How do you compare figures from different oil and gas companies?
In my previous article, I promised to explain some of the jargon used by oil companies. There's no better place to start than the units they use to measure amounts of hydrocarbons. You don't know if an oil company is cheap unless you know how much oil and gas they have. Different companies may use units of volume, mass or energy content, and switch between imperial, metric and units that are unique to the industry -- it's a complete mess.
Roll out the barrel
So let's start with the most familiar way to measure hydrocarbons – the barrel of oil. In the early days of the industry in Pennsylvania there were no pipelines or tankers, so oil was transported in whatever wooden barrels came to hand. Typically these were old whiskey barrels of 40 US gallon capacity but by 1866 the producers decided that their customers needed a standard barrel size. They settled on :
1 barrel of oil = 42 US gallons = 34.97230 Imperial gallons = 158.9873 litres.
There are various explanations for the traditional abbreviation 'bbl' for barrel. Some people suggest it was originally a plural -- 1bl, 2bbl -- others that the 'b' was repeated to distinguish it from 'bl' for bale, a unit for measuring paper. It certainly predates the 'blue barrels' of Standard Oil, but they may have reinforced the usage.
You may see 'bbl' capitalised as 'Bbl' or 'BBL', and often in plural form, 'bbls'. The flow rate of a well is typically given in barrels per day -- confusingly this abbreviates to 'bpd' or less frequently as 'b/d', but never bblpd.
Tonnes and kilolitres
Russia and much of Europe prefer to measure oil in tonnes. Since a barrel is a unit of volume, and the tonne is a unit of mass, the exact relationship between them will vary depending on the density (specific gravity) of a particular oil. But for a typical oil with a specific gravity of 0.85 tonnes/m³:
1 tonne = 1000/0.85 litres = 1176 litres = 7.4 barrels (range is 6.5-8 bbl/t)
Finally, the Japanese and a few others measure oil in kilolitres, you may also see cubic metres of oil which is effectively the same thing:
1 kl = 1000 litres = 1 m³ = 6.2898 barrels
Volumes of gas
The oil market is international, so there were compelling reasons to use a common unit, even one as weird as the barrel. Gas markets tend to be much more localised, so different regions use different combinations of metric and imperial units and measure either volumes, quantities or energy content.
The most common unit you will see is the cubic foot (cf), a unit of volume. A closely related unit is the standard cubic foot (scf) which is a cubic foot of gas at 60°F and standard pressure. Technically it is a unit of quantity, being a specific number of molecules of gas, rather than volume, but cf and scf tend to be used interchangeably. In general gas in the ground is measured in cf and gas in pipelines is measured in scf.
In Russia and Eastern Europe, gas is measured in thousands of cubic metres, abbreviated as tcm.
1tcm = 1000 m³ = 35,315cf
Thousands and millions
For many people the single most confusing bit of oil industry jargon is the way it prefixes units. If you're used to 'k' = 'kilo-' = 1000 of a unit, 'M' = 'mega-' = 1 million, and 'm' = 'milli-' = 1/1000, forget it. At least most of the time.
Normally the industry uses the old 'mille' system, so 1mcf = 1000 cubic feet, and 1mmcf = 1 million cubic feet. The latter may also be written as 1MMcf, and sometimes you'll see 1Mcf where the single capital 'M' refers to the metric 'mega-' prefix = 1 million cubic feet. Bigger volumes appear thus :
1bcf = 1 billion cubic feet = 1000 million cubic feet
1tcf = 1 trillion cubic feet = 1 million million cubic feet
Whereas when applied to cubic metres, 't' means 'thousand'. Then again, sometimes you will see 'tcm' written as 'mcm'. Other than that, metric units always take the standard 'kilo-' and 'mega-' prefixes, as do most measurements of oil flow. Thus you might get a reserve of 14mmbbl of oil that flows at 3.3kbpd.
I wouldn't get too worried about this -- just be aware that there is potential for confusion and that different writers will use different conventions. With a bit of experience you can work out what is meant from the context. Personally I blame whoever had the idea of teaching engineers to read and write, they still haven't worked out that the alphabet should be a standardised way of communicating with Earthlings.
Energy content of gas
Electricity companies are less interested in the volume of gas than in its energy content, and this varies a bit depending on the chemical composition of the gas. So gas is normally traded according to its energy content -- in North America the normal unit is 1 million British thermal units (1MMBtu), Britain prices it in pence per therm (thm), and Australia measures gas in gigajoules (GJ) :
1MMBtu = 10 therms = 1.055GJ = 293kWh
1MMBtu is very roughly the energy content of 1000cf of gas -- it varies from 0.96-1.12MMBtu. The average is 1.025MMBtu/mcf; looking at it the other way 1MMBtu is approximately equivalent to 976cf. In practice mcf and MMBtu are used interchangeably.
Barrels of oil equivalent
Companies often translate their gas reserves into barrels of oil equivalent, or boe (unlike the Doctor Who character, it's pronounced as three syllables, b-o-e). They say that this is for the convenience of investors, but since gas is worth less than liquids, it just happens to make gas reserves appear more valuable than they are. 1 boe is approximately the energy released by burning 1 barrel of oil -- it's a unit of energy content, not a measure of value. Companies producing mostly gas may convert the other way, oil into cubic feet of gas equivalents (eg, 553bcfe).
The US taxman defines 1 boe = 5.8MMBtu. The exact conversion to volumes of gas depends on its chemical composition. Typically 1 boe = 6000cf but some companies use the more flattering 1 boe = 5800cf; the conversion rate will be noted in the footnotes somewhere.
A handy rule of thumb is that the price of gas in pence per therm is roughly the same as the price in $/boe. This relationship is exact when the exchange rate is US$1.72/£, as 1boe = 58 therms. British wholesale prices are typically around 40p/therm, but can range from negative to 250p/therm. That's nearly twice as expensive as oil has ever been!
Well done for making it this far, and you might want to print this out for future reference. In the next article, I'll discuss not quantity of oil but quality of oil -- what makes some types of oil more valuable than others?
Previous 'Oil Investing' articles by Hallucigenia:
