The upstream sector is where the oil and gas industry begins. Often abbreviated E&P (exploration and production), it includes every activity required to locate hydrocarbons underground and bring them to the surface. By the time a barrel reaches a midstream pipeline, the upstream work is already done.
Upstream is where the highest geological risk sits. A company can spend millions drilling an exploration well that produces nothing — there is no guarantee oil is there until the bit reaches the target.
What upstream covers
- Exploration — seismic surveys and geological mapping to locate potential reservoirs.
- Leasing — securing the legal right to drill by signing a mineral lease with the landowner or mineral owner.
- Drilling — boring the wellbore down to the target formation.
- Completion — preparing the well to produce, often including hydraulic fracturing in shale plays.
- Production — bringing oil and gas to surface and performing early wellsite separation.
Who works upstream
Upstream is dominated by operators — the exploration and production companies that own the leases and the wells. But operators rarely do everything themselves. They hire oilfield-services (OFS) companies for the equipment, crews and technology needed to drill, complete and produce wells. The "big three" service companies are SLB (Schlumberger), Halliburton and Baker Hughes, alongside thousands of regional specialists in pressure pumping, cementing, wireline, coiled tubing and fluids.
The E&P company that holds the mineral lease and is responsible for drilling and producing the well. It hires service companies to do specialized field work.
This operator-and-services relationship is the financial backbone of the upstream sector. Service companies record their work on field tickets — on-site records of the equipment, personnel, materials and hours used — which become the invoices billed to the operator.
Why upstream is high-risk, high-reward
Upstream economics hinge on commodity prices and the productivity of each well. Production from a well peaks early and declines over time, so operators must continually drill new wells to maintain output. Because exploration can fail outright, upstream companies live with more uncertainty than midstream or downstream firms — but a successful well can be enormously profitable.
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Frequently asked
E&P stands for exploration and production — the two halves of the upstream sector. Exploration finds the oil and gas; production brings it to the surface.
Yes. Fracturing is part of well completion, which is an upstream activity that prepares a freshly drilled well to produce oil and gas.
Operators own the leases and wells but need specialized equipment and crews to drill, complete and produce them. Oilfield-services companies provide that expertise and bill the operator through field tickets.