What is 'Upstream'
Oil and gas companies can generally be divided into three segments: upstream, midstream and downstream. Upstream firms deal primarily with the exploration and initial production stages of the oil and gas industry. Many large oil companies are called "integrated" because they combine upstream activities with midstream and downstream operations, which take place after the production phase through to the point of sale.
BREAKING DOWN 'Upstream'The upstream sector of the oil and gas industry includes all the steps involved from preliminary exploration through the extraction of the resource. Upstream companies can be involved in all the steps in this phase of the life cycle of the oil and gas industry, or they may only be involved in part of the upstream sector. Another name for the upstream oil sector, which is actually more representative of what occurs in this stage of development of an oil asset and/or natural gas asset, is the exploration and production (E&P) sector.
The Exploration Process
Exploration for oil and gas is an important part of the upstream sector. Petroleum exploration requires very sophisticated techniques, and the technology available for petroleum exploration is rapidly advancing. Normally, exploration starts in an area that has high potential to hold a resource, usually due to the local geology and known nearby petroleum deposits. In a high-potential area, further exploration is completed to delineate a resource. Geophysical and geochemical analysis is done using techniques including induced polarization (IP) surveys, drilling and assaying, electrical currents, and so on. In the exploration phase, the goal is to locate and estimate the potential of a resource. If an area shows potential to host a resource, exploratory wells are drilled to test the resource. In the oil and gas sector, test drilling is an important component of the exploration phase. In the event that the exploratory well is successful, the next step is to construct wells and extract the resource. Upstream companies also operate the wells that bring the crude oil or natural gas to the surface.
The Following Phases
Once the resource has been extracted, the upstream part of the business is over. Midstream companies gather the raw resource and transport the resource via pipeline, railway or tanker truck to refineries. Refineries are the downstream phase of the oil and gas industry. They process the raw crude oil into their end petroleum products. They also sell and distribute natural gas and the products that are derived from crude oil.