Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Barrel of Oil Equivalent

What it is:

A barrel of oil equivalent (or BOE) is a unit measure of unused energy resources. Expressed frequently in the financial statements of energy companies, BOEs are defined by the U.S. Internal Revenue Service as 1,700 kilowatt hours or as 5.8×106 British Thermal Units (BTUs).

How it works (Example):

Energy companies need some way of expressing their inventories of potential energy resources. Since there may be many resources capable of differing energy outputs, there needs to be one standard, universally-recognized unit of measure that can be used to express the value of energy resources.
 
To illustrate, consider Company XYZ with the following energy resource inventories:

  • Coal –  5,000 kilowatt hours
  • Crude Oil –  5,000 kilowatt hours
  • Propane –  7,000 kilowatt hours

Regardless of the energy resource, when added up, the total amount of kilowatt hours comes to 17,000. To express this in BOEs, please note the calculations below:

17,000 kilowatt hours / 1,700 kilowatt hours per BOE = 10 BOEs total available energy resources

Why it Matters:

Energy companies need to report their energy inventories in their annual reports and financial statements. Since energy is produced from potential energy resources, companies express the energy in terms of available resources. The total amount is expressed in a standard unit based on how much energy can be produced regardless of the resource. This makes it easier to compare financial statements from different companies. Since barrels of oil are a universally-recognized and common source of consumer and industrial energy, it is often used to express energy inventories.