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   Issue 5/6, Winter 2005/Spring 2006

Oil & Gas Production

Modern Exploration     Drilling & Extraction     Onshore Development     Offshore Development
Production & Development Costs
Print Resources     Internet Resources
LC Catalog Searches

Modern Exploration

Oil and gas companies conduct exploration projects worldwide in an attempt to search for and extract this extremely valuable global resource. Early oil and gas explorers relied upon surface signs for finding oil and gas deposit sites. This was truly a hit or miss process.1 Today, developments in science and technology have made oil and gas exploration more productive and efficient. Oil and gas exploration encompasses the processes and methods involved in locating and discovering potential sites for oil and gas drilling and extraction. This is the first-stage of oil and gas production. Many uncertainties exist during the exploration process. Geological surveys are conducted using various means from testing subsoil for onshore exploration to using sophisticated technology such as seismic imaging for offshore exploration.

Exploration cost can vary dramatically. The cost for unsuccessful exploration, which consist of seismic studies and a dry well, can cost $5 million to $20 million per exploration site, and in some cases, much more.2 However, when an exploration site is successful and oil and gas extraction is productive, exploration costs are recovered and are significantly less in comparison to other production costs.

Drilling & Extraction

Once a company identifies where oil or gas is located, plans begin to drill an exploratory drill well. Drilling is the final stage in the exploration process. Drilling allows further evaluation of the subsurface and reveals if oil and gas exist at a particular drilling site. Drilling an exploratory well can average 2 to 6 months. Drilling depths, rock hardness, weather conditions and distance of the site can all affect the duration for drilling.

BERA - Business & Economics Research Advisor - A Quarterly Guide to Business & Economics Topics

Issue 5/6: Winter 2005/Spring 2006
Updated July 2013

The Oil & Gas Industry

Table of Contents

Introduction
History
Cartels & Organizations
Production
Refining
Transportation & Storage
Marketing & Distribution
Natural Gas Industry Trends
Alternative Energy Sources
Company Research
Statistical Sources
News & Analysis
Electronic Resources & Catalog Searches

Drilling Rig Near Sable Island
Image (above): Photograph of
drilling rig near Sable Island.
Courtesy of the Maritimes Region of the Department of Fisheries and Oceans, Canada.

There are various types of drilling methods and drilling rigs (platforms) that depend on whether the drilling is for onshore exploration or offshore. Onshore exploration relies on fixed or mobile drillings rigs. Offshore exploration can require a number of different types of drilling rigs, which include fixed offshore Jackup drill rigs, Deep Water Drill Ships, and Semi-Submersible drill rigs.

Onshore Development

In onshore development (land-based) oil and gas production facilities, the wells are grouped together in clusters forming a gathering system. This gathering system consist of a network of connecting carbon steel tubes which sends the oil and gas to a production and processing facility. The production and processing facility or processing plant, is where the oil and gas is treated through chemical and heating processes. The oil and gas is then separated from water and sediments and placed in storage after which the resources can be pumped through pipelines to loading terminals where the resources are ready to be transported by oil tankers or transport vehicles. The water removed from the oil and gas is also treated and eventually pumped back into the reservoir.

Offshore Development

In offshore development drilling wells can be conducted from platform or underwater. Offshore development utilizes both surface and subsurface production facilities. The production and extraction process can consist of fixed platforms or floating vessels.3 Offshore rigs contain processing equipment and facilities onboard and the resources extracted are transported by pipeline or stored so it can be loaded on tankers. Additional processing requirements are completed once the resource arrives at onshore production facilities.

In gas production and development, production and condensation plants are required in which a liquefication plant provides treatment, refrigeration and liquefication followed by the storage and loading of liquefied gas. The gas is transferred to liquefied natural gas tankers (LNG's) which transports the gas to a treatment plant where the gas undergoes re-gasification from storage tanks at the plant.

