketing activities help move the finished products from energy companies to retailers or end users.