There is no doubt that the oil and gas industry has no signs of slowing down. It is one of the leading sectors globally with an estimated yearly income of 3.3 trillion USD.
In the world, the most notable countries that produce a great amount of oil are the following:
- United States of America
- Canada
- China
- Saudi Arabia
- Russia
On a side note, we must not forget that most countries in the Middle East and Africa also produce a decent amount of oil. This is the reason that investors are putting their resources into this industry. It is like a win-win situation as the return of investment (ROI) might be easy to get back.
However, entering this industry is not for the faint-hearted. The complexity of the metrics and jargon seem very high. So you have to be very familiar with it to have a higher success rate.
If you are planning to enter this industry then continue reading. In this article, we will tackle the fundamentals of the oil and gas sector to give you a brief overview of what to expect. This will equip you with the knowledge needed to enter the industry.
Main Points
The oil and gas industry can be classified into three categories. They are the upstream, midstream, and downstream. Each of them has its own respective functions.
- Upstream: It is also known as an exploration and production enterprise. They are responsible for searching reservoirs and most especially for oil and gas well drilling.
- Midstream: These companies’ job is to transport equipment and workers from one well or refinery to another.
- Downstream companies: While the other two are all related to production, downstream companies are the ones that refine and sell the products.
E&P companies are the ones that are responsible for oil and gas extraction. On the back-end,, well-servicing companies do the construction and maintenance work on the sites.
Untapped resources are usually the main ingredient for success in this industry. Also, E&P companies are commonly appraised by their oil and gas reserves. The more resources, the higher the value.
All About Production Numbers
Oil Production Measurement
Barrels are the primary medium to measure oil production for E&P companies. Its abbreviation is labeled as bbl which is equivalent to 42 gallons (US). It is either bbl per day or quarter are the ones used by companies for measuring their production.
Prefixes are used for a more organized way of measuring production. Companies usually use M for 1000 and MM for 1 million. If you will analyze it the final abbreviation for barrels are MMbbl and Mbl.
So if a company says that they have produced 5,000 barrels of oil daily, they are making 5 Mbbl per day. It only entails that BOE which means Barrels of Oil Equivalent is the standard unit of measurement used.
Gas Production Measurement
When it comes to natural gas production, cubic feet is the unit of measurement that companies are using. It has some resemblance with how oil production is measured and cubic feet is the unit of measurement that they are using.
For 1 million cubic feet of gas, Mmcf is the unit used and Bcf for 1 billion then Tcf for 1 trillion respectively. However, futures contract uses 1 million British thermal units which can be abbreviated as MMBtu. It is approximately equal to 970 cubic feet of gas.
Computing BOE
To compute BOE, there is a need for gas into oil equivalent production conversion. 6,040 cubic feet of gas equals one BOE and oil quantity can be transformed into its gas counterpart, in the same way, using the abbreviation of Mcfe.
The computation of possible revenue is based on the oil and natural gas reserves they have. This is a necessary course of action as oil and gas companies have this requirement to disclose their assets.