downstream business definition

Case Study Major integrated oil companies such as BP, ExxonMobil, Royal Dutch Shell, and ConocoPhillips are vertically integrated, with upstream operations in oil exploration and production and downstream operations in refining and distribution. Being vertically integrated provides a degree of diversification and stability, but it can also result in disappointing overall results, even when some segments of the business are operating on all cylinders. In October 2007 ConocoPhillips announced that its third-quarter results to be reported later that month would be penalized by downstream operations. Although the price of gasoline and heating oil had been rising, the increase was not sufficient to offset the much larger increases in crude oil prices. The result was a significant narrowing refining margin: the difference between the price of oil representing the upstream portion of the business, and the price of refined products representing the downstream business. The firm's negative report resulted in reduced earnings estimates and a decline of nearly 2% in its stock price.