Energy and resources (2 of 5)

Oil and gas

About 9 minutes to read in full, or 1 minute for the short version belowFacts checked 30 September 2026

In one minute

Companies find crude oil and natural gas underground, move it by pipe and ship, and turn it into fuels such as petrol, diesel and jet fuel.

The big idea: Oil is a commodity: one barrel is much like another, and its price is set on world markets, not by the company. So profit in the upstream part is the gap between a price nobody controls and a cost per barrel the company does control. Pipelines earn steadier fees, and refineries earn the gap between product prices and the crude they buy, so always say first which part of the chain you are in.

One unit, in numbers: One barrel of crude oil from a mid-cost offshore field: USD 70 comes in, and USD 22 (31%) is left after its own costs.What is left is the unit's contribution, before the costs of the whole company. See the worked example
Typical margin: 5 to 25 percent, swinging with the oil priceRoughly how much of every 100 of sales (or income) is left as profit after the running costs. More on margin
Capital intensity: Very highVery large sums must be tied up before the business earns anything, so the cost of that money weighs heavily on profit. More on capital intensity
The number to watch: Breakeven oil priceThe oil price at which a well or project makes zero profit. A cash breakeven covers running costs only; a full-cycle breakeven also covers the cost of building.

Ask this first in a case

Which part of the chain are we in: upstream, midstream, refining or retail?

Words used above (2)

Barrel:: 159 litres of crude oil; production is quoted in barrels per day.
Full-cycle breakeven:: The price that covers all costs of a new project, including building it.

The industry's other words are explained in Words to know (12).

On this page (17 sections)

How money is made

Producers sell crude oil and gas at world market prices, so revenue rises and falls with prices such as Brent.
Pipelines and storage terminals charge a fee for each barrel or unit of gas they move or store, often under contracts of 10 years or more.
Refiners earn the refining margin: what the products from one barrel sell for, minus what the crude cost.
Retailers earn a margin on each litre sold, plus shop, service and charging income.
Traders earn the gap between prices in different places and on different dates.
Integrated companies own several steps, so a low crude price that hurts upstream helps their refineries, which smooths profit.

Worked example: one unit

Unit economics means the money in and out for one unit of the business. Start from the revenue, take away the unit's own costs, and what is left is its contribution. More on unit economics

The unit: One barrel of crude oil from a mid-cost offshore field, sold at USD 70 (about the 2025 Brent average). Illustrative, rounded figures.
Line	Amount	ShareShare of revenue
Sale price of one barrel	USD 70	100%
Minus Royalty and production taxes to the government (20 percent of the price)	USD 14	20%
Minus Lifting cost: running the wells and platform	USD 10	14%
Minus Transport and processing to the export point	USD 4	5.7%
Minus Development capital spread over every barrel the field will produce	USD 16	23%
Minus Exploration and company overheads per barrel	USD 4	5.7%
What is left (contribution)	USD 22	31%

Check: USD 70 minus USD 48 of costs leaves USD 22.

So what: The company keeps about USD 22 of a USD 70 barrel before income tax, and only its costs are in its control. A USD 10 fall in price removes USD 8 of that after royalty (more than a third of the margin), so the levers are cost per barrel, the fiscal terms, and testing every decision at a low price.

Key measures(8)

Key measures (also called KPIs, key performance indicators) are the numbers people in this industry track. Ask for the first one or two early in a case.

Breakeven oil price
The oil price at which a well or project makes zero profit. A cash breakeven covers running costs only; a full-cycle breakeven also covers the cost of building.
Typical: In March 2026, US producers said they needed about USD 66 a barrel on average to drill a new well profitably (about 59 for large firms, 68 for small ones) and about USD 43 to keep existing wells running[4]
Lifting cost
The running cost to bring one barrel to the surface, leaving out the cost of building the field. Glossary: Lifting cost
Typical: About USD 3.5 per barrel of oil equivalent (boe: oil and gas added together by their energy) at Saudi Aramco in 2025; far higher for small or mature fields[5]
Refining margin (gross refining margin)
The value of the products made from one barrel minus the cost of that barrel of crude. Glossary: Refining margin (gross refining margin)
Typical: Swings widely: Indian Oil reported about USD 3.7 a barrel for April to December 2024 and about USD 8.4 for April to December 2025[6]
Reserve life
Proved reserves divided by yearly production: how many years the company could keep producing at today's rate without finding more.
Typical: About 50 years at Saudi Aramco (reserves of about 247 billion boe at the end of 2025, against about 12.9 million boe a day produced in 2025, or about 4.7 billion a year); most listed oil companies hold far fewer years[5]
Production
Barrels, or barrels of oil equivalent, produced per day. Gas is converted into the barrels that hold the same energy.
Decline rate
How fast output from existing wells falls each year if nothing new is drilled. A company that stops investing shrinks. Glossary: Decline rate
Refinery utilization
Crude processed divided by the refinery's capacity. Refineries have high fixed costs, so running full matters.
Netback
The price received minus transport, royalties and running costs, per barrel: what a barrel really earns at the field. Glossary: Netback

First questions to ask

When a case lands in this industry, these questions get you to the numbers that matter.

