Energy + Utilities

Industries Overview

Collated by:-
Aashi Aggarwal
Ankit Ahuja
Pranjal Salve
Karan Sadh
Oil & Gas Equipment & Services
The oil & gas equipment and services industry, often called the oilfield services and equipment (OFSE) industry, plays a crucial role in supporting the
exploration, production, and transportation of oil and natural gas resources. The OFSE industry primarily provides equipment and services to oil and gas
exploration and production (E&P) companies, also known as the upstream oil & gas industry. Companies in the OFSE industry do not typically engage directly
in the extraction of oil or gas but provide essential equipment and support services to those who do.

OFSE companies can be distinguished based on the specialized service offerings that they are involved in, including:

1. Geophysical Services
2. Contract Drilling
3. Completion & Production
4. Diversified
5. Engineering & Construction
6. Compression Equipment and Services
7. Other Equipment Manufacturers & Services

OFSE revenues are heavily dependent on E&P capital spending, which in turn is heavily influenced by commodity prices. When commodity prices are high and
E&P companies are profitable, they tend to invest more in exploration, drilling new wells, and improving existing operations. This leads to increased demand for
equipment and services from OFSE companies that provide them. Therefore, fluctuations in the upstream segment’s spending and activity directly impact the
demand for products and services in the OFSE industry. This makes the OFSE industry cyclical, similar to the upstream oil & gas industry.
 Welcome to the Upstream Oil & Gas Industry: A Guide for New Joiners

Introduction to the Industry

Types of Hydrocarbons
The upstream oil and gas industry, also known as Exploration & Production
(E&P), is the first part of the energy value chain. It involves exploring for
hydrocarbons (like oil and gas), drilling wells, and producing these
resources. The hydrocarbons extracted include crude oil, natural gas, and ● Crude Oil: Classified by density (light or heavy) and
natural gas liquids (NGLs). sulfur content (sweet or sour).
● Natural Gas: Can be "dry" (mostly methane) or "wet"
The Upstream Business Model (contains other gases like propane and butane).
● Natural Gas Liquids (NGLs): A semi-liquid form of
E&P companies generate revenue by selling the hydrocarbons they extract. hydrocarbons.
Key factors that influence revenue include:
Key Industry Players
● Production Volume: How much oil and gas is extracted per day.
● Some notable companies in the E&P sector include ExxonMobil,
● Product Mix: The balance between crude oil, natural gas, and
NGLs. Chevron, and Royal Dutch Shell. They operate across different
● Average Realized Prices: Prices companies earn, impacted by regions and specialize in various stages of the oil and gas value
market rates and hedging strategies. chain.

Life Cycle of an Oil & Gas Field

1. Exploration: This phase includes searching for hydrocarbons

through geological surveys. Once deposits are found, companies
assess if it's profitable to extract them.
2. Development: If a field is viable, companies build infrastructure
like wells and pipelines to begin production.
3. Production: Hydrocarbons are extracted and refined over time.
Production usually peaks early and then gradually declines.
Downstream Operations Overview
Commonly used terms
Downstream operations focus on the refining and marketing of crude oil, crucial for
adding value to raw petroleum.

Key Functions of Refining:

1. Distillation: The initial step where crude oil is separated based on volatility.
2. Conversion: Heavy molecules are broken down into lighter, more valuable hydrocarbons.
3. Blending: Optimal combinations of refined products are mixed to create final outputs.

Petroleum Products

The refined products include gasoline, jet fuel, kerosene, diesel, and more, used for:
● Residential and commercial heating
● Vehicle fuel
● Electricity generation
● Petrochemical products

Marketing of Refined Products

Marketing encompasses the wholesale and retail distribution of refined petroleum products to
various sectors, including businesses, industries, governments, and consumers.

Industry Characteristics

● The refining sector is a global and cyclical commodity business, with profitability
sensitive to supply and demand fluctuations.
● Marketing tends to be regional and generates more stable cash flows, although it
can experience short-term volatility during significant oil price changes.
Midstream Oil and Gas Industry
Midstream is the second phase of energy value chain and it involves the
processing, storage, and transporting of oil, natural gas, and natural gas
liquids to refineries/end users.

The midstream sector serves three main functions –gathering and processing,
transportation, and storage and logistics.

● Gathering & Processing - Processing includes

dehydration(removing water from Natural gas),treating(removing
impurities) and the extraction of NGLs from any gas stream.

● Transportation - Crude oil, gas, and natural gas liquids are

transported from the production fields to an offsite temporary storage
facility and transported to a large storage hub for refining. Once they
are refined, the end products – such as gasoline, LPG, diesel, and jet
fuel – are transported again to end-users such as homes, factories,
and gas stations. Transportation is done majorly through 4 modes
namely Pipelines,Rail,Truck and marine.

