Introduction to Oil & Gas

Outline
• Introduction
• Formation of Oil & Gas
• Participants in Oil & Gas Industry
• Structure of the Oil & Gas Industry
• Legislative Environment
• Oil & Gas Value Chain
How is Oil and Gas formed?

• Crude oil and natural gas are mixtures of hydrocarbons-chemical

molecules that contain only hydrogen and carbon. Crude oil is a
liquid both underground and at normal surface conditions. Natural
gas is a vapour at normal surface conditions; underground, it can
exist either as a vapour or something like a bottle of carbonated
soda-"in solution" with crude oil.

• The term "petroleum" collectively refers to crude oil, natural gas

and solid hydrocarbon mixtures like tar and asphalt. In addition to
hydrocarbons, petroleum may contain impurities such as water,
sulphur compounds, oxygen, nitrogen, carbon dioxide and traces of
metals.
How Oil & Gas is formed

• The simplest hydrocarbon molecule is methane. It is the essential ingredient

of natural gas, and the source of the "blue flame" that we see when we turn
on a gas stove or furnace. Methane consists of one carbon (C) atom and four
hydrogen (H) atoms. Thus, its chemical formula is CH4 or, in abbreviated
form, C1.
How Oil & Gas is Formed
• Naturally occurring hydrocarbons come from the decomposed
remains of ancient plants and animals. Through a sequence of
geologic events that occurred over millions of years, organic
material was deposited on the Earth's surface and then transported
to depressions or basins, where it accumulates and gradually
become buried at great depths under layers and layers of sediments.
• There, in what geologists refer to as source rocks, it is subjected to
much higher pressures and temperatures. Over time, and through a
series of intermediate chemical reactions, some of this material
eventually turn into petroleum.
• In general, the deeper a rock formation is located in the Earth's
crust, the higher its temperature will be. Thus, the type of petroleum
that formed through these processes depended largely on the depth
of the source rocks.
How is oil and gas formed ?

• All living
material contain
hydrogen and
carbon
• Fish, shellfish,
plankton and
algae are
common sea-
based sources
 How is oil and gas formed ?
All living material contains hydrogen and carbon
Plants are the most common land based source
 How is oil and gas formed ?
All living material contains hydrogen and carbon
Animals are another common land based source
 Petroleum Migration and Accumulation

The source rocks in which petroleum forms millions of

years ago are not the same rocks in which it is found today.

Rather, oil and gas, being lighter than the water normally
contained in rock formations, move upward by gravity
forces from the source beds along permeable migration
paths.

Eventually, it accumulates in reservoirs contained within

geologic traps, surrounded by impermeable cap rocks
or seals that keep it from traveling any farther
Petroleum Reservoirs

• The term "reservoir" brings to mind the image of a large pond

or lake, so it is natural to hear the term petroleum
reservoir and picture a huge underground "pool" of oil.

• In reality, a petroleum reservoir is a porous, permeable rock

formation, in which oil and gas are contained in the empty
spaces between the rock grains.

• These spaces are interconnected, thereby forming channels or

conduits through which fluids can flow to a well, and from there
to the surface.
Participants in the Oil & Gas Industry
THE OIL BUSINESS - who’s who
• National Governments