Which part of the chain are we in: upstream, midstream, refining or retail?
What happened to the oil or gas price over the period, and how much of our change does it explain?
What is our cost per barrel, and where do we sit compared with other producers?
What contract or fiscal terms apply, and how much of each dollar does the government take?
At what oil price does this decision still work: low, middle and high?

Value chain: where the margin sits

The value chain is the steps a product or service passes through, from the first supplier to the customer. Each step below shows how much of the value it keeps. More on value chains

Step 1: Exploration: map the rock with sound waves and drill test wells
Margin varies
National oil companies, international majors and smaller explorers
The riskiest spend: many wells find nothing, and the winners pay for the dry holes.
Step 2: Development and production (upstream): drill wells, build platforms, lift oil and gas
Fat margin
Saudi Aramco, ADNOC, ONGC, ExxonMobil, Shell, shale producers in the United States
US exploration and production companies averaged an operating margin of about 25 percent in January 2026 data, but it swings with the price.
Step 3: Oilfield services: drilling rigs, equipment and engineering sold to producers
Thin margin
SLB, Halliburton, Baker Hughes, ADNOC Drilling
About 5 percent operating margin for US oilfield service companies in January 2026 data; demand follows producers' spending.
Step 4: Midstream: pipelines, storage tanks and tankers that move oil and gas
Fat margin
Pipeline and storage companies, shipping owners, national grids for gas
Fees per barrel moved, often under long contracts, so profit is steadier; US oil and gas distribution companies averaged about 26 percent operating margin.
Step 5: LNG: cool gas to a liquid, ship it, and warm it back to gas at the buyer
Margin varies
QatarEnergy, Shell, TotalEnergies, US exporters, buyers in Japan, Korea, China, India and Europe
Very large plants tied to long contracts; the 2026 Gulf disruption showed how one site can move world prices.
Step 6: Refining: turn crude into petrol, diesel, jet fuel, LPG and naphtha
Margin varies
Indian Oil, Reliance Industries, Sinopec, Aramco, ExxonMobil, independent refiners
Earns the gap between product prices and crude; thin in weak years and very high in tight years.
Step 7: Trading: buy and sell cargoes of crude and products across regions
Margin varies
Vitol, Trafigura, trading arms of the majors and national oil companies
Profits from price gaps between places and dates, and from logistics skill.
Step 8: Marketing and retail: fuel stations, aviation and marine fuel sales
Thin margin
Shell, BP, Indian Oil, ADNOC Distribution, local station owners
A small margin per litre; the shop, car wash and now EV charging add profit. Many countries set retail fuel prices.

Profit pool: who keeps the money

Where in the value chain the profit ends up, which is often not where most of the sales are. More on profit pools

Most of the profit sits upstream in the lowest-cost fields, above all the large onshore fields of the Gulf, because the price is set by more expensive barrels elsewhere. Midstream earns steadier fees on heavy assets. Refining and retail earn thin margins most years, with short bursts of high refining margins when fuel is scarce, as in 2026.

Cost structure(5)

The main costs, each as a share of revenue (the money from sales).

Crude oil (the upstream share of a US petrol price, 2025): About 51 percent[2]
Refining costs and profits: About 17 percent[2]
Distribution and marketing (depots, trucks, stations): About 18 percent[2]
Fuel taxes (federal and state): About 14 percent[2]
Upstream only: royalties and taxes as a share of the oil price: Often 20 percent to more than half, depending on the country and contract

Benchmarks(6)

Typical figures for the industry, to check a client's numbers against.

Operating margin, US exploration and production companies: About 25 percent[1]January 2026 data; falls fast when prices fall.
Operating margin, US integrated oil and gas companies: About 11 percent[1]
Operating margin, US oilfield services and equipment: About 5 percent[1]
Operating margin, US oil and gas distribution (pipelines and gas networks): About 26 percent[1]
Crude oil as a share of the US petrol price: About half (51 percent in 2025)[2]
Brent crude, yearly average: About USD 81 in 2024 and about USD 69 in 2025[3]In September 2026 the EIA expected about USD 91 for 2026 because of the Gulf disruption.

Typical cases(7)

Case prompts you might hear in this industry.

An upstream producer's profit fell 40 percent this year. Why, and what should it do?
Should a Gulf national oil company invest USD 5 billion in a new offshore field?
A refinery in Europe is losing money while our upstream business made record profit. What is going on?
Should an oil company build a solar, hydrogen or EV charging business?
A fuel retailer in Kenya wants to raise profit per station.
How should an Asian refiner secure crude supply after the 2026 Hormuz disruption?
Should we buy a shale producer in the United States?

