Upstream Essay

The term upstream has historically been used in the natural resource industry, and specifically in the oil and gas industry, to refer to activities that relate to the finding, associated development activity, and production of crude oil and natural gas or related petroleum products to the point where they are either landed, if produced from deep water, or enter a pipeline system if on land, or are transported into a processing plant as a feedstock for follow-on processes.

The origins of the term are in the sense of the location of the deposition of minerals in a streambed, for example, gold-panning activities (even older than petroleum exploration and production) where heavy minerals were deposited downstream from the water’s source but originated “upstream.” It is, however, also used today to refer to activities that are focused toward the code writers by generators of bugs and system fixes; in bioprocesses where it refers to the origination of new biological materials, and is even used to refer to data transfer speeds between clients and host servers analogously to uploading.

Crude or unrefined oil had been used for lamps and lubrication and sourced from ground seeps for many centuries. However, nowadays it is produced through pressurized wells, which force the oil out of the rocks in which it lies, after which it is pumped to the surface and separated. Oil wells are deep and costly, and the search continues for new sources and better recovery rates.

It was not until the latter part of the 19th century that the oil fields of Baku (now in modern-day Azerbaijan) attracted the interest of various European investors, followed by interest in Peru, Persia (modern-day Iran and the home of the precursor of today’s BP plc), and Trinidad. Shell became involved in the oil business through the founding Samuels family’s ability to supply maritime transportation to the Baku fields and thorough production in the Dutch East Indies (Sumatra)—modern-day Indonesia. In the United States, the discovery of oil in Pennsylvania in the mid-19th century spurred a commercially based oil boom, with further discoveries made in other areas, such as Oklahoma and Texas.

Typically, oil and gas are owned by the nation or state where the reserves are located, or through personal title-based mineral rights that may be bought and sold. The latter may be separable from land ownership. Oil and gas is discovered through a process of exploration and then produced or “won.” Historically, the right to produce was granted or sold by the oil and gas owners (either state or individual) through concessions, although more recently and for larger developments, this partnership has taken the form of production-sharing or risk-sharing contracts.

Organizing The Industry

Prior to the 1970s, several large producing states believed that they were not being adequately compensated for their national resources that the governments perceived as exploited and removed by large nonnational companies to benefit economies. This led to the formation of the Organization of Petroleum Exporting Countries (OPEC) cartel, which has been successful in voicing the concerns and needs of member producing states, and also in setting the production rates of their members to attempt to impact the market price of crude oil. OPEC was instrumental in changing the legal basis for cooperation with externally based nonnational companies to one of coproduction and codevelopment of knowledge and expertise, using production-sharing contracts. Today’s typical new development would include several partners who use contractual cooperative mechanisms to ensure that the development and production is managed appropriately for all parties and stakeholders, and whose cooperation is related to specialist knowledge and risk sharing as well as resource capture.

The upstream oil and gas businesses have been key drivers of innovation through the use of new technologies, such as four-dimensional (4D) seismic to assess oil in the reservoir and its ease of production. However, the industry has also been a key driver in the movement toward greater accountability and corporate social responsibility. Oil and gas exploration and production has always been a high-risk business: fire hazards and spills are not new events, but our increasing consciousness of environmental matters and greater accountability to local stakeholders have contributed to a higher awareness of the need to balance the quest for oil with the needs of the local environment and its stakeholders. As oil and gas fields reach the end of their producing lives, more attention is now paid to disposal and restitution, and a once-secretive industry is gradually becoming more openly accountable.

Bibliography:

  1. James H. Bamberg, British Petroleum and Global Oil, 1950–1975: The Challenge of Nationalism (Cambridge University Press, 2000);
  2. James H. Bamberg, The History of the British Petroleum Company: The AngloIranian Years, 1928–1954 (Cambridge University Press, 2000);
  3. Arthur Beeby-Thompson, Oil Pioneer: Selected Experiences and Incidents Associated With 60 Years of World-Wide Petroleum Exploration and Oilfield Development (Sidgwick & Jackson, 1961);
  4. Daniel Johnston, International Petroleum Fiscal Systems and Production Sharing Contracts (PennWell, 1994);
  5. Andrew Kakabadse and Mette Morsing, Corporate Social Responsibility: A 21st Century Perspective (Palgrave Macmillan, 2006);
  6. Michael J. Watts, “Righteous Oil? Human Rights, the Oil Complex and Corporate Social Responsibility,” Annual Review of Environment and Resources (v.30, 2005).

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