What is a Barrel Of Oil Equivalent (BOE)
A barrel of oil equivalent (BOE) is a term used to summarize the amount of energy that is equivalent to the amount of energy found in a barrel of crude oil. By encompassing different types of energy resources into one figure, analysts, investors and management can assess the total amount of energy the firm can access. This is also known as crude oil equivalent (COE).
BREAKING DOWN Barrel Of Oil Equivalent (BOE)
The BOE is frequently used when exploration and production companies are reporting the total amount of reserves they have. Oil and natural gas are formed through the same geological processes; therefore, the two energy commodities are often found together. Many energy companies have a mixed reserve base, and they need a way to communicate the total energy content of their reserves in a manner that is easily understood. They can accomplish this by converting all of their reserves to BOE.
An energy company's primary asset is the amount of energy it owns, so an energy company bases its financial decisions and planning on its reserve base. For investors, a company's reserves are important in assessing the value of the company and determining whether or not the company is a good investment. Both investors and companies want to see a company's total energy resource increase over time. Representing reserves in BOE facilitates the comparison of total energy assets over time and against other similar energy companies. It would be more complicated to compare a company's energy assets over time and against other companies if natural gas and oil were presented separately.
Converting assets to BOE is fairly simple. In terms of volume, oil is represented per barrel, and natural gas is represented per thousand cubic feet (mcf). There are 42 gallons (approximately 159 liters) in one barrel of oil. The energy contained in a barrel of oil is approximately 5.8 million British thermal units (MBtus) or 1,700 kilowatt-hours (kWh) of energy. This is an approximate measure, because different grades of oil have slightly different energy equivalents. One mcf of natural gas contains approximately one-sixth of the energy of a barrel of oil; therefore, 6,000 cubic feet of natural gas (6 mcf) have the energy equivalent of one barrel of oil. For large quantities of energy, BOE can be represented at kilo barrels of oil equivalent (kBOE), which is 1,000 BOE.
BOE also comes up when communicating daily energy production and consumption. This is expressed in barrels of oil equivalent per day (BOE/D).