How Does an Oil and Gas Company Measure

and State Its Production?

Measuring Oil and Gas Production
Oil and gas exploration and production companies, or E&P companies, use three
basic formats for measuring and reporting oil and gas production:

(1) Oil production is measured and reported in barrels, or “bbl.” Production

rates are typically reported in terms of barrels per day, which may be abbreviated
in several different ways, including bpd, b/d and bbl/d. Production volume may
be rounded to the nearest thousand or million barrels, denoted with “m” or
“mm,” respectively.

(2) Gas production is measured and reported in cubic feet at a standardized

temperature and pressure of 60 degrees Fahrenheit and 14.73 pounds per square
inch.1 Similar to oil production figures, gas production is often reported in
shorthand of million, billion or trillion cubic feet, denoted by “mmcf” and
“Bcf” or “Tcf,” respectively. Global gas production is often reported in cubic
meters to simplify the large volumes.

(3) Oil and gas companies may also standardize their production in units of barrels
of oil equivalent, or BOE. This measurement converts gas production to oil
production on an energy-equivalent basis. The industry standard conversion rate
of 1 barrel of crude oil has the same amount of energy as approximately 6,000
cubic feet of natural gas.2 It is also possible, but less common, to see oil
production reported in the equivalent volume of gas, denoted by “mcfe.”

In the United States, oil and gas is measured prior to leaving the well site and
passes through a series of verification measures that may include gas meters or
manual checking of oil storage tank levels.

Global Oil and Gas Production

In 2020, global crude oil production totaled 94.24 million barrels per day,3 or
"mmbpd," of which 11.3 mmbpd came from the United States.4 The Middle East
includes five of the top ten oil-producing countries and is responsible for
producing about 27% of world production.5 In 2019, the United States was the
world's largest gas producer at 955 Bcm, followed by Canada at 177 Bcm.6 During
2020, U.S. natural gas production averaged 111.2 cubic feet per day or Bcf/d.7

Barrel of Oil Equivalent (BOE): Definition and

How To Calculate
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street
experience as a derivatives trader. Besides his extensive derivative trading
expertise, Adam is an expert in economics and behavioral finance. Adam
received his master's in economics from The New School for Social Research
and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a
CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He
currently researches and teaches economic sociology and the social studies of
finance at the Hebrew University in Jerusalem.
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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).

Many oil companies produce both oil and gas, among other petroleum products,
but the unit of measure for each is different. Oil is measured in barrels and natural
gas is measured in billions of cubic feet (BCFE). To help facilitate like-for-like
comparisons, the industry standardized natural gas production into "equivalent
barrels" of oil. One barrel of oil is generally deemed to have the same amount of
energy content as 6,000 cubic feet of natural gas. So this quantity of natural gas is
"equivalent" to one barrel of oil.
BOE can be compared with natural gas equivalent, which translates the energy in
an amount of oil (or other energy product) into that of gas.

KEY TAKEAWAYS

 Barrel of oil equivalent (BOE) is a way of standardizing natural gas and other
energy resources to a barrel of oil's energy.
 This measurement converts gas production to oil production on an energy-
equivalent basis.
 One barrel of crude oil generally has approximately the same energy content
as 6,000 cubic feet of natural gas, so this quantity of natural gas is
"equivalent" to one barrel of oil.
 Calculated BOEs per day (BOE/D) is an important metric for financial analysts
and industry insiders to evaluate the performance of energy companies.
 It is also possible, but less common, to see oil production reported in the
equivalent volume of gas.

Understanding a Barrel of Oil Equivalent

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.

Calculating Barrel of Oil Equivalents

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.

The Society of Petroleum Engineers provides conversion tables that help illustrate
unit equivalencies and some of the factors that affect comparison and conversion.

Barrel of Oil Equivalents and Production

BOE also comes up when communicating daily energy production and
consumption. This is expressed in barrels of oil equivalent per day (BOE/D). Barrels
of oil equivalent per day is a term that is used often in conjunction with the
production or distribution of crude oil and natural gas. BOE/D is important to the
financial community because it is used as a way to help determine the value of a
company.

There are several different metrics that equity and bond analysts use to evaluate
the performance of an oil company. First is a company's total production, which is
calculated on a total equivalent barrel basis. This helps to determine the scale of
the business. Companies that produce little oil and a lot of natural gas could be
unfairly evaluated if equivalent barrels were not counted.