Netback

AAA

DEFINITION of 'Netback'

A summary of all the costs associated with bringing one unit of oil to the marketplace, and all of the revenues from the sale of all the products generated from that same unit. The netback is calculated by taking all of the revenues from the oil, less all costs associated with getting the oil to a market. These costs can include, but are not limited to, importing, transportation, production and refining costs, and royalty fees.

INVESTOPEDIA EXPLAINS 'Netback'

For example, let's say it costs a total of US$125 to convert one barrel of light crude oil into heating oil, gasoline, diesel and petrochemical byproducts. Next, assume that all of those products could sell for a total of US$200. The netback in this example would be $75 ($200 - $125). Keep in mind that the costs associated with converting one barrel include all of the costs the company incurred to get that barrel to the marketplace.

This figure allows exploration and production firms to compare their costs with those of their competitors; it also allows for more efficient planning regarding which products a company should focus on producing.

RELATED TERMS
  1. Balance Of Payments (BOP)

    A record of all transactions made between one particular country ...
  2. Recycle Ratio

    An important measure of the profitability of an energy company. ...
  3. Barrel Of Oil Equivalent (BOE)

    A term used to summarize the amount of energy that is equivalent ...
  4. Export

    A function of international trade whereby goods produced in one ...
  5. Crack Spread

    The spread created in commodity markets by purchasing oil futures ...
  6. Import

    A good or service brought into one country from another. Along ...
Related Articles
  1. Getting A Grip On The Cost Of Gas
    Home & Auto

    Getting A Grip On The Cost Of Gas

  2. Commodity Prices And Currency Movements
    Forex Education

    Commodity Prices And Currency Movements

  3. 6 Factors That Influence Exchange Rates
    Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

  4. How can I hedge against rising diesel ...
    Trading Strategies

    How can I hedge against rising diesel ...

Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center