How Barrels of Oil Equivalent per Day (BOE/D) Works

To better understand the barrel of oil equivalent per day (BOE/D), we need to understand what barrels of oil equivalent (BOE) means. Barrel of oil equivalent, on its own, is a term used to compare the amount of energy gained from a resource to the amount of energy gained from a barrel of crude oil. Since BOE encircles numerous types of energy resources into one figure, people can more easily gauge the total amount of energy a company can produce.

The unit of measurement for each energy resource is different. For instance, crude oil is measured using barrels, whereas natural gas is measured in cubic feet. To uniformly compare the amount of energy these two resources can produce, the industry allows the conversion of cubic feet into barrels of oil. To put it simply, the total energy from one barrel of oil is more or less equal to the total energy from 6,000 cubic feet (6 mcf) of natural gas.

After understanding what BOE means, you can deduce what barrels of oil equivalent per day are referring to. BOE/D is closely related to the energy output rate of a company. Managers take advantage of BOE/D to determine how many equivalent barrels of oil their companies produce per day. It doesn't matter what type of resource it is; as long you can convert the unit of measurement to barrels of oil equivalent, managers can measure the rate at which their company is producing energy using BOE/D.

Example of Barrels of Oil Equivalent per Day (BOE/D)

Despite what it may seem, converting units of measurement into BOE-compatible is surprisingly simple. One barrel of oil is equal to about 159 liters. Moreover, a barrel of oil approximately contains 1,700 kWh of energy within it. Keep in mind that the type of oil may influence the energy output per barrel.

On the other hand, it takes around 6,000 cubic feet (6 mcf) of natural gas to produce the same amount of energy. Put it another way, the energy from 1 mcf (1,000 cubic feet) of natural gas is equal to around one-sixth of a barrel of oil. This is a commonly accepted comparison.

As a side note, the conversion of natural gas to oil (and vice versa) is common as these two resources are formed through the same geological processes. Corporations from the energy industry often produce and save these two forms of energy at their reverse bases simultaneously, making it easier to do the comparison. The efficiency to make financial decisions improves, and investors have a more straightforward way to do an assessment.

Significance of Barrels of Oil Equivalent per Day (BOE/D)

Analysts, managers, and investors use BOE/D as an essential indicator to determine a company's value. Often, two aspects are closely inspected; production and reserves.

The rate at which a company can produce BOE/D is the most fundamental way to gauge the business scale. A larger number means that the company is higher valued. It's important to note that BOE/D ensures fair comparison, whether the company produces oil, natural gas, and/or any other type of petroleum product.

Measuring the energy reserves of a company using BOE/D is vital to determine the company's value. If we take for granted a company's energy reserve, it may result in an inaccurate assessment. In other words, we don't take into account the total amount of energy the company has, which may result in unfair treatment. For instance, banks may impose high borrowing fees on companies that produce comparatively smaller energy output, even though they may have an abundance of reserves to afford the loan.