Guide to

Upstream Oil
& Gas KPIs
for Investment Professionals
Authors: Santosh Putta, Senior Director, Analytics & Consulting, Visible Alpha
Sonam Sidana, Industry Lead - Energy, Visible Alpha
In This Guide
This guide highlights the key performance indicators for the
upstream oil and gas industry and where investors should look to
find an investment edge. While this guide is not a full E&P
industry primer, as the market leader in granular consensus
estimates data, Visible Alpha works with partners and clients to
determine the key upstream oil and gas metrics that will aid
market participants in identifying upstream oil and gas trends
and future performance of E&P companies – including
PetroChina, Exxon Mobil, Diamondback Energy and more – by
region and sub-industry.

VIEW ONLINE VERSION

Visible Alpha Industry KPIs - 2

Industry Overview

The upstream oil and gas industry, also known as the exploration and
production (E&P) industry, is the first of three segments in the energy
sector value chain. Upstream activities include exploring basins for
hydrocarbons, drilling and developing wells and extracting hydrocarbons
such as crude oil, natural gas and natural gas liquids (NGLs) from those
wells.

This eBook Includes:

➔ Industry Business Model

➔ Business Model Diagram
➔ Key E&P Metrics
➔ Visible Alpha’s Standardized Industry Metrics
➔ Available Comp Tables
➔ Industry KPI Terms & Definitions
➔ An Introduction to Visible Alpha

Visible Alpha Industry KPIs - 3

Industry Introduction
The oil and gas exploration & production (E&P) industry, also known as the
upstream industry, is the first of three segments in the energy sector value
chain. Upstream activities include exploring basins for hydrocarbons, drilling
and developing wells and extracting hydrocarbons such as crude oil, natural
gas and natural gas liquids (NGLs) from those wells. The extraction of oil is
resource-intensive and can often take several years from discovery to
production.

Once the hydrocarbons are extracted they are stored and transported to
processing plants where the raw hydrocarbons are converted into consumable
products like gasoline, diesel, jet fuel and plastic, among others. In the final
stage, these products are distributed to customers around the world.

Companies may participate in one or more stages of the value chain and are
generally called "integrated" players.

This guide focuses on the upstream oil & gas segment of the energy sector
value chain.

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Industry Introduction, Continued
HYDROCARBON BASICS

A hydrocarbon is an organic compound composed of hydrogen and carbon

atoms. Hydrocarbon deposits are formed thousands of feet below the surface
of the earth from the decomposition of organic material like plants and animals
that died millions of years ago. Hydrocarbons are highly combustible and
therefore mainly used as a source of fuel. Based on the “BP Statistical Review
of World Energy 2020” report, hydrocarbons account for more than half of
global primary energy consumption in 2019 (see chart below).

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Industry Introduction, Continued
Types of Hydrocarbons
There are three primary forms of hydrocarbons that link to the upstream
industry:

1. Crude Oil (liquid form)

2. Natural Gas (gas form)
3. Natural Gas Liquids, or NGLs (semi-liquid form)

Crude oil and natural gas liquids are measured in barrels (one barrel = 42
gallons), while natural gas is reported in either cubic feet or cubic meters (one
barrel of oil is equivalent to 6.003 thousand cubic feet (mcf) of natural gas).

Crude Oil
Crude oil is classified into various grades based on physical properties that
vary widely depending on the geological condition of the deposit. API gravity –
a measure of density relative to water – and the level of sulfur content are
some of the most commonly used properties in classifying crude oil.

API gravity is a measure of density relative to water. API gravity is higher

when density is lower. Based on API gravity, crude oil is classified into:

Light Crude Oil: Crude oil with lower impurities, higher hydrogen and
lower carbon content (high API gravity). These characteristics allow
crude oil to flow freely at room temperature and are easy to process at
refineries. Given the lower complexity in processing and higher output of
high-demand products such as gasoline and diesel, it is generally priced
at a premium to heavy crude oil.

