Natural gas liquids, BOE's, condensates

Could someone please explain the difference between condensates, barrels of equivalent oil, natural gas liquids, etc.? Also, if your lease covers oil and constituents and gas and constituents, does that include those things/everything? Do constituents cover anything done to the above after it leaves the ground? Is that market enhancement? Thank you!

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Permalink Reply by Joseph-Ohio on October 17, 2014 at 6:19am
I'll offer that I've found that many of the terms are just different names for the same things, and it's been that way ever since I began trying to figure things out about all of this.

Actually, personally I find that this occurs all over these days no matter what you're trying to study / understand.

What I do is look everything up in a dictionary first and then proceed from there if still unclear asking someone who may / should know. Even run into confusion there because the word may mean one thing to one person and something else to another.
Permalink Reply by Jack Straw on October 17, 2014 at 6:47am

There is a continuum of hydrocarbons of increasing molecular complexity; starting with the simplest being Methane (dry Natural Gas) and working up to oil.

 

Ethane through Pentanes are what are typically referred to as Natural Gas Liquids (they are liquids under modest pressures, gasses at atmospheric pressure).

Living in the zone between NGLs and Oil are Condensates …. You can think of Gasoline as being a condensate.

 

Methane   CH4

Ethane C2H6

Propane C3H8

Butane and Isobutane C4H10

Pentane C5H12

Condensates (also often referred to as Natural Gasoline, Casing Head Gas, or recently called Ultra Light Oil).

Oil

 

Barrels of Oil Equivalent (BOE) is an accounting term required by the SEC.

I consider BOE to be so confusing as to be useless unless accompanied by percentages.

BOE is an ‘equivalence’ based on the BTU content of the constituents being referred to.

 

On a BTU basis (the amount of energy released when burnt in a laboratory) six mcf (six thousand cubic feet) of dry gas is considered to be approximately the equivalent of one barrel of oil.

 

Currently one barrel of oil (NYMEX West Texas intermediate) is selling for around $80/barrel.

Currently Natural Gas at Leidy Hub is selling for around $2/mcf.

 

So, on a BTU basis $12 worth of Natural Gas is considered to be the equivalent of $80 worth of oil.

That tells me two things, Natural Gas is currently a VERY cheap form of energy; second, for our purposes BOE is a useless number …. BOE is a number which causes much confusion and educates us very little. It is bandied about at times in a manner intended to confuse. I do not find BOE to have any significant value unless it is accompanied by a percentage breakdown of what exactly the constituents are. To paraphtrase George Orwell; All BOE are equal, but some BOE are more equal than others.

As royalty holders (or investors for that matter); what we care about are dollars and cents ….. not BOE (an arcane and confusing accounting measure required by government regulatory agencies).

 

RE: “Also, if your lease covers oil and constituents and gas and constituents, does that include those things/everything?”

 

Yes, if they can sell it, you should be allotted your share ….. of course that does not mean that they will not find some slimy accounting trick to minimize how much you receive.

 It should be noted, that if produced in small quantities, it might cost an operator more to deal with NGLs and Condensate than they can sell these for. They can become an expense/nuisance when only present in small amounts. 

 

All IMHO,

                   JS

Permalink Reply by Joseph-Ohio on October 17, 2014 at 7:17am
Thank you sir.
Permalink Reply by Philip Thackray on October 17, 2014 at 7:06am

Here is a helpful chart:

Permalink Reply by Philip Thackray on October 17, 2014 at 7:09am

Jack,

Can you explain how gas companies increase the mcfe of a gas stream by extracting the ethane?  See "Assumptions:" in the Range presentation above.  Rex does the same thing.

Phil

Permalink Reply by Dexter Green on October 17, 2014 at 4:37pm

"Ethane rejection" is when the company chooses to let the ethane stay in the stream and thus does not extract it (and thus cannot sell it separately).  When there is somewhere to sell said ethane it is extracted from the stream and sold, which contributes to a higher total MCFE.

Permalink Reply by Philip Thackray on October 18, 2014 at 1:17am

Dexter,

I understand ethane rejection and extraction.  In fact the unit that I am in is finally seeing some sales of extracted ethane although the last price was 19 cents/gal.

