The Upstream industry has proven with the shale boom that innovation is a gamble worth taking. As the industry settles into unprecedented drilling and production going forward, one initiative that can push E&P companies even further is data management.
John Weathington from TechRepublic published an article this week called, “The best big data strategy is the strategy that keeps adapting.” One of his main points was data is only a sample:
“All samples have an error, but the most insidious sampling errors introduce themselves while you’re in operation.”
Control Charts and Data Management
One strategy Weathington offers for effectively managing data as it is being collected is the Six Sigma strategy of Control Charts. “What makes it a Control Chart, is that it also monitors the stability or consistency of your average and variance over time.”
To give an oil and gas example for this, say an Upstream company wants to know the number of days it takes to drill to the target depth in a well. A Control Chart would track progress towards this goal.
When you set up the Control Chart, you would create “different rules that determine whether your information is following a stable pattern.” Any dips above and below the mean, such as a delay in drilling or less progress than expected in a given number of days would indicate to the project owner that action should be taken.
Upstream and the Value of Iteration
Data management is important for every organization. For Upstream in particular, using data to iterate and apply learnings to the next well can mean better production with less drilling.
Control Charts have the purpose of ensuring sustainable success over time. Based on this data, it is then possible to evaluate how a given drill bit or rock formation plays into time to target depth. When the company acquires a new property, it is possible to use these previous lessons learned to apply the best techniques to that well.
It may seem overwhelming to decide what factors to control for a given project. For E&P, applying data management principles to controlling drilling times is an obvious one because it ties back so clearly to profitability.
Upstream Production Elements
Using the metaphor of a river, upstream production refers to all the activities needed to gather the materials required to create a product. The upstream stage of the production process involves searching for and extracting raw materials. The upstream part of the production process does not do anything with the material itself, such as processing the material. This part of the process simply finds and extracts the raw material.
Therefore, any industry that relies on the extraction of raw materials commonly has an upstream stage in its production process. In a more general sense, “upstream” can also refer to any part of the production process relating to the extraction stages.
Upstream Production Process Examples
To illustrate the upstream process, let’s use the petroleum industry as an example. In this industry, locating underground or underwater oil reserves characterizes the upstream process. Additionally, the upstream process in petroleum involves bringing oil and gas to the surface. Extraction wells represent an example of a structure operating at this stage in the process.
The upstream stage in the production process may also manifest itself as a supplier providing raw materials to manufacturers or other businesses that ultimately process the materials.
Downstream Production Elements
In contrast, the downstream production process involves processing the materials collected during the upstream stage into a finished product. The downstream stage further includes the actual sale of that product to other businesses, governments, or private individuals. The type of end user will vary depending on the finished product. Regardless of the industry involved, the downstream process directly contacts customers through the finished product.
The downstream process often includes elements such as distribution, wholesaling, and retailing, all of which are involved in ensuring timely delivery to clients. Customer service is also part of the downstream process because it is the final bridge between the product and the end user. Inefficient customer service can negatively impact the sale of the final product.
Downstream Production Process Examples
Staying with the petroleum industry example, the downstream process could consist of converting crude oil into other products and then selling those products to customers. Thus, oil refineries represent structures that operate within the downstream process. However, any kind of plant that processes raw materials may qualify as operating within the downstream stage of production.
Integration of Upstream and Downstream Processes
In some instances, a company may find it more efficient and cost-effective to combine the downstream and upstream processes by controlling all aspects of production. This is known as vertical integration because one management team at one location supervises the upstream and downstream elements of production.
For example, in the petroleum industry, one company could own a refinery to mine for raw materials and a processing facility to refine the materials and turn them into petroleum. That company would also own the vehicles necessary to deliver the petroleum to various clients that depend on timely delivery of petroleum for their businesses.