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Industry Introduction, Continued
Heavy Crude Oil: A higher proportion of carbon and impurities and
lower hydrogen content makes this category of crude oil highly dense
(low API gravity). Because of these properties, it is more difficult to
extract, transport and process, and generally priced at a discount to light
crude oil.

Based on the level of sulfur content, crude oil can also be classified into:

Sour Crude Oil: Crude oil with 0.5% and above sulfur content. Higher
sulfur content causes a larger environmental impact and has a more
corrosive effect on equipment. Sour crude oil is more expensive to
process and trades at a discount to sweet crude oil.

Sweet Crude Oil: Crude oil with less than 0.5% sulfur content.

Light and sweet crude oil (e.g., West Texas Intermediate) is the most
preferred crude oil for processing and refining.

Natural Gas
Natural gas is generally classified into:

Dry Natural Gas: Contains more than 85% methane and does not
contain any other liquid gases. Higher methane content makes the gas
drier.

Wet Natural Gas: Wet gas contains less than 85% methane and also
includes other liquid natural gases such as ethane, propane and butane.
These additional liquids make the gas wet, requiring it to be separated
before the gas can be used for final consumption.

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Industry Introduction, Continued
The upstream oil and gas industry life cycle can be classified into the following
three stages:

1. Oil Exploration Stage:

This stage involves the study of existing geological data to confirm the
presence of hydrocarbon deposits. Once the presence of hydrocarbons is
confirmed, companies obtain rights by leasing or outright purchasing the
property and conduct various studies – such as gravity, magnetic and seismic
wave surveys, or drilling appraisal wells – to confirm the presence of
hydrocarbon deposits. If economically recoverable with existing technology,
these fields move to the next stage.

The size of deposits (popularly known as “reserves”) is the total volume of

hydrocarbons available in the deposit that are economically extractable.
Depending upon the daily production run rate, these reserves may last from a
few years to many decades. Given the finite life of these reserves, companies
need to keep investing in exploration activity to maintain and grow production
levels and reserves.

Deposits can be classified into onshore versus offshore based on location.

Alternatively, deposits are classified as conventional or traditional versus
unconventional or shale based on geological conditions.

Reserves are also classified into three categories: proven (or proved),
probable and possible. Each category includes a different probability of
recovery.

● 1P reserves refer to proven

● 2P is proven and probable
● 3P is proven, probable and possible reserves

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Industry Introduction, Continued
2. Oil Development Stage:
This stage begins after the company decides to invest capital in any viable
field and involves designing and building the necessary infrastructure to
produce commercial quantities of hydrocarbons.

3. Oil Production Stage:

In the final stage, hydrocarbons are extracted to the surface. Generally, the
initial production run rate, which is usually measured by average daily
production, tends to be higher. However, as well pressure drops the
production volume also declines. Decline rates are much faster for
unconventional (shale) deposits compared to conventional deposits.
Companies use a variety of enhancement techniques to slow the decline rate,
including pumping water through secondary wells that could be drilled in a
field. Hydrocarbons underground are generally mixed with water, sand and
salt and separated at the gathering centers. Once all the economic
hydrocarbons are extracted, the wells are decommissioned (i.e. capped), and
the field is abandoned after restoration to as close to its original state as
possible.

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 Industry Business Model Diagram

Our revenue model diagram reflects the basic revenue flow and does not reflect any country specific adjustments.

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Reserve Schedule Diagram

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Exploration & Production Business Model
E&P companies generate revenue from selling hydrocarbons produced from
each well. Average realized prices, production volume and product mix (e.g.,
crude oil vs. natural gas) are important parameters while analyzing revenue
for an E&P company. Although some of the operating costs are fixed, all
operating costs are converted into “per unit metrics” for the analysis of cost
structure. This helps in cross-company comparisons and provides valuable
insights into a company’s margin of safety (average realized price minus fully
loaded unit costs).

Given the finite nature of the asset base, the analysis of reserve schedules
and finding and development unit costs is critical in understanding a
company’s asset quality and management operating capabilities.

