Template-Type: ReDIF-Article 1.0
Author-Name:  James L. Smith
Title:  Valuing Barrels of Oil Equivalent
Classification-JEL: F0
Volume:  Volume 36
Issue:  Adelman Special Issue
Year:  2015
Abstract:  By convention, the petroleum industry relies on thermal equivalence to summarize the results of upstream oil and gas operations - measuring outputs in terms of barrels of "oil equivalent." This despite the fact that the two commodities trade at nothing like thermal parity. Drawing on a well-known exponential production model of petroleum reserves, we demonstrate the potential for thermal equivalence to substantially distort common measures of exploration and development success. Drawing on a recent survey of actual upstream results, and relative to a proposed measure based on economic equivalence, we show that the extent of bias in estimates of value, cost, and profitability is indeed large. 
Handle: RePEc:aen:journl:ej36-si1-Smith
File-URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2668
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