Simple Definition: A Barrel of Oil Equivalent (BOE) is a standard unit of measurement that is used to summarize the total energy content of various resources. It enables oil and gas companies to pool crude oil, natural gas, and natural gas liquids into a single measure. This facilitates a much easier comparison of the overall amount of energy generated by different hydrocarbons.

6 Mcf natural gas equals 1 BOE (Barrel of Oil Equivalent), showing the standard 6:1 energy conversion ratio used in oil and gas production reporting

6 Mcf of natural gas is commonly converted to 1 BOE using the standard 6:1 energy conversion ratio in oil and gas production reporting.

Why This Term Matters

The barrel of oil equivalent is an important tool for mineral owners and investors in determining the overall value of a company. Because operators often produce both oil and gas from the same well, the E&P companies require a means of displaying their cumulative reserves and production under a single metric.

Without the barrel of oil equivalent, one would have a hard time trying to establish the size of a company that produces much gas and little oil. This standard unit is used by petroleum engineers and analysts in financial statements to create like-for-like comparisons between various firms. It makes you look at the energy production as a big picture and not focus on various resources individually.

Detailed Explanation

The barrel of oil equivalent is calculated on the basis of the average energy/heating value of fuels. Given that crude oil is registered in barrels and natural gas is registered in cubic feet, the industry devised a method of matching the two using the amount of energy emitted during combustion.

The British Thermal Unit (BTU) is used to achieve this equivalent of energy in the metric system. A barrel of crude oil will produce approximately as much power as 6,000 cubic feet of natural gas (6 Mcf). As such, the parallel math will look as follows:

1 Barrel of Oil (bbl) = 42 US Gallons
1 Barrel of Oil (bbl) = 158.987 Liters (almost always rounded to 159 Liters in the field)

Therefore, 1 BOE represents the heating value (energy equivalent) of exactly 42 US gallons, or roughly 159 liters, of crude oil.

Most energy firms give reports on daily production in BOE/D (barrels of oil equivalent per day). This gives a very good comparison of the energy content, but investors must keep in mind that the market values vary. A barrel of oil will tend to be more expensive than a similar amount of natural gas, even when the energy content is identical.

Real-World Example

Example of oil and gas production converted to BOE per day, where 1,000 barrels of oil and 6,000 Mcf of gas equal 2,000 BOE per day

Oil and gas production is often reported in BOE per day, combining oil and natural gas volumes into a single energy-equivalent measurement.

Consider an upstream E&P operator in the Permian Basin reporting daily production volumes at the wellhead. If the operator produces 1,000 barrels of crude oil and 6,000 Mcf of natural gas per day, we must convert the gas to get the total BOE. Because 6 Mcf equals 1 unit of BOE, 6,000 Mcf of natural gas equals 1,000 BOE. Therefore, the total oil equivalent capacity of this operator is 2,000 BOE/D.

Key Facts

Standard Unit: Forms a common unit of oil, gas, and natural gas liquids.
Conversion: 1 BOE is normally 6,000 cubic feet of natural gas.
Financial Value: This is the one that gas companies use to disclose the reserves in their financial statements.
Energy Basis: On the average energy or heating potential (BTUs) of the fuel.
Utility: assists investors and petroleum engineers in the comparison of the supply of various resources.