What is the Upstream Oil and Gas Sector?

Upstream petroleum operations consist of three major activities – exploration, drilling and production – which are supported by people with a variety of technical and non-technical job skills.

Published Wednesday, July 16, 2008
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Jul 16, 2008
Oil and gas exploration—Contrary to popular belief, oil does not occur in giant pools underneath the earth.

The upstream oil and gas sector is the oil and gas industry segment that explores for and produces oil and gas. It is a close-knit community of nearly 1 million worldwide professionals who provide the feedstock for nearly every phase of daily life.


Oil and gas exploration—Contrary to popular belief, oil does not occur in giant pools underneath the earth. In fact, it does not occur in pools at all. Rather, oil and gas are trapped in formations comprised of material ranging from unconsolidated sand (much like beach sand) to near-solid rock. When impermeable tops and sides are present around a formation, or part of a formation, a reservoir is created. Oil and gas migrate upward into the reservoir and are trapped there in the formation. Finding these reservoirs is the job of the explorationists.

Exploration professionals generally belong to two different disciplines. One is geophysics. Geophysicists apply the properties of physics to subsurface formations. Using various means to generate pulses of energy aimed downward through the subsurface, they study the nature and speed of the energy waves as they travel downward and then return to the surface after having been reflected off various differing layers of subsurface material. After analysis of the often billions upon billions of points of data, the geophysicist can produce an accurate cross-section of the formations and make a number of determinations about their characteristics, including estimations of oil and gas production potential. The collection and analysis of the subsurface data is called seismic acquisition and processing. It is the initial step toward determining whether indications of oil and gas accumulations merit continued exploration.

The second geoscientist is the geologist, whose knowledge primarily is that of the properties and characteristics of subsurface formations. The geologist should be able to tell the age of a subsurface material, how it was formed, of what it is made, whether it has the characteristics necessary to hold oil and gas, how it relates to the other geologic layers, and whether, after examination, it actually contains oil and/or gas. The geologist makes these determinations, in the first instance, by examination of actual samples of the formations. These are obtained by coring as well as from cuttings carried to the surface during the drilling operation. After a number of wells have been drilled, the geologist may be able to extrapolate subsurface characteristics and stratigraphy (the layering of formations) across a wide area by comparing data from a number of nearby wells.


Drilling—After a suitable target has been found and a location chosen to drill a well, a drilling rig is moved. Onshore, this will involve the partial dismantlement of the rig (usually some 135ft – 41m –high or more from the ground to the top of the drilling mast, up to 100 sq ft – 9 sq m – with supporting equipment and weighing thousands of tons) and its associated equipment for truck transport to the new drilling location. Once on the new location, the rig is rebuilt and drilling begins. Drilling is accomplished by turning a drillbit screwed onto the bottom of drillpipe (high strength, specialty pipe). As the well goes deeper, more joints of pipe are added. A complex fluid called mud is circulated down the drillpipe and up the outside to carry away cuttings, cool the drillbit, maintain pressure control, prevent damage to the formations being drilled and, in many cases, to turn a downhole motor with the bit attached. As the well is drilled deeper, strings of reinforcing pipe called casing are run into the hole and cemented in place to seal off troublesome formations that may be overpressured, underpressured or unconsolidated.

In this manner, a well is drilled to TD, or total depth. Some wells have exceeded 35,000ft (10,675m) – or nearly 7 miles (11 km) – in depth.

Drilling a well in the water (offshore and in bays, marshes and similar transition zones) involves much the same downhole technology but an entirely different sort of drilling rig. Where offshore production platforms exist, drilling rigs may be set on top of them to carry out a drilling program. In areas where offshore production platforms do not exist, the rig must be able to float so it may be moved from location to location under its own power or under tow. The most common type of movable rig for shallow water is the jackup. Jackups can work in up to 350ft (107m) of water. As its name suggests, the jackup can be towed to the location and then raised out of the water on its own legs.

Two other types of rigs do not rest on the bottom. The semisubmersible floats on a set of pontoons and is held in place by anchors. The drillship has a hull resembling a traditional ship hull and is moored in the same manner. More recently, as the drilling industry has moved into waters deeper than 1,500ft (458m), dynamic positioning has replaced anchoring to the seafloor as the mooring solution. Using multiple global positioning systems and a sophisticated computer system, the rig is held on location by thrusters that continually adjust the position of the rig to combat currents and winds that could force it off location. Using this technology, wells have been drilled in more than 10,000ft (3,050m) of water. The modern offshore, mobile rig is a miniature city where more than 200 workers may be fed and housed. Many feature extended amenities such as gyms, movie theaters, libraries and a host of other facilities to nurture off-duty workers including, in at least one case, a full planetarium.

