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Valuing Barrels of Oil Equivalent

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  • James L. Smith

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.

Suggested Citation

  • James L. Smith, 2015. "Valuing Barrels of Oil Equivalent," The Energy Journal, International Association for Energy Economics, vol. 0(Adelman S).
  • Handle: RePEc:aen:journl:ej36-si1-smith
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    References listed on IDEAS

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    Cited by:

    1. Langer, Lissy & Huppmann, Daniel & Holz, Franziska, 2016. "Lifting the US crude oil export ban: A numerical partial equilibrium analysis," Energy Policy, Elsevier, vol. 97(C), pages 258-266.

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    • F0 - International Economics - - General

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