Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Foolish Fundamentals: Understanding BOE

Integrated oil companies and independent exploration and production companies both essentially live and die by their reserve base. If reserves aren't replaced quickly enough, a company can't hope to maintain, let alone grow, production. That's why investors want to keep an eye on reserves for companies in this space.

The tricky thing is, reserves take many forms. There's crude oil, which is measured in barrels. Then you have natural gas, whose base unit is 1,000 cubic feet. Many companies have a mixed reserve base, and they need a way to represent to investors the total energy content of that base. They do that typically by converting all of the reserves to a barrel of oil equivalent, or BOE, basis.

The conversion is pretty straightforward, but the abbreviations can be confusing. A thousand cubic feet of natural gas -- notated as 1 mcf -- contains about one-sixth of the energy content of a barrel of oil. So 6 mcf of gas equals 1 BOE. You'll also see barrels of oil equivalent sometimes represented as "bboe," where the double-b represents the plural, "barrels."

Now, large companies don't have total gas reserves in the mere thousands of cubic feet -- that wouldn't be much of a reserve base. Rather, they tend to have reserves in the millions (mmcf), billions (bcf), and trillions (tcf).

Now that we have the abbreviations down, here's an example. For year-end 2006, ExxonMobil (NYSE: XOM  ) reported liquid reserves of 8.19 billion barrels, and gas reserves of 32.48 tcf. On an oil-equivalent basis, the gas reserves equal 5.41 billion barrels, yielding total reserves of 13.6 billion BOE. And that's how it works.

For related Foolishness, see "Two Emerging-Market Oil Giants."
Peek in on the oil and gas sector at Motley Fool CAPS, where you can speak out on just about any sector or stock you like. Best of all, joining our investor-intelligence community is free of charge.

Fool contributor Toby Shute doesn't own shares in any company mentioned. The Motley Fool's disclosure policy has no equivalent.

Read/Post Comments (0) | Recommend This Article (12)

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 527741, ~/Articles/ArticleHandler.aspx, 10/26/2016 7:50:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
XOM $87.09 Up +0.37 +0.43%
ExxonMobil CAPS Rating: ****