To BOE, or Not To BOE…

In order to properly compare production and resource potential between different petroleum fluid phases, gas and liquid volumes are normalized to the same unit—the barrel of oil equivalent (boe). Oil and condensate volumes require no adjustment, but natural gas has historically been subjected to a 6:1 ratio based on thermal equivalency (6 mcf of gas produces the same amount of heat energy as 1 barrel of oil). 

In the past, a 6:1 ratio was also suitable on an economic (price) basis. Under contemporary pricing conditions this relationship is, to put it mildly, optimistic. In terms of monetary value, a more appropriate mcf:boe ratio would be 20:1, and even this is conservative under current spot pricing.

From an exploration and development standpoint, the effect of a ratio change can be demonstrated on 3-month cumulative production maps of an area in western Canada with mixed gas and liquids production. On the 6:1 ratio map, there are two well-defined high producing zones in the central portion of the subject area (figure 1). The westernmost “hotspot” comprises dry gas wells, while the eastern one produces gas with a high liquids rate. Using the 20:1 ratio, all of the cumulative values drop substantially, but the east hotspot maintains its relative high standing and same basic areal extent (figure 2). The western hotspot is severely reduced, and is matched by a sparsely drilled, liquids-rich area to the southeast that appeared rather ordinary on the 6:1 ratio map.

Notwithstanding other related factors such as the chronic under-reporting of natural gas liquids in public production data, using an economic-based BOE ratio can result in attention being directed toward areas that are outshone by less desirable, albeit prolific, dry gas production under an energy-based 6:1 ratio.

The Discovery Digest has published for over 30 years focusing on topics of interest to anyone involved in the upstream oil industry. Chances are someone you know or have worked with has the Discovery Digest. If you wish to have access or are not a subscriber, contact us and we’ll get you started.