• National Oil Companies

• International Oil Companies

• OPEC - www.opec.org

• Others e.g. HSE, Environmentalists

Biggest Oil Companies in The World
• Now form the top Biggest Oil Companies

• They want control over their reserves

• Want share in economic rent-tax the industry

heavily

• Technology transfer

• Have political objectives

• Economic Objectives

• Health, Safety and Environmental concerns

International Oil Companies(IOCs)
• Super Majors-Fully integrated oil and gas companies, e.g. BP,
Shell, etc., (previously known as the 7 sisters)
• Independent Oil companies, small to medium size-non
integrated.
They could be;
• Investors - mostly oil companies and financial institutions such
as Blackstone and JP Morgan,
• Operators - usually small oil companies, e.g. Tullow Oil.
• Service providers-service companies, contractors, vendors, big
service companies such Schlumburger in Indonesia
The Oil Business - Who’s Who
Investors
• Want market freedom • Want stability
• Sourcing products and services • of tax regime
• Product prices • of government
• Minimise interference • of regulatory regime
• Regulatory “advice” • No residual liability
• Project timing
• Details of plans
• Sources of labour / mobile staff
• Sale of product
The Oil Business - Who’s Who
Regulators
• Control the industry on behalf of the Government
• Licence and Regulation function
1) Ministry of Energy
2) Ghana National Petroleum Corporation(GNPC)
3) National Petroleum Authority
4) Energy Commission
5) Ghana Maritime Authority
6) Petroleum Commission, Ghana
• Health Safety and Environmental function
1) Environmental Protection Authority (EPA)
Structure of the Oil & Gas Industry
Oil & Gas Industry Structure
Overview of the Value Chain
• Value chain analysis, as popularized by Porter (1985),
investigates the sequence of activities required to bring a
product or service from conception and procurement
through production and distribution to the final customer.
• Such analysis can be done for individual firms, for
clusters of firms whose value chains are interlinked—
referred to as value systems by Porter and usually
involving suppliers, distributors/sellers, and customers—
or for selected industries (within or across national
borders).
Petroleum Value Chain
Legislative Environment
Legislative Environment
 Ghana’s Constitution confers the rights of all petroleum resources
found within its jurisdiction to the state.
 Ghana National Petroleum Corporation Act, 1983 (PNDCL. 64)
 The Petroleum (Exploration and Production) Act, 1984 (PNDCL. 84)
 Petroleum Revenue Management Act 2010, Act 815
 Petroleum Commission Act 2011, Act 821

PSONR is a UN convention (1962) UNGA Res.1803

• The state asserts and confirms that all petroleum found within its
territory, both onshore and offshore is the exclusive property of the
State
GHANA’S CONTINENTAL SHELF
•Continental Shelf is up to 200 Nautical Miles(NW) from
the baseline

•This can be extended by 150NM to a total of 350NM on

approval by the International Court of Justice
Unitisation

Why Unitize?
•Cost effectiveness
•Technological
efficiency
Tullow
Kosmos
Anadarko
GNPC
Sabre Oil
E.O Group
Risk sharing arrangements
• It is common for oil and gas companies to share the risks
associated with investment in oil and gas activities, and there are
various ways in which this can be achieved.

• The most common forms of arrangement are outlined below,

though an Oil Company may enter into other arrangements
depending on specific circumstances.

• The most commonly accepted categories are:

i. Joint ventures;
ii. Carried interests; and
iii. Production Sharing Agreements (PSA).
Joint ventures

• Within joint ventures, participants conduct oil and gas

activities on a joint basis, the arrangements for which
are often set out in a Joint Operating Agreement
(“JOA”).

• Under this agreement, an Operator is elected to

manage the assets and enter into contracts/incur costs
on behalf of the other partners. Costs incurred are
rechargeable to other participants.
Carried interests

• A carried interest is an arrangement under which one

party (the carrying party) agrees to pay for a portion or
all of the pre-production costs of another party (the
carried party) on a licence in which both own a portion
of the working interest.
Production sharing contracts

• Production sharing contracts (“PSCs”) are generally agreements

between foreign contractors (joint venture partners) and the
Government/National Oil Company (“NOC”).

• Whilst the detailed requirements vary from contract to contract,

a key feature of nearly all PSC’s is that the foreign contractors
agree to “carry” (pay) the exploration, development and
operating costs on behalf of the NOC.

• If exploration is successful and a development goes ahead,

production is generally split between “cost oil or gas” (which
reimburses the foreign contractors for costs it has incurred
including those incurred on behalf of the NOC) and “profit oil or
gas”, which is the contractor’s share of the remaining production.
Oil & Gas Lifecycle
Oil and Gas asset lifecycle

• Exploration and evaluation (appraisal) phase

• Exploration
• An Oil Company identifies a potential area that it wishes to
explore for oil or gas, bids for and (if successful) secures a
license or other legal right to conduct exploration and evaluation
activities.