Sales or Production Volume

Product mix and growth rates are key factors when analyzing sales or
production volumes for an E&P company. The production volume from each
well declines over a period of time due to the reduction in well pressure, and a
company's ability to replace these declining volumes with production from new
wells is critical to sustain or grow production. Investments in enhanced oil
recovery (EOR) techniques are also key to extending the life of a well or field.
Companies also report sales volume on a “per day” basis, which can be
converted into total sales volume by multiplying the per day value by the
number of operating days for the stated period.

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E&P Business Model, Continued
Average Realized Prices
Average realized prices are the most important operating metric for an E&P
company, as the company’s earnings have the highest sensitivity to price.
Average realized prices are generally set based on the “netback” method,
where market prices (such as WTI, Brent, Henry Hub) are adjusted for
“quality” and “location” of each producing well. Many companies actively
pursue hedging strategies to reduce earnings volatility. Thus, hedging also
impacts the company’s near-term average realized prices. Average realized
prices are often reported on a gross and/or net of hedging gain or loss.

Hedging has two components:

1. Realized hedging gain/(loss) is the realized gains/losses from closed

derivative positions, and
2. unrealized hedging gain/(loss) accounts for the market-to-market
gain/losses on open derivative positions.

Like many other commodities, the marginal cost of production drives the
long-term trends in hydrocarbon prices with cyclical swings caused by
short-term demand and supply factors. Given the widespread usage and ease
of transportation, crude oil prices are mainly driven by global factors, whereas
regional factors (including weather patterns) play an important role in
determining natural gas prices. Geopolitical factors that could potentially
impact the supply or demand of these products tend to be factored into prices
well before the impact is felt in supply or demand.

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E&P Business Model, Continued
Crude Oil Demand Factors:
As per the “BP Energy Outlook 2020” report, the transportation sector
accounts for approximately 57% of global liquid fuel consumption, followed
by around 13% consumption in the industrial sector. Global macroeconomic
growth and increases in transportation vehicle penetration in emerging
markets are major drivers for global crude oil demand.

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E&P Business Model, Continued
Crude Oil Supply Factors:
Global crude oil supply may simply be classified into OPEC and non-OPEC
suppliers. OPEC (Organization of the Petroleum Exporting Countries) is the
intergovernmental organization of 13 oil-producing nations that act as a
cartel. According to the “BP Energy Outlook 2020,” OPEC accounts for
around 70% of global proved oil reserves and approximately 37% of global
production in 2019. Among the non-OPEC regions, the United States and
Russia are two of the biggest oil producer countries, with an 18% and a
12% share, respectively, of global supply in 2019. Historically, OPEC acted
as a balancing player, adjusting output to demand fluctuations to achieve
stable market prices.

Visible Alpha Industry KPIs - 15

E&P Business Model, Continued
COST STRUCTURE

The analysis of cost structure provides critical insights into the margin of
safety and a company’s ability to withstand volatility in benchmark prices.
Some of these costs are unique to this industry and are presented on a “per
unit basis” (e.g., cost per BOE), which facilitates cross-company comparisons.
Here are some of the key cost components of E&P companies:

Production cost is the aggregation of three key operating costs: (1) rent and
lease expenses, (2) gathering and transportation expenses and (3) production
taxes. Rent and lease expenses together with gathering and transportation
expenses form lifting costs. These are direct cash operating costs related to
the production of hydrocarbons from the wells. Comparing these metrics helps
illustrate the quality of each company’s assets.

Oil exploration spending includes the costs associated with searching and
finding new oil and gas fields. Due to the complex nature of identifying oil and
gas reserves, companies can often end up drilling a dry well (a well without
meaningful oil and gas reserves). Oil exploration expenses (charged to the
P&L account) include costs associated with these dry wells along with other
searching costs. In the case of the discovery of new oil and gas reserves, all
the exploration costs relating to those wells are capitalized and charged to the
balance sheet. The capitalized costs, which are associated with recoverable
developed reserves, are then allocated to the income statement
proportionately based on production during the period.