Production & Development Costs

The development costs include the cost of drilling, the costs of the production facilities and any systems required for transporting the resources. Capital cost for developing an oil and gas production facility can amount to several billion dollars.4 Offshore production platforms must be constructed to withstand extreme weather conditions such as violent storms and high tides, as well as hurricanes and typhoons. Below is a production costs summary.5

Summary of Costs

Direct Costs

   Process equipment
   Utilities
   Ancillary equipment
   Infrastructure
Indirect Costs

   Technical facilities
   Construction-related costs
   Transport of equipment
 
EPC Costs

   Basic engineering
   Surveys
   Project management
Operating Costs

   personnel
   Consumables
   Service and maintenance


Direct Costs

Direct costs are those associated with main equipment such as columns, separators, rotator drives, etc. that are essential for processing plants, as well as utilities. Also included is the cost of bulk equipment, consisting of pipes, valves and fittings, electric cables, cladding, instrumentation, etc. Other direct costs consist of the construction costs for onshore and offshore platforms, as well as on-site construction costs.

Indirect Costs

Indirect costs include the cost of transporting equipment, materials, as well as various structures and stationary and mobile offshore equipment. General expenses, referred to as EMS (Engineering, Management and Supervision) cover:6

  • Basic and detailed engineering, audits, and certification
  • Commissioning of structures
  • Management of teams and projects
  • Insurance of structures during construction and installation, and costs such as custom duties
EPC Costs

EPC Costs or engineering, procurement and construction costs consist of contracting and construction costs of production facilities. EPC costs often vary and can be broken down into basic engineering, surveys, management, project management and insurance costs.

Operating Costs

Operating costs are the total expenditures involved in operating a production facility. The distinction between capital and operating costs in oil & gas production is not always clearly defined. According to some studies, the share of the total operating cost is made up of four major items, general support (approximately 20% of total costs) well-surface operations (roughly 15%), with maintenance and logistics (each approximately 15%).7

The operating costs can be classified according to their function, (personnel, services and supplies) or according to purpose (i.e., production, maintenance, security, and others). A further breakdown of these cost are listed in the following classification of operating costs summary:8

  • Personnel costs, accommodation, subsistence, transport
  • Consumables (fuels, energy lubricants, chemicals, office supplies, technical equipment, such as piping, drill strings, joints, catalysts, cladding, molecular sieves, laboratory supplies, individual items of security equipment, spare parts, household supplies and food)
  • Telecommunications costs, miscellaneous hire charges, service and maintenance

The production and development of oil and gas encompasses an extremely sophisticated as well capital and labor-intensive process. The exploration and extraction of oil and gas is only the very beginning stages of producing the world's most important energy resource.

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Selected Print Resources

Clô, Alberto. Oil Economics and Policy. Boston: Kluwer Academic, 2000. 258 p.
LC Call Number: HD9560.5 .C56813 2000
LC Catalog Record: 00055994

This publication covers a number of topics and issues in the oil industry which include, petroleum economics, key players and the structure of the oil industry, policies and practices of industry oligopolies, as well as energy crisis and oil market politics and economics.

"Global Exploration - Beyond Nintendo," by Andy Wood. First Break. News Section. Volume 19, Issue 7, July 2001. pp. 373-377.
LC Call Number: TN269 .F49
LC Catalog Record: sn 83012260
Also available onsite in the subscription database Academic Search Premier (EBSCO).

Andy Wood, head of global exploration of Shell International, provides an overview of how a major global oil company plans to attract a continuing stream of geoscientist and other energy industry professionals.

Goel, Sharad. Global Crude Oil Business. New Delhi : Pentagon Energy Press, an imprint of Pentagon Press, 2011.
LC Call Number: HD9560.5 .G584 2011
LC Catalog Record: 2011321166

This titles covers all aspects of the crude oil business. The Overview includes an introduction to the oil trade as well as the conversion process the economics of supply/demand, and the world oil market. Section two covers the Role of Shipping and Freight in Oil Trading. Section three covers the areas of Trading with particular attention to Asian markets, futures and OTC trading; oil futures and contracts, and a look specifically at Platts assessment methodologies. Section four is covers Risk Management in the industry, section five covers upstream oil contracts, and section six covers negotiations.

Haag, Jim. The Acquisition& Divestiture of Petroleum Property: A Guide to the Strategies, Processes and Tactics Used by Successful Companies. Tulsa, OK: PennWell Corp., c2005. 193 p.
LC Call Number: : HD9565 .H29 2005
LC Catalog Record: 2005298644

In this text, the author examines both sides of petroleum property transactions, drawing on his more than 25 years experience in the discipline. Addressing the acquisition and divestiture of individual producing or discovered non-producing assets, Haag, in step-by-step fashion, covers the entire process so readers will understand each step in the process, know where that step fits in the overall transaction, and anticipate what will happen next.

