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.
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.
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.
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.
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
Transport of equipment
Service and maintenance
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 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 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 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
- 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
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
"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
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
"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
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
European Association of Geoscientists and Engineers (EAGS).
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.
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).
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 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.
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.
History of the Petroleum Industry in North America. Wikipedia.
Another comprehensive and very useful resource covering the history
of the petroleum industry in North America. The web page includes key facts
and definitions, links to articles, discussion, references, current events,
and other related topics.
Oil Industry - Reader's Companion to American History. Houghton Mifflin.
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 http://www.spe.org/spe/jsp/basic/0,,1104_1716,00.html
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.
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
Energy Technology Society of Petroleum Engineers.
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
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, which provides basic industry information to students and the general public.
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.
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.