Finding & development costs represent the total costs of adding new
reserves. This is a capital expenditure and includes exploration costs, capital
expenditures and acquisition costs. Similar to other cost metrics, this cost is
also computed on a per unit basis; however, in this case, the denominator
represents gross additions to reserves instead of production volumes. F&D
costs provide valuable insight into management’s operating capabilities.
Visible Alpha Industry KPIs - 16
E&P Business Model, Continued
Profitability
Investors typically look at EBITDAX as one of the key measures of profitability
for E&P companies, in addition to other standard profitability metrics such as
free cash flow (FCF). EBITDAX is defined as earnings before interest, taxes,
depreciation, amortization and exploration expenses. It is an E&P
industry-specific metric equivalent to EBITDA with an adjustment for
exploration expenses. This metric normalizes the volatility in exploration
expenses across periods and companies.

Leverage
Given the highly capital intensive nature of the business, the upstream oil and
gas industry uses relatively higher amounts of debt to finance projects and to
boost shareholders' returns. Leverage can cut both ways, providing superior
returns in good times while bankrupting companies during periods of market
turmoil. Analysts typically measure leverage using net debt/EBITDA or a
debt/equity ratio.

Reserves Schedule
The reserve schedule is a list of operating metrics that explains the factors
behind changes in reserves for a company over a given period of time,
reconciling the difference between opening and closing reserves. Investors
analyze this schedule to understand the useful life of the reserves, the rate of
reserve depletion, the source of new reserves (organic vs. acquisition) and the
operating capabilities of management, all of which are critical in determining
the intrinsic value of an E&P company.

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E&P Business Model, Continued
The reserve schedule starts with the opening balance of reserves – last year’s
closing balance – and then adjusts for the addition of new reserves through
new discoveries, upward or downward revisions in existing deposits, the
acquisition or divestment of deposits and finally the depletion of reserves
through production to arrive at a closing balance of reserves. Depletion in the
reserve schedule is the same as production volume in the revenue model.
These components are used in estimating F&D cost per unit, which is a critical
operating metric in evaluating the efficiencies of a company.

There are two key ratios investors focus on in this schedule:

➔ Reserve life represents the estimated life in years of the reserves and is
computed by dividing ending reserves by production volume.

➔ Reserve replacement ratio (RRR) is calculated by dividing the net

proved reserves added through discoveries, revisions and net
acquisitions for a given period by the total production volume for the
same period. This ratio helps illustrate management’s ability to replace
production volume with new reserves. A ratio of greater than 100%
means the company is not only successfully replacing depleted
production volume with new reserves but also is able to increase the
closing balance, which translates to a higher reserve life.

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Key Exploration & Production Metrics
When understanding market expectations for oil and gas exploration & production,
whether at a company or industry level, here are some of the E&P KPIs to consider:

● West Texas Intermediate (WTI)

● Brent Prices
● Henry Hub Prices
● Price Excluding Hedging
● Hedging
● Production Volume Per Day
● Production Volume
● Production Costs
● Production Costs Per Unit
● Reserve Life
● Reserve Replacement Ratio

...and more!

Current Upstream Oil & Gas KPI

Forecasts

Visible Alpha offers detailed consensus

estimates for key performance indicators
for oil and gas companies, sourced from
the world’s leading equity analysts.
Uncover current market expectations
through our consensus estimates data on
ACCESS THE DATA
volatility, volume, price, unit cost and
profitability metrics to identify oil and gas
trends and future performance of oil and
gas companies.

Visible Alpha Industry KPIs - 19

DATA AS OF JANUARY 2023

Visible Alpha’s Standardized

Industry Metrics
To understand market expectations for the oil and gas exploration &
production industry, a key information source is sell-side analyst estimate and
consensus forecast data. The buy side, sell side and public companies
leverage this type of data to conduct competitive analysis, a type of analysis
conducted by professional analysts that involves comparing standardized
metrics of one company with those of similar companies. Because companies
report metrics differently – and sometimes report on different metrics
altogether – standardizing the key metrics for each company can be a
cumbersome process.