Hannesson, Rognvaldur. Petroleum Economics: Issues and Strategies of Oil and Natural Gas Production. Westport, CT: Quorum, 1998. 163 p.
LC Call Number: HD9560.5 .H26 1998
LC Catalog Record: 98006837

This book provides a comprehensive introduction to the economics of oil and natural gas extraction and production along with a detailed discussion of pricing, taxing, and markets of these most valuable commodities.

Inkpen, Andrew and Michael H. Moffett. The Global Oil & Gas Industry : Management, Strategy & Finance. Tulsa, Okla. : PennWell, c2011.
LC Call Number: HD62.4 .I515 2011
LC Catalog Record: 2011006878
Table of Contents

"News feature: The 2002 business environment for oil and gas E & P: How the 2002 business environment for oil and gas exploration and production has developed around the world." First Break, Issued by the European Association of Geoscientists and Engineers. Volume 20, Issue 12, February 2002, pp. 80-87.
LC Call Number: TN269 .F49
LC Catalog Record: sn 83012260
Abstract External Link

This article is an adapted version of a report by the Economics Division of the Institut Français du Petole of its study of the global business environment over a two year period in the oil and gas industry. The article focuses on recent developments in the oil and gas industry and the prospects for year 2002.

Kronman, George E., editor. International Oil and Gas Ventures: A Business Perspective. Tulsa, OK: American Association of Petroleum Geologists, 2000. 446 p.
LC Call Number: HD9560 .I557 2000
LC Catalog Record: 00057622

Contributors from various aspects of the international oil exploration and production (E & P) business examine business and management aspects of oil ventures. Themes include key components of E & P in the global marketplace, international E & P strategic issues, partnerships and alliances, and international operations. Specific topics include the World Bank's intervention on petroleum exploration in developing countries, business practice and ethics in a multicultural environment, private capital participation in Venezuela's oil sector, and security issues for the international oil and gas industry. Synopsis by Book News, Inc.

Oil and Gas Exploration and Production. Institut Français Du Pétrole Publications, Center for Economics and Management. Paris: Edition Technips, 2004. 305 p.
LC Call Number: HD9560.5 .R34313 2004
LC Catalog Record: 2004459848

This book provides a complete overview to the stakes and challenges involved in oil and gas exploration and production. Following a historical review and a survey of the markets, the technical phases are covered, as are the evaluation of reserves, the estimation of investments and costs, the decision-making and control processes, and the accounting, legal and contractual environment for these activities. The book concludes with a discussion of the role of safety, and of environmental and ethical issues. Description by Books In Print.

Yeomans, Matthew. Oil: Anatomy of an Industry. New York: New Press, c2004. 246 p.
LC Call Number: HD9560.5 .Y46 2004
LC Catalog Record: 2004040151

In this book the author examines the American consumer's love affair with gasoline and explores the role of oil in America, from driving the U.S. economic engine to consolidating the U.S. position as the unilateral superpower. Along the way, Yeomans offers a brief history of gasoline: where oil comes from, how the global crude oil market works, and how the price of oil is regulated and set. Illustrated with maps and graphics, Oil spotlights the companies involved in global oil production, considering their relationships with oil-rich countries and the power they wield in the global marketplace.

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Selected Internet Resources

Bureau of Ocean Energy Management (BOEM)
http://www.boem.gov/

The Minerals Management Service became Bureau of Ocean Energy Management, Regulation and Enforcement which broke into Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) on October 1, 2011. BOEM is predominantly concerned with OFFSHORE drilling/leases. It produces the Five Year Outer Continental Shelf (OCS) Oil and Natural Gas Leasing Program, handles the actual Oil and Gas Lease Sales, along with Marine Minerals negotiated agreements, responsible for offshore Renewable Energy Programs, conducts environmental reviews. Their data product has offshore Production data and the Combined Leasing Status Report

Deepwater Reading Room
http://www.boem.gov/BOEM-Newsroom/Library/Deepwater-Reading-Room.aspx

This Electronic Reading Room was created by the Bureau of Ocean Energy Management and it includes documents related to the BP/Deepwater Horizon explosion and resulting oil spill that have been cleared for public release. It was created to help with the large number of Freedom of Information Act requests that were received for these items during the immediate aftermath of the spill.

