We are always trying to help you make safer and more dependable decisions when it comes to your oil investments. These mean suggesting good stocks and also the not so good stocks. In this case it may be worth taking note of an investment option, that really isn’t all that good. Marin Katusa informs us about BOE and its not so hot reputation.
Most oil wells produce some natural gas and natural gas wells often produce some oil, so most energy companies produce both kinds of fuel. To simplify reporting, producers have long lumped quantities of the two into one calculation: the “barrel of oil equivalent” (BOE).
The BOE is a unit of energy, defined as the energy released when one barrel of crude oil is burned. Since different grades of oil burn at different rates, the value is an approximation, set at 5.8 x 106 BTU or 6.12 x 109 joules. The BOE concept then lets us combine different fuels according to energy equivalence. Barrels of oil equivalent are most commonly used to combine oil and natural gas: one can say that one barrel of oil is equivalent to 5,800 cubic feet of natural gas because both produce approximately the same amount of energy on combustion.
It is understandable that companies want to distill their production or reserve information down into a single number that summarizes the situation for investors. The problem is that details are lost during the distillation process – and they are important details.
See, the BOE concept would be great if we valued companies based on the energy contained in their reserves, but we don’t. We care about the money they can earn from those reserves; that valuation depends on the market prices for oil and gas, which are just a tad bit different. One barrel of oil is equivalent in energy to 5,800 cubic feet of natural gas, but the difference invalue is very significant – and that is the trap.
Take note of this possible investment mistake. Always be aware of where your money is going, and exactly how you can make money from it. Cover your bases all the time, and you will be a better investor for it!
Quotes taken from report by Marin Katusa, Read the entire article here.
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