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Permalink Reply by tc on July 21, 2013 at 14:56

I think BOE and pricing should never be mixed.  I could convert a Haynesville well to BOE and you would get a price of $22 per BOE, a TMS well with 95% oil would have a BOE of $100.  I think each well needs to have its BOE broken down to its individual % components NG, NGL and oil and then price each separately. 

Only an operator can give you an accurate breakdown on "wet gas" and its pricing, anyone else is just guessing.  This is one operator's average on NGLs.  According to a presentation by the Midstream Energy Group, the average NGL barrel composition in December 2011 was ~43% ethane, ~28% propane, ~7% normal butane, ~9% isobutane, and ~13% pentanes or heavier hydrocarbons.

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Permalink Reply by Bernell McGehee on July 21, 2013 at 16:56

Yep.  That makes sense.

They refer to the gas as "wet gas."  I'm thinking the "wet" gas is worth more than straight natural gas.

Is the dividing by 5.8 a good estimate of the BOE?

 

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Permalink Reply by tc on July 22, 2013 at 0:30

MCF to BBL is 6 to 1 per SEC rules.  This is based on energy equivalent and many years ago pricing was also around 6 to 1, but now pricing is closer to 30 to 1 for MCF to BBL.  This pricing gap is one reason more E&G companies are switching to BOE from Mcfe, when investors hear BOE they think $100, when they hear Mcfe they think $4. 

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Permalink Reply by Bernell McGehee on July 22, 2013 at 5:04

Thanks.

One more bit of info, if you can help, would be nice.

Should we expect higher prices from the "wet" gas than from dry?

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Permalink Reply by tc on July 22, 2013 at 5:29

"Should we expect higher prices from the "wet" gas than from dry?"  Yes, "wet gas" is usually dry gas plus NGLs, so as long as there is enough NGLs present to pay for the processing, wet gas goes to a processing plant where NG and NGLs are separated and then they are sold at there respective prices.

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Permalink Reply by Andrew on July 25, 2013 at 7:53

The only way I know to combine multiple commodity volumes into one "BOE" number is to convert the commodities based on BTU content. Since BTU will vary from play to play and even well to well, I wouldn't rely on any set proportion or rule of thumb. 

And as TC said, "BOE" doesn't provide any useful indication of production revenue. Because each commodity is priced by its own distinct market, there's really no way to accurately combine them all into one unit at one price.

BOE figures may be scientifically relevant (and consequently beyond my paygrade), but I disagree with using BOE for financial purposes such as in corporate press releases. Maybe I'm being cynical, but I think the main reason for reporting BOE is for a company to make their production seem oilier than it really is, or simply to give a bigger-sounding production number than reporting gas/oil volumes separately would give. But that's a rant for another day I suppose...

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Permalink Reply by Bernell McGehee on July 25, 2013 at 8:48

Thanks.

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