European Association of Geoscientists and Engineers (EAGS).
http://www.eage.org/ External Link

EAGE, a European-based professional association for geoscientists and engineers, focuses on geophysics, petroleum exploration, geology, mining, and reservoir and civil engineering.

First Break, online edition. Full access requires subscription.
http://fb.eage.org/ External Link

The professional journal of the EAGE, this title, available online and in print format, provides news, analysis, and technical information on the oil and gas E & P industry as well as coverage of related areas, such as environmental geoscience and mining.

How is Petroleum Found? Society of Petroleum Engineers (SPE).
http://www.energy4me.org/energy-facts/energy-sources/petroleum/2/ External Link

This article discusses how science and technology has developed to improve the oil and gas industries ability to locate and see the subsurface for exploration. Also discussed, is oil and gas drilling, as well as the methods and technology used in drilling.  Energy4me.org External Link is a site from SPE designed to help students and adults become more educated energy consumers.

The History of the Oil Industry - Chronology of Oil Events. San Joaquin Geological Society.
http://www.sjvgeology.org/history/index.html External Link

The web page presents a chronology of important oil events dating from 347 B.C. to present-day oil production, and provides both a timeline of oil usage and significant oil industry dates, as well as historical summaries.

Oil Industry - Reader's Companion to American History. Houghton Mifflin.
http://college.hmco.com/history/readerscomp/rcah/html/ah_066100_oilindustry.htm External Link

A historical summary of the oil industry that covers the early uses and discoveries of oil, and discusses the development of the modern-day oil industry.

Petroleum History. Society of Petroleum Engineers.
Archived version of the web page. External Link

A reference source on petroleum history produced by the Society of Petroleum Engineers. In addition to a brief historical summary, the web page also includes links to other web resources such as Oil and Gas Basics, Glossary of Industry Terms, Industry Statistics, Energy Education and other useful resources. Some links may not be available in this archived web page.

Petroleum History Institute.
http://www.petroleumhistory.org/ External Link

This group is a successor to the Drake Well Foundation. The site includes the Tables of Contents for the publications of the Institute, which focus on the history of oil and various oil industry segments.

Energy Technology Society of Petroleum Engineers.
http://www.energy4me.org/energy-facts/energy-technology/ External Link

This Internet article explains the role of utilizing advanced and developing technologies in discovering and producing oil and gas resources. The article discusses seismic imaging technologies, drilling technology, advanced offshore production facilities, as well as the oil and gas industries efforts in applying technological innovations to increase production efficiency, develop new treatment methods, and enhance environmental protection.

Society of Petroleum Engineers
http://www.spe.org/ External Link

The Society of Petroleum Engineers is a worldwide membership organization of engineers, scientists, managers and operating personnel in the upstream petroleum industry. The web site offers links to industry news, statistics, and reference sources, as well as a link to its separate website, Energy4Me.org,External Link which provides basic industry information to students and the general public.

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Library of Congress Catalog Searches

Additional works on production in the oil and gas industries in the Library of Congress may be identified by searching the Online Catalog under appropriate Library of Congress subject headings. Choose the topics you wish to search from the following list of Library of Congress subject headings to link directly to the Catalog and automatically execute a search for the subject selected. Please be aware that during periods of heavy use you may encounter delays in accessing the catalog. Please see the individual sections of this guide for catalog searches relating to those topics. For assistance in locating the many other subject headings which relate to this subject, please consult a reference librarian.


 1. How is Petroleum Found? Society of Petroleum Engineers.
http://www.energy4me.org/energy-facts/energy-sources/petroleum/2/ External Link

 2. Oil and Gas Exploration and Production: Reserves, Costs, Contracts. Paris: Centre for Economic Management, Institut Français du Pétrole, c2004, p. 146.

 3. Ibid., p. 66.

 4. Ibid., p. 134.

 5. Ibid., p. 137.

 6. Ibid., p. 140.

 7. Ibid., p. 152.

 8. Ibid., p. 152.

Last Updated: 07/23/2013

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