• The company will also set up the initial financing for the project,
possibly enter into a Joint Venture arrangement, and carry out
an exploration plan.
Exploration: Seismic Surveys

Drill here!

• Seismic surveys are used to locate likely rock structures

underground in which oil and gas might be found
• Shock waves are fired into the ground. These bounce off layers
of rock and reveal any structural domes that might contain oil
Oil and Gas asset lifecycle

• During the evaluation phase, the Oil Company will evaluate the
seismic data and drilling results obtained during the exploration
phase.

• Additional appraisal drilling activities may be undertaken in order

to understand in more detail the characteristics of a particular
prospect.
• 
• If technical feasibility and commercial viability are demonstrable
on a particular prospect, a decision will be made on whether to
develop the asset.
Evaluation: Drilling the well
• Once an oil or gas prospect has been
identified, a hole is drilled to assess
the potential

• The cost of drilling is very high.

On an offshore rig, it may cost
$10,000 for each metre drilled.

• A company incurs vast losses

for every “dry hole” drilled
Oil and Gas asset lifecycle

• The Oil Company will normally need to submit a development

plan to the relevant government in which the particular oil and
gas asset exists, and upon formal approval of this development
plan, the development phase is entered.

• Formal development plan approval is normally the trigger point

for booking of oil and gas reserves and the commencement of
interest capitalisation. In addition, field development plan
approval will trigger various contracts within the upstream value
chain
Oil and Gas asset lifecycle

• The production phase involves the extraction and sale of

the oil and gas and the ongoing maintenance of the field

• Once the reserves have been exhausted or the extraction

ceases to be commercially viable (i.e. “economic cut off” has
been reached), the asset will be decommissioned.
• 
• The decommissioning phase involves removing equipment
and restoring the field to its original state.
 TYPES OF PRODUCTION PLATFORMS
•About 30% of global oil comes
from offshore

•There are 4 main types of

floating platforms:

•Fixed
•Semi-Subs
•FPSO
•TLP
Oil & Gas Market Outlook
A world of resource abundance
This is leading to sustained lower oil prices and a focus on cost,
efficiency, and speed.

Talent is no longer scarce, exploration capability is less of a

differentiator, megaprojects are not the only way to grow, and
market opportunities may only be economical for the earliest
movers in a basin.

Meanwhile, conventional, Deepwater, unconventional, and

renewable assets each require a distinct operating model that
cannot be delivered optimally from a single corporate centre.
Profound technological advances
• These are disrupting old ways of working and enabling step
changes in productivity. Jobs, including knowledge work, are
being replaced by automation on a large scale, and those that
remain require increased human–machine interaction.

• Data generation continues to grow exponentially, as every

physical piece of equipment wants to connect with the cloud.
This explosion of data—combined with 
advanced analytics and machine learning to harness it—creates
opportunities to fundamentally reimagine how and where work
gets done.
Demographic shifts
• Employees are demanding changes in the working environment and
expressing concerns about the role of oil and gas companies in society.

• Millennials will constitute a majority of the US workforce by the early

2020s and have already started their climb into management and even
executive roles. “Digital natives” in the driver’s seat will bring their own
expectations of technology, collaboration, pace, and accountability.

• Oil and gas companies may need more profound changes to meet
demands for meaningful work and social responsibility to attract the
next generation of top engineering and leadership talent.
Crude Oil Prices React to a Variety of Geopolitical and
Economic Events
Crude oil prices are the primary driver of petroleum product
prices
Economic growth has a strong impact on oil
consumption
Changes in expectations of economic growth in can
affect oil prices
In OECD countries, price increases have coincided with lower
consumption
Rising oil prices held down global oil consumption growth
from 2005-2008, despite high economic growth
Changes in non-OPEC production can affect oil prices
Non-OPEC supply expectations indicate changes in market
sentiment concerning oil supply
Thank You!