PESA 2011 FSO Training Stephens

Structure of the Petroleum Industry

A Special Presentation for:

PESA FSO Training

July 2011

Presentation Outline

Industry at a glance

Upstream versus downstream

Hierarchy and structure

Whos who on a rig

Who brings what to a rig

Industry at a Glance By far, the largest industry

in the U.S. oil and gas is the second largest contributor to the federal tax base behind income taxes

Directly employs 2.2 million people

Provides more than 5 percent of the countrys income

PESAs 190 member companies account for $200 billion in market cap and 400,000 employees worldwide

Upstream Includes everything from

signing a lease to placing produced liquids and gas into a pipeline, such as:

Geology & Seismic

Drilling & Completions

Workovers & Wireline

Enhanced Recovery

PESA member companies and their customers are primarily upstream companies

Midstream Includes the

processing and transportation of produced liquids and gas from the wellsite to a downstream facility such as a refinery

Downstream Includes the refining of crude oil, distribution of

processed natural gas, and sales of related products such as sulfur, asphalt, and plastics

Industry Structure Lease Holder A typical wellsite is the coordination of dozens of people,

companies, and technologies.

The Lease Holder is the final decision-maker for all facets of the wellsite, such as which drill bits to use, how much cement, and which technologies and services are economically viable for the project. The Lease Holder often subcontracts most wellsite work to other companies.

Though they are household names, Lease Holders comprise a relatively small portion of the overall industry.

Drilling Contractor The Drilling Contractor carries out the Lease Holders plans.

These companies typically own the drilling rig and employ the rigs base crew of drillers, roustabouts, and rig repairmen.

Drilling Contractors, working via the Lease Holder, coordinate onsite subcontracting work such as wireline, cementing, perforating, et cetera.

Service & Supply Companies Service and Supply Companies provide the technology,

expertise, and equipment as determined by the Lease Holder and Drilling Contractor.

Nearly all of the technological and safety innovations of the past 30 years have come from Service and Supply Companies.

Whos Who on a Rig A floating offshore drilling rig is a massive

piece of machinery, employing on average 120 people. They work in two shifts.

Typically, only a handful about 10 are directly employed by the Lease Holder.

More than half of the crew are employed by the Drilling Contractor, which operates and maintains the vessel.

The remaining crew are employed by Service and Supply Companies, who provide equipment, run well logs, complete the well, and supply the rig with everything from drilling fluid to televisions.

Who Brings What Lease Holder The Lease Holder is the expert

on the well site and directs all functions on a rig. They have completed seismic work and provide a plan to maximize the wells resources.

The Lease Holder typically does not provide equipment, and on-site employees are senior site engineers directing the operation.

Who Brings What Drilling Contractor The Drilling Contractor moves the drilling rig into position

for drilling along with a full-time crew. The rig includes large permanent equipment such as blow-out preventers, mud pumps, and drilling top drives.

Who Brings What Service & Supply Companies

Service & Supply Companies bring all equipment, consumables and tools used to drill, test, and complete the well.

Equipment can range from small rubber grommets to drilling mud to multi-million-dollar subsea stacks that are 40 feet tall and more.

Service Companies provide expert technicians for a variety of operations including well logs, completions, equipment repair, fishing and remediating broken or caved-in wells.