Integrated Oil and Gas Company

Integrated Oil and Gas Company

What is an integrated oil and gas company?

Integrated oil and gas companies are business entities involved in the exploration, production, improvement, and distribution of oil and gas, which are contrary to companies that are specialized in only one segment. Given the high entry fees related to many oil and gas industry operations, many of the largest oil and gas companies in the world, such as Chevron and ExxonMobil, are integrated.

Usually, integrated companies divide their various operations into the category: upstream, which includes all exploration and production efforts, midstream, which include transportation and storage, and downstream, which is limited to improvement and marketing activities.

Understand integrated oil and gas companies

Integrated oil and gas companies are referred by several different names; “Supermajors” and “Big Oil” are the two most common. The determining characteristic of these companies is that they are involved in the entire value chain of the oil industry. Their assets consist of or related to equipment in exploration and drilling, transportation through trucks, tankers, or pipes, refineries, and even gasoline pumps.

Because integrated oil and gas companies are involved in so many aspects of the fossil fuel industry, often their underline can be opposite to intuition. For example, during the increase in crude oil prices, integrated oil and gas companies may have lower profit margins than unintegrated rivals as a result of having a greater downstream ability than upstream capability.

The idea of ​​integrated oil and gas companies can be suspended back to those who start everything, Standard Oil. J.D. Rockefeller’s Oil Company. Standard oil began in 1870 and was split in 1911 due to the Antimonopoly Law. Some of the largest integrated companies are currently derived from Standard Oil divisions, such as ExxonMobil, BP, and Chevron.

Oil and Gas Operation

Oil and gas operations are categorized into upstream, midstream, and downstream activities. Upstream activity involves the exploration and production of oil and gas, midstream activity focuses on transportation and storage of oil and gas, and downstream activities are related to the improvement and marketing of oil and gas.

This seemingly different business activity naturally requires special resources and is dedicated to managed, and there are many downstream oil and gas operators that stand alone, midstream, and downstream. However, oil and gas companies integrated with upstream and downstream operations are significant strengths in the oil and gas industry.

J.D. Rockefeller who believes in full integration because he believes it eliminates inefficiency in business operations. It’s better to do everything yourself than having to rely on other businesses and their operating methods. After the inefficiency is deleted, it will allow it to offer the lowest possible price for the product.

Integrated company vs. independent company

Independent oil and gas companies are those that are not integrated and only focus on one segment of the oil and gas industry. There are pros and cons to become an integrated or independent company. With vertical integrated operations, integrated oil and gas companies are directly related to the energy market and can obtain certain market intelligence. This, in turn, helps him manage oil and gas production better based on changes in market demands. Integrated oil and gas companies can be difficult to judge when various types of production and operations are all united, which leads to the potential for lower market assessments.

Independent oil and gas companies with only one type of operation bring a sharper focus on its business activities, such as eliminating the allocation of competitive resources among different businesses. But the lack of reward profit between upstream and downstream operations can be a challenge for independent oil and gas companies in unfavorable market conditions.

Profitability Diversification

An independent oil and gas company may thrive or wither on the rise or fall of oil and gas prices, while an integrated oil and gas company often has less concern about price volatility. Balanced by its upstream and downstream operations, the business of an integrated oil and gas company can essentially hedge its profits against market downturns.

For example, when crude oil production experiences diminished profitability from declining oil prices, refining operations at an integrated oil and gas company would likely see expanded profit margins because of the lower input costs, ensuring a certain level of locked-in profits.