Definition

Barrel of Oil Equivalent

  • Updated on

The barrel of oil equivalent or BOE is a unit used to quantify the amount of energy found in a single barrel of crude oil. Analysts can use the method, management and investors to estimate or calculate the amount of energy a company produces. This is sometimes also referred to as crude oil equivalent.

Source: © Batareykin | Megapixl.com

Most of the E&P companies produce both crude oil and gas. The volume of the gas produce is calculated in the cubic feet, whereas the volume of produced crude oil is measured in barrels. It becomes difficult for the analysts and management to compare the company's total reserve base with another company. The standardisation of natural gas and other energy resources into an oil barrel equivalent provides an easy metric for comparison on an equivalent scale.

It is most often used to compare natural gas volume to crude oil volume for measuring reserves or production.

Understanding Barrels of oil equivalent

Barrels of oil equivalent is a measure of energy. Most of the reservoirs contain crude oil and natural gas, which are formed by a similar geological process. Companies report their oil and gas reserves in a definite period. The management of the company analyses the results to make significant decisions for the company's progress while the investors use the information to compare it with other peers for investing. The standardisation of the reserves in BOE helps the companies and investors to get rid of complicated comparisons among peers.

What is a Barrel?

A Barrel is commonly abbreviated as bbl and used as a measurement unit for liquid crude oil products. The standard 42-gallon crude oil barrel contains around 45 gallons of refined crude oil products per barrel.

How to calculate Barrel of Oil Equivalents (BOEs)?

The conversion of a company's assets to BOE is an easy task. Since the volume of oil is calculated in barrels and gas volume is calculated in cubic feet, companies convert the oil and gas volume into BOE. One barrel of oil contains 42 US gallons or 159 litres. The energy contained in one barrel of oil is equivalent to 1,700 kilowatt-hours (kWh) or 5.8 million British thermal units (MBtus), depending on the quality and grade of crude oil. The energy contained in a barrel of oil or gas depends on the maturity of the source material's organic matter. If the organic matter is highly matured, one will get a fine quality of hydrocarbons with ultimate higher energy and vice-versa.

On the contrary, 1 Mcf of natural gas contains around ~17% of the energy contained by a barrel of oil. This means around 6 Mcf of natural gas will have the energy equivalent to one barrel of oil. The units of BOE can also be represented in the form of kilo barrels of oil equivalent (KBOE) for higher volumes.

Let us try to understand the conversion process with the help of an example. Assume an oil and gas E&P company produces 551,000 barrels of oil per day and 619 million cubic feet of natural gas per day. Now, we want to calculate the annual production in barrels of oil equivalent. So, we will proceed step by step for getting the solution:

Initially, we will calculate the company's annual oil production by multiplying the daily oil production by days in a year since the production rate is provided on a per-day basis.

Copyright © 2021 Kalkine Media Pty Ltd

We will then calculate the total volume of natural gas produced during the year by multiplying the daily gas production rate by the number of days, i.e. 365. Additionally, we will multiply the result by 1/6, as six barrels of natural gas is equivalent to one barrel of oil.

Copyright © 2021 Kalkine Media Pty Ltd

Further, to calculate the total Barrels of Oil Equivalent, we will add the above two values to get the final result.

Copyright © 2021 Kalkine Media Pty Ltd

We can also convert it into Tonnes of Oil Equivalent by simply using the relation between tonnes and barrels.

Copyright © 2021 Kalkine Media Pty Ltd

Use of Barrel of Oil Equivalents (BOE) in Production

Companies also use BOE to report the daily production and consumption of crude oil and natural gas. The figures are often represented in MMBOED or MMboepd, which stands for Million Barrels of Oil Equivalent per Day.

The term is used in conjunction with the supply and production of hydrocarbons. The daily throughput of a company can easily be reported in a single unit rather than multiple units if the company produces both oil and natural gas, making it a simpler solution to track its daily output.

History of Oil barrel

The history of oil barrel dates back to the 1880s, during the oil production in Pennsylvania oil fields. There were no standard measuring tools to measure the amount of produced crude oil. Oil companies used readily available containers to measure the amount of produced crude oil. The 40-gallon whiskey barrel was very common at that time and readily available at that time. However, the 42-gallon barrel was lately adopted by the industry in 1872. Two extra gallons were added to the barrel volume to assure the consumers must get at least 40 gallons. Later the size became an integral part of the oil industry's transportation infrastructure.