blue-flame

What do these mean anyway? MCF, MMBTU and BBL

blue-flameThe oil and gas industry loves acronyms more than any other industry, besides government bureaucracies. Three of the most common are the MCF, the MMBTU, and the BBL. These frequently appear on the upstream-revenue documents that Holmes PLLC must review for its clients’ interests. They are the basic measurements for oil and gas production, taxation, and sales.

“MCF” means thousand cubic feet (of gaseous hydrocarbons). Why use an “M” and not a “T” – for the word thousand? The “M” in MCF is from Latin and means “mille” – the Latin word for thousand.

Imagine basketballs. Each basketball contains roughly one cubic feet of gas. Now, one thousand basketballs are inside your living room. This is a helpful visual for understanding 1 MCF.

“MMBTU” means one million British Thermal Units and, much moreso than MCF, measures the true heating potential and, thus, value of gaseous hydrocarbons. “MM” continues the Latin theme; it represents “mille mille” or 1,000 times 1,000 – which equals one million. Roughly one MCF of dry gas (that is, one thousand cubic feet) equals roughly one million British Thermal Units. Wet gas – that is, gas containing liquefiable hydrocarbons – greatly throws off this clean one-to-one ratio. Wet gas can create a ratio like 1,500 to 1,000 – that is, one and a half MMBTUs to one MCF.

Because the MMBTU measure is the best way to measure the value of wet gas, and to pay interest holders on such value, royalty and working interest accounting system should use MMBTUs rather than MCFs. However, because of historical practices and, in some cases, state-law reporting requirements, operators usually measure the value of wet gas, and pay interest holders on such value, by using MCFs. They must translate gas values from MMBTUs to MCFs – for reporting purposes. Often, such translations result in errors that lessen payments for royalty and working interest owners.

As part of its continuing representation of royalty and working interest owners, Holmes PLLC specializes in the use of MMBTUs, MCFs and other metrics in the measurement of and reporting of gas production and payment.

To be continued . . .