Energy and natural resources
Full-cycle breakeven
The oil price a project needs to cover all its costs, including building it, and earn its required return.
Facts checked against sources onWhat does Full-cycle breakeven mean?
The full-cycle breakeven is the oil (or gas) price at which a project's net present value is zero, counting all costs: exploration, development capital, operating costs, royalties and taxes, discounted at the company's required return, often around 10 percent. A half-cycle breakeven counts only future spending and ignores money already sunk, so it is lower. Example: a new field might need 10 per barrel of operating cost, 18 of development capital per barrel and 12 of taxes, royalties and required return, a full-cycle breakeven of about 40. Companies rank projects on it and ask whether they still make money if prices fall.
Where does it come up in case interview prep?
Related terms
- Lifting costThe cost of producing oil or gas from wells that already exist, per barrel.
- Net present value (NPV)Today's value of all future cash flows, minus the upfront investment.
- BreakevenThe volume or revenue at which profit is exactly zero.
- Sunk costMoney already spent that cannot be recovered.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.
- Barrel of oil equivalent (boe)A unit that converts gas into barrels of oil by energy content, so oil and gas can be added together.
- Crack spread (refining margin)The gap between the price of crude oil and the prices of the fuels made from it.
- NetbackWhat a producer keeps per barrel after transport, royalties and production costs.
Learn it in context
See Full-cycle breakeven at work in a lesson from Oil and gas, with checks as you go.
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