Upstream business operations in 2020 are facing serious challenges. This is because of the prevailing global economic conditions, low demand and the impacts of the covid-19 pandemic.
You will notice that the reduced demand has put pressure on the cash flow of most businesses in the upstream segment of the oil and gas industry.
What does upstream mean?
In the context of oil and gas, upstream refers to the industry segment that deals with exploration and production.
Your business falls into this category and your activity will include extraction or oilfield support services.
Understanding the supply chain is very important to the success of your business. Any obstacle to the operation of your business can mean thousands of dollars lost and problems with clients who depend on the delivery of your goods.
Upstream Production Elements
Upstream oil and gas production is being conducted by companies who identify, extract, or produce raw materials.
Downstream oil and gas production companies are closer to the end user or consumer.
Using the metaphor of a river, upstream production refers to all the activities needed to gather the materials required to create a product.
The upstream stage of the production process involves searching for and extracting raw materials. This part of the production process does not do anything with the material itself, such as processing the material.
Therefore, any industry that relies on the extraction of raw materials commonly has an upstream stage in its production process.
Upstream Business Process
In this industry, locating underground or underwater oil reserves characterizes the upstream process. Additionally, the upstream process in petroleum involves bringing oil and gas to the surface.
Extraction wells represent an example of a structure operating in this stage in the process.
The upstream stage in the production process may also manifest itself as a supplier providing raw materials to manufacturers or other businesses that ultimately process the materials.
Upstream Business Integration
In some cases, an upstream company will find it more efficient and cost-effective to combine the upstream and downstream activities.
This is what you would refer to a vertical integration. One management team at a location supervises all aspects of the business.
Think of an exploration company that owns a refinery and also petrol stations. They would be participating in the entire value chain.
In conclusion, managing your upstream business during and post covid-19 will require strategic thinking, agility and quick decision making process.
You cannot afford to waste or lose time. While the covid-19 pandemic has brought a great deal of uncertainty and insecurity, it has also provided an opportunity for business leaders or entrepreneurs to thrive.
You need to capitalize on the current crisis to expand your business, make it more efficient and create new networks.