A quick overview of the oil & gas industry explaining the differences between upstream, midstream, downstream, service & super-majors.
(updated aug 12 2014) ConocoPhillips is no longer a SuperMajor, as the split into two companies in 2012. ConocoPhillips is now just an upstream company and Phillips 66 is a downstream and midstream company. Thanks Mr. Beaudo for the info!
Transcript of Session –
Hey. It’s Mark LaCour. Ready to learn about the oil and gas industry?
Today, we can learn that even though you may be buying Chevron Gas, Chevron may not have much to do with it.
Welcome to our overview of the oil and gas vertical. You know most people think they know the oil and gas industry, but they really don’t. So we’re going to see if we can give you some useful information and clear up some common misconceptions.
So most people think of companies like ExxonMobil and just assumed they get oil in the ground somewhere in the world, ship that crude in ExxonMobil pipelines to an ExxonMobil refinery, sell it in ExxonMobil gas station. But guess what? That is absolutely wrong, that is not how this industry works. This is how it works.
The industry is composed of four main segments; upstream, midstream, downstream, and service. Upstream is actually getting the crude out of the ground. You often hear it called E&P or Exploration and Production. This is upstream, this is upstream, this is upstream, this is actually and FPSO.
The next segment is midstream. Midstream is basically moving that crude oil in natural gas. So midstream stuff such as pipelines, supertankers, rail cars.
Then, we move to downstream. Downstream is actually the refinery, the refining manufacturing and selling of the products from crude oil and natural gas. So downstream things such a refineries, retail loop stations, fertilizer which is big product of petrochemical refining, lubricants, motor oils, retail gas stations, and plastic which is another large product of crude oil.
Then, we move to the service companies. Service are companies that actually provide manpower and help in services the oil and gas industry, but they don’t produce any petroleum or petroleum products themselves. So you have everything from the guys that out there designing the rigs to the crew boats that move men and equipment back and forth to the actual roughnecks that do the drilling, to the manufacturer of drill stem, and things like subsea installations. Every bit of this is service.
Then, you also hear the word Super Majors or Combined. What is that? That are companies that do everything; upstream, midstream, downstream, and some service. And right now in 2013, there’s only five of them. This is it. These are the five Super Majors.
So what does that mean? We’re going to talk you through literally from cradle to grave a drop the crude oil to the point where it gets into the gas tank of your car.
So, the US government auctions off a block of land the highest bidder. After checking my last auction facts in the Gulf of Mexico, $2 billion somebody paid for rights to drill on a piece of land for ten years. That’s it. Think about that for a second. You write a check for $2 billion to have ten years to make that money back and hopefully some profit, but there’s no guarantees.
So this case it was BP who spent that $2 billion for a deep Gulf of Mexico lease. BP then needs to drill, right? BP does not have its own drill rigs. BP contracts a drill rig basically rents it from companies such as Transocean. That drill rigs needs to be staffed by people, so you have companies such as Halliburton and Baker Hughes to actually help them operate that drill rig. The crude that gets produced on the drill rig needs to be transported. Guess what? BP puts out to open bid to all the different industries all the different companies in the world who will move this crude oil at the bets price. In this case, it was a supertanker and the win was won by Chevron.
So Chevron has the crude oil in supertanker and it’s in transport to refinery, but halfway there, ConocoPhilips on their trading floor buys that crude and it turns around and sells it for few cents profit per barrel. And it was sold to Shell refinery who then refines that fuel at a profit, ships it in Kinder Morgan pipeline to a 76 gas station as owned by who? No, not 76. It’s owned by one of your neighbors which is called the Jobber.
So there you go. There it is from literally getting out of the ground into being burning your gas tank as a fuel. And you look at how many different people are involved and how many different layers of profits are involved and this is a very complex industry. So hopefully this helps you understand at least at a high level what goes on in the oil and gas industry.