Visible Alpha Insights includes analyst data, company data and industry data
at level of granularity unparalleled in the market. Our industry data –
Standardized Industry Metrics – enables market participants to quantify and
compare market expectations for companies across 150+ industries.

Our E&P Industry Data Set Includes:

107Global Tickers
73
Contributing Brokers
1,441
Current Analyst Excel Models

222 1,594 1,816

Unique line items in Unique line items in our Total standardized
our standardized standardized operating line items
financials data metrics data

Visible Alpha Industry KPIs - 20

Available Comp Tables
Consensus Estimates

Visible Alpha offers 24 oil and gas exploration & production comp tables,
comparing forecasts for key financial and operating metrics, to make it easy to
quickly conduct relative analysis, whether you are interested in looking at key
values for ConocoPhillips competitors or reserve replacement ratio. Every
pre-built, customizable comp tables is based on region, sub-industry or key
operating metrics. All comp tables are fully customizable.

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Available Comp Tables
Consensus Estimates

Visible Alpha Industry KPIs - 22

Financial and Operating KPIs Available
for 104 E&P and 27 Integrated
Companies, Including:

AMERICAS EMEA

● Canadian Natural Resources ● AKER BP ASA (AKERBP)

(CNQ) ● Caim Energy (CNE)
● ConocoPhillips (COP) ● PAO Novatek (NVTK)
● EOG Resources (EOG) ● Premier Oil (PMO)
● Suncor Energy (SU) ● Lundin Energy AB (LUPE)
● Pioneer Natural Resources Co.
(PXD)

APAC DIVERSIFIED (INTEGRATED E&P)

● CNOOC Ltd (0883) ● Exxon Mobil (XOM)

● Oil Search Ltd (OSH) ● Oil & Natural Gas Co. (ONGC)
● Santos Ltd (STO) ● Royal Dutch Shell (RDS)
● Senex Energy Ltd (SXY) ● Saudi Arabian Co. (ARAMCO)
● Woodside Petroleum (WPL) ● Total SA (TOTF)

REQUEST A FULL LIST

Visible Alpha Industry KPIs - 23

Industry KPI Terms & Definitions
West Texas Intermediate (WTI)
West Texas Intermediate refers to prices of NYMEX traded futures contracts for high-quality crude
oil (light and sweet) and stored in Cushing, Oklahoma for delivery. It is used as a key benchmark for
U.S. and global crude oil markets.

Brent Prices
Brent prices refer to the prices of crude oil future contracts traded in the Intercontinental Exchange
(ICE). It is based on light and sweet crude oil produced in the North Sea region of Northwest
Europe.

Henry Hub Prices

Henry Hub pipeline located in Erath, Louisiana, acts as a delivery point for NYMEX traded futures
contracts for natural gas. It is a benchmark for the entire North American natural gas market.

Barrels of Oil Equivalent (BOE)

Barrels of oil equivalent is the approximate energy released from burning a barrel of oil. This unit
measure helps in converting natural gas and crude oil into one single unit.

Natural Gas Equivalent (Cfe)

Natural gas equivalent is the approximate energy released from burning natural gas. This unit
measure helps in converting natural gas and crude oil into one single unit. One MCF (one thousand
cubic feet) of natural gas has one-sixth the energy of a barrel of oil.

Hedging
Hedging is the use of derivative instruments to reduce volatility in market prices (price risk) and
protect the company’s earnings.

Price Excluding Hedging

Price excluding hedging is the average realized prices from selling hydrocarbons before hedging
impact.

Production Volume Per Day

Production volume per day is the daily production run rate for a given period for each of the
hydrocarbons and at the total level using either a BOE or cfe basis.

Production Volume
Production volume is the total hydrocarbons output from producing wells for a given period of time.

Reserve Replacement Ratio

Reserve replacement ratio (RRR) is calculated by dividing the net proved reserves added through
discoveries, revisions and net acquisitions for a given period by the total production volume for the
same period.

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Industry KPI Terms & Definitions, Continued
Total Revenue - Oil, Natural Gas Liquids and Natural Gas
Total revenue for all hydrocarbons such as crude oil, natural gas liquids (NGLs) and natural gas,
excluding the effect of hedging.