Common traps(5)

Mistakes candidates make in this industry, and what to do instead.

Treating the oil price as something the company controls. Check the price first, then volume and cost per barrel.
Using lifting cost as the full cost of a new barrel. A new project must also pay back the capital to find and develop it.
Forgetting royalties and taxes, which can take half or more of the price in some countries.
Mixing up a company's breakeven with a government's fiscal breakeven, the price a state needs to balance its budget.
Taking a side on OPEC+ or a conflict. Treat them as outside factors, give the date of your information, and test several prices.

What changed, 2024 to 2026(7)

Recent changes a case could turn on.

Prices fell, then jumped. After a soft 2025, Dated Brent (the price of physical North Sea cargoes) averaged about USD 91 a barrel in August 2026 and hit about USD 113 on 9 September, while Brent futures traded near USD 105. The IEA's report of 11 September 2026 also said more than 10 million barrels a day of Gulf output was still shut in, world oil stocks had fallen by about 500 million barrels since the war began, and world oil demand would fall by about 2.5 million barrels a day in 2026.[7]
From 28 February 2026 a war involving Iran, Israel and the United States cut shipping through the Strait of Hormuz by about 95 percent, from more than 100 ships a day to about five.[8]
OPEC+ kept adding supply before the war: on 1 March 2026 eight members agreed to keep returning an earlier voluntary cut of 1.65 million barrels a day in monthly steps, starting with 206,000 barrels a day in April 2026.[10]
The UAE left OPEC and OPEC+ with effect from 1 May 2026, after 59 years as a member, saying it wanted to set its own production policy.[9]
LNG became scarce: QatarEnergy declared force majeure after its Ras Laffan export site was damaged in March 2026, and was still cancelling cargoes in late September, with LNG prices in Europe and Asia near their highest since late 2022.[11]
Refining margins swung up: a sharp rise in diesel prices pushed refining margins in the Atlantic Basin (Europe and the Americas) to record levels in August 2026, a windfall for refiners outside the Gulf.[7]
The energy transition keeps eating into road fuel: electric cars were about one in four new cars sold worldwide in 2025, which slows oil demand growth over time.[12]

Players by region(9)

Well-known companies in each region. You do not need to learn them by heart; they help you picture the market.

Global: ExxonMobil
Shell
Chevron
TotalEnergies
BP
SLB (oilfield services)
Vitol and Trafigura (trading)
Middle East: Saudi Aramco
ADNOC (UAE)
QatarEnergy
Kuwait Petroleum Corporation
OQ (Oman)
ADNOC Drilling
India: ONGC (upstream, state owned)
Indian Oil (refining and retail)
Reliance Industries (large private refiner)
BPCL and HPCL (refining and retail)
Oil India
Europe: Equinor (Norway, majority state owned)
Shell
BP
TotalEnergies
Eni
United States: ExxonMobil
Chevron
ConocoPhillips
Many shale producers
Halliburton and Baker Hughes (services)
Southeast Asia: Petronas (Malaysia)
PTT (Thailand)
Pertamina (Indonesia)
China: Sinopec
PetroChina
CNOOC
Africa: NNPC (Nigeria)
Sonatrach (Algeria)
Sonangol (Angola)
Latin America: Petrobras (Brazil)
Pemex (Mexico)
YPF (Argentina)

Words to know(12)

Linked words have a fuller entry in the glossary.

Barrel: 159 litres of crude oil; production is quoted in barrels per day.
Barrel of oil equivalent (boe) (glossary entry): The amount of gas that holds the same energy as one barrel of oil, so oil and gas can be added up.
Brent and WTI: The two main benchmark crude prices, for North Sea and US oil.
Upstream, midstream, downstream: Find and produce; move and store; refine and sell.
National oil company (NOC) (glossary entry): An oil company owned fully or mostly by a government, such as Saudi Aramco or ONGC.
Production sharing contract (glossary entry): A deal where the company recovers its costs from the oil, then splits the rest with the government.
Lifting cost (glossary entry): The running cost to produce one barrel from an existing well.
Full-cycle breakeven (glossary entry): The price that covers all costs of a new project, including building it.
Crack spread (glossary entry): The gap between product prices and the crude price: a quick measure of refining profit.
LNG (glossary entry): Liquefied natural gas: gas cooled to about minus 162 degrees Celsius so it can travel by ship.
OPEC+ (glossary entry): A group of oil-exporting countries that agrees production targets to influence supply.
Force majeure (glossary entry): A contract clause that excuses delivery when events are outside a company's control.

Business model patterns

The ways of making money this industry follows. Spot the pattern in a new industry and you already know the first questions to ask.

Sources(12)

Facts checked on 30 September 2026. Worked examples are illustrative, shaped by these sources rather than one company's figures.

Go deeper and practise

Go deeper

The full lessons behind this brief, with sources and worked cases.

Practise it

Same pattern elsewhere

Industries that make money in a similar way. What you learned here carries over.