What is 'Exploration & Production - E&P'

An exploration & production (E&P) company is in a specific sector within the oil and gas industry — companies involved in the high-risk/high-reward area of exploration and production focus on finding, augmenting, producing and merchandising different types of oil and gas.

Exploration and production (E&P) is known as the upstream segment of the oil and gas industry. The resource owners and operators of E&Ps work with a variety of contractors such as engineering procurement and construction (EPC) contractors, as well as with joint-venture partners and oil field service companies, and as E&P operators produce oil and gas, they also build infrastructure and collect massive amounts of analytical data.

BREAKING DOWN 'Exploration & Production - E&P'

Exploration & production companies locate and extract nonrenewable resources from the Earth; the process of oil and gas exploration and production typically involves four stages.

Exploration

At this stage, the search for hydrocarbons beneath the ground entails geophysical prospecting for shale formations that hold deposits of oil and natural gas. One method of exploration involves seismology, a process whereby substantial vibrations, via explosives or machinery, are produced at the Earth’s surface. Seismic waves travel to the Earth’s mantle, and the respondent force is analyzed at the surface to identify layers of rock that trap reservoirs of oil and natural gas. Exxon Mobil Corporation maintains many large exploratory fields in the Gulf of Mexico, extending operations to 339 deepwater blocks.

Well Development

After identifying potentially viable fields, engineers determine the number of wells needed to meet production requirements and the method of extraction of the liquid hydrocarbons. Platform construction costs are estimated with regard to the site, offshore or onshore, and designs are rendered for systems used to facilitate environmental protections. Newer drilling technologies, prominent in the Marcellus and Bennett shale fields in Pennsylvania and Texas, allow companies such as Chesapeake Energy Corporation to extend horizontal legs about 5,000 feet from vertical wells in search of natural gas pockets, producing four times as much gas at only twice the cost of a vertical well.

Production

Liquid hydrocarbons extracted from wells are separated from the non-saleable components such as water and solid residuals. Natural gas is often processed onsite while oil is piped to a refinery before being offered for sale. Through the third quarter of 2017, Anadarko Petroleum Company was the third-largest producer of natural gas in the United States.

Abandonment

As exploratory sites are deemed unproductive or existing operations exhaust capacity, companies plug wells and attempt to restore the areas to environmental states that existed prior to drilling activities. As natural gas prices descended to historic lows in January 2016, many exploratory wells were shuttered as high production costs rendered extraction unprofitable. In 2014, the state of Ohio ramped up efforts to plug nearly 600 orphan wells that posed hazards to surface water and aquifers.

RELATED TERMS
  1. Upstream

    Upstream refers to the operations stages in the oil and gas industry ...
  2. Oil Price to Natural Gas Ratio

    The oil price to natural gas ratio compares prices of crude oil ...
  3. Vertical Well

    A well that is not turned horizontally at depth, and which allows ...
  4. Natural Gas ETF

    Exchange-traded funds (ETFs) that invest in natural gas futures ...
  5. EIA Natural Gas Report

    The EIA Natural Gas Report is a report written by the Energy ...
  6. Energy Sector

    The energy sector is a category of stocks that relate to producing ...
Related Articles
  1. Investing

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
  2. Investing

    XOP: SPDR S&P Oil & Gas ETF

    Discover the investment strategy behind SPDR S&P Oil & Gas Exploration and Production ETF, and learn what type of investor may find it suitable.
  3. Investing

    5 Reasons Why Private Equity Investors Like Oil and Gas Companies

    Oil and gas companies may look like a risky industry on the outside, but private equity investors have found reasons to regularly invest in these firms.
  4. Investing

    The 5 Biggest Russian Natural Gas Companies

    Learn about the energy sector as well as why the energy sector is so important to Russia. Understand the five largest Russian oil and natural gas companies.
  5. Investing

    A Look Inside The Natural Gas Pipeline

    The United States is the Saudi Arabia of natural gas, but natural gas stocks were a mixed bag last year.
  6. Investing

    How Fracking Affects Natural Gas Prices

    Whatever you think of fracking, it has done one thing: kept the price of natural gas from increasing any more than it has.
  7. Investing

    The world's top 10 natural gas companies

    Read about the 10 companies that, combined, produce over 100 billion cubic feet of natural gas – approximately 30% of the world's total production.
  8. Investing

    Winners and Losers of Low Natural Gas Prices

    Chemical and fertilizer manufacturers benefit from a low price for natural gas, while utilities and natural gas producers are adversely affected by it.
  9. Investing

    4 Reasons Natural Gas Is So Cheap

    An unseasonably warm winter wasn't the only reason why prices were cheap.
  10. Investing

    Alternative Ways To Play The Marcellus Shale

    As America searches for energy independence, natural gas consumption will increase.
RELATED FAQS
  1. What are average operating expenses for the oil and gas sector?

    Learn about the average operating expenses and average operating expenses margin for the oil and gas sector and how they ... Read Answer >>
  2. How does analyzing an oil and gas's financial statements differ from companies in ...

    Learn how financial statements for oil and gas companies appear different from companies in other sectors, and discover how ... Read Answer >>
  3. What average annual return does the oil and gas sector generate for an investor?

    Learn about the average annual return for the oil and gas sector and how it compares to the average annual returns for the ... Read Answer >>
  4. What economic indicators do oil and gas investors need to watch?

    Leading indicators for oil and gas investments are centered around the levels of production, consumer demand and inventory ... Read Answer >>
  5. What is the difference between upstream and downstream oil and gas operations?

    Raw material extraction or production in the oil and gas supply chain are considered upstream, while processes closer to ... Read Answer >>
  6. How has fracking helped the U.S. to decrease dependence on foreign oil?

    Learn about the drilling technique referred to as fracking, and discover how this technology has significantly reduced U.S. ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center