Understanding Oil and Gas Procurement and Its Three Key Types

 

Introduction

Procurement. Big word, simple meaning. It’s basically how companies buy goods and services they need. In the oil and gas industry, procurement is a game changer. Why? Because operations are huge, risky, and costly. One wrong supply, one late delivery—things can fall apart. That’s why smart procurement is not just paperwork. It’s survival.

What Does Procurement Mean in Oil and Gas?

Procurement in oil and gas is about getting the right materials, tools, and services at the right time. From drilling equipment to safety gear, everything comes through procurement.

In the upstream oil and gas industry, this process is even more critical. Exploration and production sites are often far away. Remote deserts. Deep oceans. Which means supply chains can be tough. One missing spare part can delay drilling worth millions. So procurement here is not just buying—it’s planning, forecasting, and managing vendors.

The oil and gas industry spends billions every year on procurement. So it’s not just a support function. It’s a backbone.

Why Procurement Is So Important in the Upstream Oil and Gas Sector?

Because upstream is where everything starts. Exploration, drilling, production. All need specialized equipment. And none of that comes cheap. Procurement teams make sure projects get what they need without overspending.

It’s also about timing. You can’t wait three months for a tool when rigs are already running. Fast and accurate procurement keeps operations smooth.

And one more thing—procurement is about relationships. Vendors, suppliers, contractors. Without trust, nothing works. That’s where models like VMI (Vendor Managed Inventory) come into play. More on that later.

What Are the Three Key Types of Procurement in Oil and Gas?

Procurement isn’t one-size-fits-all. In the upstream oil and gas sector, it usually falls into three main types. Let’s break them down.

1. Direct Procurement – What Is It?

Direct procurement means buying goods and services that directly impact production. Example: drilling rigs, pipelines, safety systems. Basically, stuff that touches the core business.

In upstream projects, direct procurement is high-risk and high-value. Any mistake here can cause downtime, financial losses, and even safety hazards. That’s why companies often deal with trusted vendors and long-term contracts for direct procurement.

2. Indirect Procurement – How Is It Different?

Indirect procurement doesn’t directly affect drilling or production, but it keeps things running. Think office supplies, IT systems, employee training, transportation.

Many companies ignore it. But in truth, indirect procurement adds up. Especially in large upstream oil and gas companies. Without it, workers can’t operate, offices can’t function, and communication breaks.

3. Services Procurement – Why Does It Matter?

This type is about hiring people and services. Engineers, consultants, contractors, catering services for offshore rigs—all fall under services procurement.

It’s growing fast in the oil and gas industry, especially upstream, where skilled manpower is always in demand. And since expertise is expensive, services procurement needs careful planning.

What Is VMI and Why It’s Becoming Popular?

VMI stands for Vendor Managed Inventory. Simple idea: instead of companies managing stock, suppliers do it. The vendor monitors inventory levels and makes sure items never run out.

Why does this matter in oil and gas? Because downtime is costly. If drilling stops due to missing parts, losses are massive. With VMI, vendors handle stock levels, refills, and supply chain visibility. Companies get fewer delays, lower costs, and stronger supplier relationships.

It’s a win-win. The upstream oil and gas industry is adopting VMI more and more because it reduces risks in remote locations.

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What Challenges Do Procurement Teams Face?

Plenty. Price fluctuations. Supply delays. Vendor reliability. Global politics. Even weather conditions. For example, a storm can block offshore deliveries. Or political sanctions can cut supply chains.

Procurement teams also face pressure to cut costs while maintaining quality. Not easy. That’s why strategies like long-term supplier contracts, bulk buying, and digital procurement systems are becoming essential.

How Does Procurement Shape the Future of Oil and Gas?

Procurement is no longer just about buying. It’s becoming strategic. Digital tools, data analytics, and automation are changing how companies source and manage suppliers.

At the same time, sustainability is now part of procurement. Companies want vendors who follow eco-friendly practices. VMI and smarter supply chains are helping reduce waste and increase efficiency.

The future of the oil and gas industry will depend on how procurement adapts. Faster. Smarter. Greener.

Final Thoughts

Procurement may sound like a background job, but in reality, it’s the backbone of the upstream oil and gas sector. Without it, operations stop. Direct, indirect, and services procurement each play their role. Add models like VMI, and you see how powerful procurement can be.

For beginners, remember this—oil and gas is not just about drilling wells. It’s about building strong supply chains, trusted vendor networks, and efficient procurement strategies. That’s how companies survive and grow in this unpredictable industry.

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