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Procurement in Oil and Gas Industry

Procurement in the oil and gas industry can be defined as an administrative activity of buying, receiving and paying out goods and services within the oil and gas industries. It is crucial to maintain efficiency in the procurement process in order to guard against nonperformance risks. These include long deliveries, late deliveries, damaged products, shortage of supplies or equipment, maintenance work orders, failure to deliver etc. With oil prices continuing to drop, many companies are finding themselves in a difficult situation where they can’t afford the direct costs of materials for their operations.

Procurement in Oil and Gas Industry involves the buying of drilling equipment, drilling machinery and other machines used in oil and gas exploration. The process may include transportation, processing or storage of the product. Procurement in the Oil and Gas Industry includes purchasing petroleum products like gasoline, diesel, lubricants, oils, etc., at wholesale prices from refineries and producers. The refineries that are engaged in the process of selling the oil and gas products are called the suppliers. A producer is also required to procure the liquid substances from the refineries for the purpose of manufacturing petroleum diesel, gasoline and lubricants.

There are two types of procurements in the oil and gas industry, retail and bulk. The cost per barrel of oil purchased or sold is known as the retail price. It includes the dealer’s markup profit. A supplier of oil who sells oil and gas at retail prices to end-users pays a dealer a part of the wholesale price that he gets for selling that commodity to the end consumer. A bulkier who purchases large volumes of oil and gas should pay more than the dealer. Procurement in oil and gas also involves production planning and technical strategies related to finding oil and gas.

There is also a need for the gas industry to purchase equipment that will enable them to drill for and produce oil and gas. Some companies are specialized in the procurement of drilling equipment. Some gas companies purchase their own machines as they do not have many clients who can provide them with the equipment that they need. Some oil companies, however, rent their machines to clients who cannot afford to buy one of their own. The rent charged is calculated according to the capacity of the machine being rented. There are also some companies that are involved in the procurement of land. They need land in order to set up processing stations for transporting and processing petroleum products. These companies negotiate with the landowners for the lease of the land. Some oil companies also lease lands to produce oil and gas.

Some refineries require a huge amount of machinery in order to function and produce petroleum products. Oil companies usually lease or purchase this machinery in order to be able to set up their own refineries. In this process, they will receive a certain percentage of the profits from the sale. This also provides them with an opportunity to own the whole refinery.
In the procurement of petroleum products, oil companies also hire several subcontractors for performing different tasks. These people are called material contractors. They are responsible for procuring raw materials such as oil, gas liquids and lubricants. They also inspect the equipment used in the process of extraction, like pumps and compressors.

Energy brokers play a major role in the process of procurement of oil and gas. They are responsible for finding oil and gas producers in various areas of the world. Afterwards, they bring the prospectors to the company that need their services. The brokers have contacts with different oil and gas companies in different places, and their task is to negotiate with the companies in order to get the best deal for their clients. Energy brokers can also find opportunities for oil and gas lease or acquisition. This is quite an established business in the oil and gas industry, and many  are trying to take advantage of this opportunity.

Procurement training is important for individuals and organizations. As the field of procurement has changed dramatically in recent years, requiring new skills for procuring items from vendors, and managing vendor relationships are necessary.

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