Lifting Cost
Lifting costs are direct costs relating to the operation and maintenance of hydrocarbon producing
equipment (such as rigs) and labor.

Lifting Costs Per Unit

Lifting costs on a per unit basis, calculated by dividing lifting costs by total production.

Rent and Lease Expense

Recurring costs associated with an active well and its associated equipment. These costs can
include rent, insurance and payroll.

Lease Operating Expense Per Unit

Rent and lease expense on a per unit basis. Computed by dividing rent and lease expense with
total production.

Gathering and Transportation Expenses

The costs related to the movement of raw oil or gas, such as transportation, marketing and
processing of crude oil, natural gas and refined petroleum products.

Gathering and Transportation Costs Per Unit

Gathering and transportation expenses on a per unit basis. Computed by dividing gathering and
transportation expenses by total production.

Taxes Other Than Income Taxes

Taxes paid for the production of hydrocarbons, such as royalties and other indirect taxes.

Production Taxes Per Unit

Taxes other than income taxes on a per unit basis. They are computed by dividing taxes and other
than income taxes by total production.

Production Costs
The production costs that are incurred in the operation and maintenance of wells/facilities and
depletion. A combination of rent and lease operating expenses, taxes and other than income taxes,
and gathering and transportation costs. Rent and lease expenses together with gathering and
transportation costs form lifting costs.

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Industry KPI Terms & Definitions, Continued
Production Costs Per Unit
Production cost on a per unit basis. Calculated by dividing production costs by total production. This
measure illustrates how efficiently the producer is extracting hydrocarbons.

Exploration Expense
Exploration expenses relating to searching for new hydrocarbon deposits, as well as the cost of
drilling dry wells.

Exploration Expense Per Unit

Exploration expenses on a per unit basis. Computed by dividing exploration expenses with total
production.

Upstream Production Costs

Production cost relating to the upstream segment of integrated oil and gas companies.

Upstream Production Cost Per Unit

The per unit production cost for the upstream segment of integrated oil and gas companies.

Ending Reserves
Ending reserves are the proved developed reserves that can be expected to be recovered through
existing wells and facilities and by existing operating methods.

API Gravity
The American Petroleum Institute metric used for measuring the weight of petroleum products
compared to water. API gravity is inverse to density – the higher the API gravity, the lower the
density of the petroleum product.

Standardized Measures
Standardized measures are a set of non-GAAP supplemental financial data reported by U.S. E&P
companies as per SEC regulations. They include standardized measures of discounted future cash
flows from the production of proved reserves and help investors to make comparisons between
companies.

OPEC Countries
OPEC countires are Saudi Arabia, Iraq, UAE, Kuwait, Iran, Nigeria, Angola, Libya, Algeria,
Venezuela, Congo, Equatorial Guinea and Gabon.

Reserve Life
Reserve life represents the estimated life in years of the reserves and is computed by dividing
ending reserves by production volume.

Visible Alpha Industry KPIs - 26

Abbreviations

bbl Barrel

mbbl 1000 barrels

mmbbl 1 million barrels

boe Barrels of oil equivalent

Bpd (bbl/d) Barrels per day

1P Reserves Proven reserves

2P Reserves Sum of proven and probable reserves

3P Reserves Sum of proven, probable and possible reserves

mcf 1000 cubic feet

mmcf 1 million cubic feet

bcf Billion cubic feet

bcm Billion cubic metres

mcfe Natural gas equivalent

F&D Finding and development

Visible Alpha Industry KPIs - 27

Unit
Conversions
To convert units, use the
multiplier in the charts below.

➔ Barrels of Oil
Equivalent (BOE) =
Gas Equivalent *
6.003
➔ Gas Equivalent
(mcfe) = Oil
Equivalent/6.003

Visible Alpha Industry KPIs - 28

Enter a New Era of Fundamental Analysis
Visible Alpha enhances the investment research process by extracting meaningful value
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Our deep consensus data provides a quick understanding of the sell-side view on
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