The massive petroleum industry is divided into three distinct sectors: upstream, midstream and downstream. Each area focuses on key aspects of oil and gas processing: from exploration and drilling to transportation, production and sales. The first link in the chain is upstream oil and gas production.
What is Upstream Oil and Gas Production?
Before you can fill your car with gas, or cash that royalties check, the oil and gas reserves need to be located. Upstream oil and gas production is the process of locating and extracting crude oil and natural gas reserves, according to The Petroleum Services Association of Canada. This process is commonly referred to as exploration and production (E&P).
The upstream petroleum industry employs a variety of professionals including geologists, geophysicists, scientists, seismic and drilling contractors, service rig operators and engineering firms. Their key focus is to pinpoint where minerals are located underground and estimate the amount of reserves available before drilling begins.
Land surveys and studies of rock formations help determine whether petroleum is present or not. Mechanical vibrations on the land’s surface are recorded by geophones and then analyzed by geologists to create a picture of what layers of sediment and rock lie beneath the soil. Once the team determines the location of a significant reserve, a well is drilled to confirm the findings and extraction begins.
“Making hole,” the official name of the start of the drilling process, requires a revolving steel bit usually fitted with tungsten carbide or industrial diamonds to grind through rock. Drilling mud is often used to lubricate the drill bit, flush away the rock cuttings and stabilize the pressure in the hole during this process.
After the initial drilling is complete, a steel pipe – known as surface casing – is cemented into the hole to provide stability, and drilling continues down to deeper depths. To keep gases and drilling fluids from escaping, blowout preventers (BOP) are installed to the top of the surface casing.
During this process, rock chips and core samples, are studied by geologists, engineers, geochemists and paleontologists to gain more insight into what lies beneath the surface. Often times fossils are found while the team discovers more about the subterranean rock formations and their chemistry. If testing reveals the well is “dry” and not able to produce commercial quantities and quality of gas and oil, the hole is sealed with cement and the well is officially closed. If the well is successful, oil and gas production can begin right away.
What Are Midstream and Downstream Production?
After crude oil and natural gas reserves are found and extracted, products enter the second sector: midstream oil and gas production. This is when the oil and gas are transported through pipelines, placed in storage or marketed for the next phase known as the downstream industry.
Downstream oil and gas production is the final step. This is when the products move to natural gas distribution companies, oil refineries, petroleum products distributors, petrochemical plants and finally retail outlets, such as gas stations or energy providers.
What Landowners Need to Know
Upstream oil and gas production are on the rise. According to the United States Department of Energy’s U.S. Energy Information Administration (EIA), upstream exploration and development expenditures have on average risen since 2000. Since 2013, the industry has enjoyed a five percent increase, which equates to $18 billion, based on reports from 42 U.S. and international oil and gas companies.
If you’ve just sold your mineral rights to an oil and gas production company, you’ll see the upstream production process first-hand. Various people will explore the land as they complete surveys and decide where to drill. Once an oil rig is in place, a team may temporarily camp at the site. Since oil drilling is a 24-hour operation, you’ll notice workers on your property around the clock. Temporary access roads will be constructed for the employees to bring in equipment and get to the rig. Water reservoirs may also be dug if a natural water source, like a river or lake, is not accessible.
As the surface rights landowner, work with your landman to make the drilling process as unobtrusive to your daily life as possible. Ask for the access roads to be created on the opposite side of your property, so machinery doesn’t pass by your home or disrupt livestock.
Would you like to learn more about selling your mineral rights to an oil and gas production company? BWAB is ready to answer your questions about land management, mineral rights sales and investment opportunities. Contact us today!