Upstream companies — also known as E&P companies—find, develop, and produce oil, natural gas, and natural gas liquids (NGL). The upstream business model is analogous to mining for raw materials. Upstream companies manage their development and production costs and emphasize production volume to generate profit margins, which are sensitive to commodities market prices. This price risk can cause volatility in company cash flow and the value of O&G reserves. ​Upstream companies make up-front investments to obtain and develop reserves from which they expect to generate satisfactory investment returns based on their expectations for production costs, production volumes, and future market prices. Once production begins, the existing O&G reserves start to deplete. Therefore, upstream companies require high levels of ongoing capital expenditures (CapEx) to maintain or increase reserves to offset depletion. Sustained periods of capital investment can reduce the amount of cash flow available for debt service or distributions. Upstream companies are typically C corporations and are taxed separately from their owners.

Midstream companies - gather, process, store, and transport crude oil, raw natural gas, NGLs, and refined petroleum products and chemicals. The midstream business model is similar to a toll road that charges fees for the movement or intermediate processing of O&G. Midstream companies require large up-front investments in long-lived infrastructure and then generate medium to low-profit margins by collecting fees for services. These companies frequently are structured as master limited partnerships, which are not subject to income tax. The master limited partnerships typically distribute a large portion of income to unitholders, with distributed income taxed at the unit holder’s income tax rate.

Downstream companies - refine petroleum products and engage in the manufacturing, marketing, and distribution of refined petroleum products such as gasoline, jet fuel, heating oil, asphalt, motor oil, and lubricants. The downstream business model is similar to value-added manufacturing that earns low to medium profit margins from refining raw materials, turning them into products with valuable uses, and marketing and delivering finished goods to wholesale customers and end users. Developing the capacity to do so requires a high capital investment up front. Downstream companies are typically C corporations. Larger downstream companies may incorporate elements of upstream and midstream businesses.