Netback

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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.

BREAKING DOWN '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.

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