I’m struggling with the definition of netback in the O&G context. I’ve read the Investopedia definition, but they seem to discuss it in a downstream/refining context. I’m interested in it in an E&P/upstream context. I’ve tried to suss out the meaning by looking at industry sites but no real success… best guess I have, is it essentially operating profit (production costs + royalties + etc)? If so, how are land costs accounted for? Would love some guidance on this.
it is realized oil price less operating cost, transport cost, royalties and expensed G&A cost. it is useful in that it allows for fair comparison between oil play efficiency. with netback data and the cost to spud a well, you have all you need.
Thanks Matt. If you don’t mind having a look at page 13 of the following:
I know how they get from blend sales to cash netback, but I am looking specifically at WTI$ and blend sales: how do Differential - WTI/Blend% and Diluent price - % of WTI relate to these two items? If there is a link, I can’t figure out the math.
Just trying to do a cash flow model on MEG and wanting to project some of these figures forward to rationalize my model’s outcome.
taking the WTI US$ ($94.22) and dividing by CAD/USD Xrate of ~0.9804 and multiplying by the differential (73%) gives you the blend sales # of ~$70.25. that’s what MEG realizes per barrel of oil in CAD.
i can’t make sense of the diluent cost. i’m assuming that diluent blend ratios will vary depending on the viscosity of the crude and that is why the diluent cost per barrel can vary even as the cost of diluent as a % of WTI is the same. i would look at past year’s diluent costs per barrel and take a an average. i’ve taken a quick look and other than price variations, there is no other explanation for the varying per barrel diluent costs.