Once the well is drilled, it must be completed. This may be done by the rig that drilled the well or by a smaller version of the original drilling rig. Almost all wells are produced through tubing, or another string of pipe run into the finished well. The tubing is held in place by the wellhead and, often, by various downhole packers or anchors. Prior to running the tubing, or sometime afterward, the well will be perforated: holes will be put into the casing to allow fluids from the formations behind the casing to flow into the well. However, the well may not flow on its own, in which case various stimulation methods are applied to dissolve solids blocking flow paths or to actually create flow paths by physically fracturing the formation material.


Production—After the well has been drilled and completed, the production process begins. The fluid (gas or liquid) that comes out of the well is a combination of oil or gas plus water, solids and other contaminants. The primary purpose of production equipment and the production process is to separate the water, solids and other contaminants from the oil and/or gas. The production process must also separate gas from oil or, in the case of gas production, lighter liquid hydrocarbons from the gas. The separation process is generally carried out in a vessel, or series of vessels, that allows enough retention time for the fluid to separate naturally, resulting in a lower water phase, a middle oil phase and an upper gas phase. Solids may also be removed mechanically or by retention separation.

Once the separation is complete, the water is cleaned to exacting standards and, in most cases, returned to an underground formation. The oil and gas are sold into local gathering systems that in turn flow into the larger diameter transcontinental pipeline systems that feed refineries and chemical plants.

A second function of the production process is well maintenance. Within this function, production personnel must design and carry out repair programs to remediate broken well equipment or to improve equipment performance. Much of this repair work is carried out downhole in a process known as a “workover” or a “well intervention.” A smaller version of a drilling rig is generally required to pull the production equipment from the well and repair or replace it.

A third function of the prod-uction process is analysis of well performance and development of solutions to improve performance. While wells may initially flow under their own pressure, most eventually require some sort of assistance to lift the fluid to the surface. The most common solution is some sort of downhole pump or “artificial lift.” In cases where the reservoir pres-
sure drops substantially but flow potential still exists, production and reservoir engineers may design systems to re-pressure the reservoir and/or sweep fluid through the reservoir. Usually referred to as secondary recovery systems or “floods,” these solutions generally employ water or gas pumped into the reservoir under pressure to drive the oil and gas to the wellbores.

It is within the production process that the primary analysis of continuing reservoir performance is made. Reservoir engineers and their associates seek to produce as much oil and/or gas from a reservoir as possible. To do this, they must monitor changing volumes of water, oil and gas in the reservoir, their flow paths and characteristics as well as known or developing impediments to fluid flow. This was done, for much of the industry’s history, by periodic testing of wells to determine a performance pattern for the larger reservoir or field. Now the industry has entered a new phase – intelligent operations. A number of recently developed technologies, including permanent downhole instrumentation, 4-D seismic, sophisticated modeling software and remotely operated equipment, have been linked to enhanced computing power to allow near-real-time and real-time monitoring, modeling and management of reservoirs. The data derived from monitoring the reservoir is fed directly into modeling programs where it is analyzed and new reservoir performance models are created. Based on the new models, engineers can make adjustments to downhole and surface equipment on a well or a number of wells that will alter flow regimes within the reservoir, or they may recommend remedial actions such as institution of a pressure maintenance program for the reservoir or the repair of a well. Since the modeling is continual, all changes are immediately modeled as well, creating a closed-loop system of data collection, modeling, analysis, action, data collection and modeling.

Intelligent operations may be the single most important technological step the upstream oil and gas industry has taken in the past several decades. It brings all the new technologies to bear on enhanced reser-voir performance and, therefore, increased ultimate recovery of oil and gas. As intelligent operations moves to widespread implementation, many new skill sets will be required, especially in the information technology disciplines.


Support functions—The upstream oil and gas industry does not exist as a simple collection of engineers
and technicians. It is a business, much like that of manufacturing, and it requires all the associated business functions, from accounting to legal services to truck drivers to human resources personnel to myriad others. In fact, non-engineering and technical personnel account for nearly 50% of all those employed in the upstream oil and gas industry.


Operators vs. service and supply

The upstream industry may be divided into another set of players – oil and gas producers (operators) and the service and supply industry that supports them. Though their roles often overlap, each has a distinct position in the industry.

Operators—The oil and gas producing companies own or lease the oil and gas assets they produce. Their business is to maximize the value of their assets. Although they must be more than technologically proficient, their job is, primarily, management of assets. This leads to a focus on the reservoir, its performance and the personnel necessary to manage the reservoir. Implementation of technical solutions in exploration, drilling and production are left, primarily, to the service and supply industry.

Service and supply—The service and supply industry rarely involves itself in the ownership of oil and gas producing assets. Rather, it develops and deploys the technology required to maximize the output and final recovery of the operators’ assets. This requires deep technical expertise from the engineering to technician level. It also requires much more fieldwork than is normal in an operating company.

Both sectors are heavily involved in the develop-ment of new technology, although many of the research and development functions once carried by the operators have devolved to the service and supply industry during the past two decades.