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Oil and gas industry overview: Upstream (Part 1)

Ingrid Pan, Sr Energy Analyst

Upstream companies

Domestic independent upstream companies include (but aren’t limited to) names such as Chesapeake Energy (CHK), Range Resources (RRC), Pioneer Natural Resources (PXD), ConocoPhillips (COP), Oasis Petroleum (OAS), EOG Resources (EOG), and Devon Energy (DVN).

Plus, the major integrated oil companies take part in many aspects of the oil and gas industry, including upstream energy production, downstream refining and marketing, and crude oil transportation. However, the majority of earnings for these companies is driven by their upstream segments. These companies include ExxonMobil (XOM), Chevron (CVX), and British Petroleum (BP).

(Read more: Why ethane stopped trading like crude and started trading like nat gas (part II))


The upstream segment of the oil and gas industry is sometimes also called “exploration and production” or E&P, as upstream companies explore for and produce hydrocarbons. In the United States, companies generally do this by acquiring leasehold rights to areas where they can drill oil and gas economically. They might evaluate prospects through seismic surveys, core analysis (studying samples of rock), and drilling exploration wells. Once they deem an area economic, they drill further wells, and they sell oil and gas from these wells.

Upstream company revenues are based on the amount of oil and gas the companies produce as well as the prices at which they can sell the oil and gas. The cost component of most upstream companies comprises a few major categories. Firstly, the lease operating expense is broadly the day-to-day cost of producing hydrocarbons—such as labor costs for employees in the field, maintenance costs, and repairs related to oil and gas properties. Plus, most domestic oil and gas companies pay production taxes—usually based on a percentage of revenue. Lastly, G&A (general and administrative) expenses include overhead such as the cost of office space, professional fees, and other overhead.

(Read more: Why ethane stopped trading like crude and started trading like nat gas (part III))

Continue to Oil and gas industry overview: Upstream (Part 2)

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