What Is a Barrel of Oil Equivalent (BOE)?
A Barrel of Oil Equivalent (BOE) is a term used to summarize the amount of energy equivalent to the energy found in a barrel of crude oil. By combining different types of energy resources into one comprehensive figure, analysts, investors, and management can effectively assess the total energy the firm can access.
Many energy companies produce both oil and gas, each measured differently. Oil is measured in barrels, while natural gas is measured in billions of cubic feet (BCFE). To make comparisons easier, the industry standardizes natural gas production into “equivalent barrels” of oil. Typically, one barrel of oil is equivalent in energy content to 6,000 cubic feet of natural gas.
Key Points to Remember
- Barrel of Oil Equivalent (BOE) standardizes natural gas and other energy forms to the energy content of a barrel of oil.
- This measurement converts gas production to oil production based on energy equivalents.
- One barrel of crude oil equals the energy content of roughly 6,000 cubic feet of natural gas.
- BOEs per day (BOE/D) is a crucial metric for evaluating the performance of energy companies.
Uncovering the Importance of a Barrel of Oil Equivalent (BOE)
Energy companies often have mixed reserve bases (both oil and natural gas) due to the geological processes that form these resources. A BOE helps these companies report the total energy content of their reserves in an easy-to-understand manner. It’s essential for a company’s financial decisions, planning, and investment assessments. Investors use BOE to assess a company’s value and determine its investment potential.
Comparing energy assets over time and against other companies would be more complex without standardizing reserves into BOEs. This standardization simplifies the evaluation process and helps communicate total energy assets more effectively.
Calculating Barrel of Oil Equivalents
Converting energy assets into BOEs is relatively straightforward. While oil is measured in barrels (42 gallons per barrel), natural gas is calculated per thousand cubic feet (MCF). One barrel of oil contains approximately 5.8 million British thermal units (MBTUs) or 1,700 kilowatt-hours (kWh) of energy. Since different oil grades vary slightly in energy content, this is an approximate measure.
One MCF of natural gas equals about one-sixth of the energy of a barrel of oil. Thus, 6,000 cubic feet of natural gas (6 MCF) equates to one barrel of oil. For large quantities, BOE is represented as kilo barrels of oil equivalent (kBOE), which is 1,000 BOEs.
Daily Production and Consumption Metrics
BOE is also used to describe daily energy production and consumption, often expressed as barrels of oil equivalent per day (BOE/D). This metric is invaluable for determining a company’s scale and value, particularly to financial analysts. By calculating oil and natural gas equivalently, companies are assessed fairly, regardless of their production focus.
Common Questions About BOE
What Is Barrel of Oil Equivalents (BOE) in Economics?
Oil is measured in barrels, and natural gas in cubic feet. The industry standardizes gas production to “equivalent barrels” of oil for easy comparison.
How Do I Calculate BOE?
To calculate BOE, consider that one barrel of oil equals the energy content of 6,000 cubic feet of natural gas. Multiply the natural gas amount by this factor to get the equivalent barrels of oil.
Why Is a Barrel of Oil 42 Gallons?
In the 18th century, a 42-gallon barrel was a standard container used for shipping various commodities. This size translated well to oil shipping, weighing 300 pounds when filled and adopted officially in 1866.
How Much Crude Oil Makes One Gallon of Gasoline?
Refineries transform approximately 2.15 gallons of crude oil into one gallon of gasoline for automotive use.
The Essential Takeaway
A Barrel of Oil Equivalent (BOE) encapsulates the energy content typical of a barrel of crude oil and is crucial in standardizing and comparing various energy resources. Commonly used by oil and gas companies to report reserves, BOE helps investors accurately assess a company’s value and potential.
References
- American Oil & Gas History Society. “History of the 42 Gallon Barrel”.
- Texans for Natural Gas. “How many gallons of oil does it take to make a gallon of gasoline?”
