Barrels of Oil Equivalent Per Day

Meaning of Barrels of Oil Equivalent Per Day

Barrels of Oil Equivalent Per Day is one term that is often used in regards to the distribution or production of natural gas and crude oil. Several oil companies produce both of them; however, the unit of measurement for each is different.

While oil gets measured in barrels, natural gas gets evaluated in cubic feet. To help simplify like-for-like comparisons, the Industry has standardized the production of natural gas in equivalent barrels of oil. Thus, one oil barrel is generally said to carry the same energy amount as that of 6,000 cubic feet of natural gas.

Therefore, this natural gas quantity is equal to one barrel of oil. When measuring the natural gas production of a company, often, management would look into how many equivalent barrels of oil the company is producing. This makes it quite easier to compare a company with its competitors.

Knowing Barrels of Oil Equivalent Per Day

Large oil producers get evaluated and refer to the production by cubic feet of natural gas. Or, it could also be by the barrels of oil equivalent that they produce each day. This is a standard of the industry and a way that investors compare the production of two gas and oil companies.

BOE/D is essential to the financial community as it is used in a way that it helps to comprehend the company’s value. There are several metrics bond and equity analysts use to assess the performance of an oil-producing company.

The first and foremost is the total production of the company, which is evaluated on the Basis of the total equivalent barrel. This helps figure out the growth of the business. Moreover, companies that produce a lot of natural gas, but little oil could be unjustly evaluated in case their equivalent barrels are not counted.

Another essential measurement of a company is on the basis of its reserves’ size. Equivalent barrels play a vital role in this aspect as excluding natural gas reserves might lead to an unfair impact on the company’s size.

When banks comprehend the loan size, it is crucial to keep the total size of the reserve base in mind. Furthermore, converting natural gas reserves to equivalent barrels is a straightforward way to understand the like-for-like metric that can determine the debt amount a company has to its reserve base. If this doesn’t get assessed correctly, a company can be impacted unfairly with high borrowing expenses.