● Storage and logistics - Storage plays an important role in

maintaining a balance in the supply and demand of oil in the
international market. The storage tanks hold large volumes of oil and
gas,
 Key Industry Metrics
Maintenance Capital Expenditures (Capex): Maintenance
capex is the investment required to maintain the
partnership’s existing assets.

Distributable Cash Flow: DCF is the cash flow available to

be paid to common unitholders after payments to the general
partner.

Distribution: In a typical partnership agreement, the MLP is

required to distribute all of its “available cash.” MLPs typically
distribute all available cash flow to unitholders as
distributions.

Distribution Coverage Ratio:The coverage ratio indicates

the cash available for distribution for every dollar to be
distributed. The ratio is calculated by dividing available cash
flow by distributions paid. Investors typically associate the
coverage ratio as the “cushion” a partnership has in paying its
cash distribution. In this context, the higher the ratio, the
greater the safety of the distribution.
 Renewable Energy Equipment
Companies that manufacture products/equipments that help Key Drivers
in generating electricity tied up to renewable sources of power
generation are included in this industry. ● Government Initiatives - Many governments are implementing
policies and incentives to promote renewable energy adoption,
Classification by type such as tax credits, grants, and subsidies.
● Technological Advancements - Innovations in renewable energy
technologies, including improved efficiency of solar panels and
● Solar equipments - Companies manufactured wind turbines, are enhancing performance and reducing costs,
equipments related to solar power generation like making renewable energy more competitive.
solar wafer, solar panels, solar cell, solar ● Increasing Energy Demand
trackers, solar modules are included in this. The global rise in energy demand, coupled with environmental
concerns, is driving the shift toward renewable energy.

Restraints
● Alternate fuels equipments - Companies involved
in manufacturing of equipments for Biofuels, ● High Initial Costs - The initial investment required for renewable
Renewable Natural Gas (RNG), Hydrogen Fuel energy equipment can be a significant barrier for both businesses
Cells, etc. and consumers.
● Intermittency Issues - The variable nature of renewable energy
sources, like solar and wind, can lead to reliability issues.
● Regulatory Challenges - Complex regulatory frameworks and
varying policies across regions can hinder market growth, creating
uncertainty for investors and manufacturers.
 Utilities - Sub Industry

Companies in Utilities deal in 3 products

1. Electricity 2. Gas 3. Water
 Power Generation Transmission & Distribution

Electricity generation involves production of electricity in power plants or farms using a set of primary
sources of energy or fuel . The electricity produced in the generation process is then used by the end user
for lighting, heating, cooling, refrigeration and for operating various appliances.
Two main primary sources of energy used to generate electricity are: Renewable and Non renewable
energy.

Renewable energy
includes - Non renewable energy
Wind, includes -
Solar Coal
Hydro Nuclear
Geothermal Natural gas
Biomass Oil
 Revenue driver - Power Generation
Capacity
Capacity is the maximum output an electricity power plant
can produce when it’s running in full blast. This maximum
amount of power is typically measured in megawatts
(MW) or kilowatts (KW). The lifeline of a power plant
depends on the source of the energy used for running the
plant.

Capacity factor
Capacity factor (in percentage) tells about how efficiently
a power plant is generating electricity.
A power plant’s capacity factor is the ratio of actual output
to the maximum possible output during the time period. A
plant with a capacity factor of 100% means it’s producing
power all the time.

Volume
Total volume sold (in MWh or GWh) by a company is the
product of total capacity (MW or KW) and the capacity
factor (%) of all power plants owned or operated by the
company.
 Unit Display

Unit conversions

MP, Unit & Magnitude used for metrics

Abs
 SLI TAGS USED

BO - Business segment - Electricity generation

BO - Generic-Inputs - Renewable & Non-Renewable
Renewable - Hydro, Wind, Solar,etc
Non - Renewable - CCGT, OCGT, Nuclear, Fossil,etc.
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 T&D
Transmission
Power transmission is the large scale movement of electricity at high voltage levels from a power
plant to a substation. The interconnected lines which facilitate this movement are known as
transmission network

Distribution
Power distribution is the conversion of high voltage electricity at substations to lower voltages that
can be distributed and used by private, public, and industrial customers.
Distribution of water and gas is supply to end customer using pipelines and other infrastructure

Revenue Driver
Volume Average
(GWh, selling price Revenue
Bcf/Mmbtu/Therms, (Per MWh,
Gallons/Liter/Cubic Mmbtu/Therms,
meter) Gallons)
 Rate Base

Rate Base is the value of

property/assets of a utility minus
accumulated depreciation of those
assets. The assets a utility may
include in the rate base depends on
the applicable utility regulator’s
definition of rate base.
SLI Names & MP’s