I sent this question to Rusty Braziel's group rbnenergy.com in the form of a word document with excerpts from Rex and Range corporate presentations.  Sandy Fielden of that group sent his reply (in red) pasted into my original document.  See attachment.

Not a real satisfying answer.

Phil

Attachments:
Permalink Reply by M.A.B. on October 18, 2014 at 3:10am

so, all the stuff that comes out of the borehole, except oil, is measured in BOE equivalency ?

Permalink Reply by Dexter Green on October 18, 2014 at 6:18am

Yes and no.  Companies like to give a BOE because it sort of makes wells look better when they are heavily skewed toward gas production.  Since most--if not all--companies don't give a straight-foward realized price per BOE it's hard to know what a BOE is actually worth on a well-by-well basis.  If I have a well producing 100 bbl/d of oil it's also producing (technically) 100 boe/d.  A well producing 580 mcf/d is also producing 100 boe/d.  The oil well is getting $85/bbl for a rate of $8,500/d.  The gas well is getting $3.00 mcf for a price of $1,740/d.  Same BOE, very different economics.  

Permalink Reply by Jack Straw on October 18, 2014 at 8:17am

RE: "so, all the stuff that comes out of the borehole, except oil, is measured in BOE equivalency?"

What comes out of the borehole is REPORTED in terms of BOE (Barrels of Oil Equivalent) in various reports required by the SEC and IRS; reports submitted to government entities and to shareholders/investors. BOE is essentially an accounting construct.

BOE is used by oil and gas companies in their financial statements as a way of combining natural gas, natural gas liquids, condensate and oil into a single number; as required (and in a manner required) by government entities.

The oil and gas companies do not produce BOEs; they produce natural gas, and/or natural gas liquids, and/or condensate and/or oil.

The oil and gas companies do not market BOEs; they sell natural gas (as measured in mcf or mmBTU), and/or natural gas liquids (likely measured in gallons), and/or condensates (likely measured in gallons or barrels), and/or oil (likely measured in barrels).

No one purchases BOE; they purchase natural gas, and/or natural gas liquids, and/or condensate and/or oil.

For we landowners/royalty owners, what is important is what constituents are present and each in what amount (measured by volume, not BOE) .... and then we need to know how much each of the constituents sells for (by volume, not BOE).

If you were to tell me that a well had a daily production of 1000 BOE; that would mean little or nothing to me ..... not unless that statement was qualified such as "my well had a daily production of 1000 BOE (60% natural gas, 6% ethane, 7% butane, 4% propane,17% condensate, 6% oil); with that complete information I could sit down with a calculator and determine the quantities of the various constituents and estimate their individual and collective value.

Let's say that you have a farm; and on that farm you have a mixture of chickens, geese, goats, pigs and cattle.

Now the government tells you that (for reporting purposes):

479 chickens are equivalent to one cow (479 chickens = 1 CE),

353 geese are equivalent to one cow (353 geese = 1 CE),

29 goats are equivalent to one cow (29 goats = 1 CE),

27 pigs are equivalent to one cow (27 pigs = 1 CE).

Now, once a year you are required to inform the government as to how many animals you have; but you MUST report that number in CEs (Cow equivalents).

Now, you report that you have 163.45 CEs.

When I read that publicly available report, do I know how many animals you have?  No.

Do I know how many chickens you have? No.

Do I know how many geese you have? No.

Do I know how many goats you have? No.

Do I know how many pigs you have? No.

Do I know how many cattle you have? No.

Do I know whether you  are essentially a chicken farm .... or you are essentially a cattle ranch (with a couple pet chickens and goats)? NO.

If the above analogy seems ridiculous .... perhaps you can understand why I cringe when I see reports that blindly reference BOEs.

If one were into conspiracy theories; one might guess that the term BOE was purposely designed to confuse.

All IMHO,

                JS

Permalink Reply by rec on October 18, 2014 at 9:09am
Great reply love it
Permalink Reply by Dan Brockett on October 24, 2014 at 6:40am

http://extension.psu.edu/plants/nutrient-management/educational/nut...

Funny stuff. Ironically there are real Animal Equivalent Units (AEUs) for nutrient management purposes. So one AEU = 1,000 pounds

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