Thread by @Jarushub

Understanding the Oil & Gas Industry I (Sunday Knowledge Share)

The oil & gas industry is broadly classified into 2

1. Upstream
2. Downstream

There is a 3rd class called Midstream, which sometimes gets classified as part of downstream in the broadest sense.

Will explain

UPSTREAM
-Refers to activities around finding and extracting raw crude deposits from the earth (onshore - eg Niger Delta) or underneath water (offshore) or from the basin of inland body of water (inland basin eg Anambra Basin, Chad Basin, Benue Trough etc)

Finding is called prospecting. There is a special licence needed for that call Oil Prospecting Licence (OPL). The result is to be able to predict that there is oil in a place. Usually done by Geologists and Geophysicists, they gather data by examining the rock, analyse waves etc

The total volume of oil/gas estimated to be in the ground/water, after the data evaluation, is called reserve. Based on chance of profitably recovering them, it is classified into proven (>90% chance), probable (50%-90%) or possible (10%-50%).

Nigeria currently holds a proven oil reserve of about 37 billion barrels and proven gas reserves of about 200 trillion cubic feet, with up to 600 trillion more in yet to be proven but possible/probable gas reserves.

Unfortunately, prospecting can only predict, you can't be too sure until you explore. Although oil prospecting itself is sometimes seen as part of oil exploration phase. The major difference is drilling is involved in oil exploration, not in prospecting

Exploration involves searching for crude by drilling what is called exploratory well. It's the stage that confirms there is crude deposit in viable quantity in an area. If there is oil, move to the next phase, development, if you find only water or nothing, restore the land

If you don't find oil, oil and gas project accountants will say it's an "unsuccessful effort" (there is a special accounting treatment of the cost you spent on that); Geologists will say you have hit a "dry hole".

You can spend as much as $20m to drill a well and find nothing!

Oil development is the process of putting physical structures in place to be able to take the oil or gas found. It also involves drilling development wells, which are wider than exploratory well. Look at a well like a water well in your village or a well covered borehole.

Production is the process of bringing the oil or gas to the surface and selling it. You also do some lab testing, storing the oil, flowing through pipeline to the terminal for export in the case of oil, or to the refinery if to be refined locally.

You need another licence to produce and carry the oil. It is called Oil Mining Lease (OML). PIB proposes to change that name to Petroleum Licence (PL).

All these licenses have expiry date. OML is typically for 20 yrs which allows you to produce oil/gas in that field for 20 yrs

After the lifespan of the dug wells, which could produce oil for 20 years or more (subject to maintenance and enhancement), there is statutory environment obligation for you to return the soil surface to the way you met it before oil activities.

The earth restoration activity is called abandonment. It is also decommissioning (it has accounting and tax treatments too). When you launch an equipment, it is called commissioning right? See decommissioning as removing the equipment and covering the dug soil after end of use

So all the activities described above are called upstream - the upper part of the oil and gas value chain.

In short, the process in upstream is

Prospecting/Exploration ---> Development ---> Production ---> Abandonment

However, upstream activities are usually just called Exploration & Production (E&P). So when you see E&P in the name of an oil company, it is an upstream, it doesn't mean E&P must be in the name.

Next time, insha Allah, will discuss Downstream and Midstream.

See midstream here

https://twitter.com/Jarushub/status/1376110251284529152

See downstream here

https://twitter.com/Jarushub/status/1376197929363501057

Part Iv: Oil Servicing for Dummies (ok, you ain't a dummy 😊)

https://twitter.com/jarushub/status/1376257681506377732

See explanation of Marginal Fields here

https://twitter.com/jarushub/status/1376448553871147008