Energy and natural resources
Netback
What a producer keeps per barrel after transport, royalties and production costs.
Facts checked against sources onWhat does Netback mean?
Netback is the price realized for a barrel of oil (or boe of gas) minus the costs of getting it to market and producing it: transport, royalties and lifting costs. It measures cash margin per unit. Example: oil sells for 75, transport costs 5, royalties are 10 and lifting costs 12, so the netback is 48 per barrel. Comparing netbacks shows which fields and which markets are most profitable; a remote field with a high price but costly pipelines may earn less than a field near the coast. In gas and LNG, netback is also used to compare selling to different markets after shipping costs.
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.
- 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.
- Contribution marginRevenue minus all variable costs, as an amount or a percent of revenue.
- Landed costThe full cost of getting a product to your door, not just its purchase price.
- Full-cycle breakevenThe oil price a project needs to cover all its costs, including building it, and earn its required return.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.
- Crack spread (refining margin)The gap between the price of crude oil and the prices of the fuels made from it.
- Decline rateHow fast production from existing oil and gas wells falls each year without new investment.
Learn it in context
See Netback at work in a lesson from Oil and gas, with checks as you go.
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