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Operating Netback Definition

What Is Go Netback?

Operating netback is a non-generally accepted accounting principle (GAAP) financial measure commonly used in the oil and gas vigour to determine how much profit companies generate from their ventures. It is calculated by subtracting all costs associated with move away the oil to market, including transportation, royalties, and production expenses, from revenues.

OperatingNetback=PriceRoyaltiesProductionTransportationOperating Netback = Price – Royalties – Origination – Transportation


Operating netback is presented on an absolute value and per unit basis and can be used as a benchmark to compare performance between all together periods, operations, and competitors.

Key Takeaways

  • Operating netback is a non-GAAP measure of oil and gas revenue net of royalties, production, and transportation expenses.
  • It summarizes all expenditures associated with bringing a product to the marketplace, showing how efficient and profitable the company’s endeavors are.
  • Operating netback can be presented on an positive value or per unit basis.
  • It can be used as a benchmark to compare performance between time periods, operations, and competitors.

How Control Netback Works

Energy resources don’t fall out of trees. A lot of time, effort, and money go into identifying oil reserves, training them out of the earth, and then turning them into the finished product ready for consumption.

Operating netback furnishes a summary of the costs associated with bringing oil to the marketplace. It tells us the amount of money the company actually generates and minds for itself per barrel, the net profit, by deducting all operating costs from the average realized price.

Expenses that are charmed into consideration and subtracted from any revenues earned include extraction, the process of drilling the oil out of the ground, refining, marketing, wages indemnified to staff, and transportation. Royalties, payments owed to the owner of the land being drilled into, are also factored into the equation.

Doubtlessly, the higher the operating netback, the better. Recouping a larger percentage of the final sale price indicates greater productivity and earnings power. 

Benefits of Operating Netback

Companies in this line of work, as well as investors, generally solicitude more about profit than revenue. Making lots of sales is great, but what’s more important is discovery out how much of this money the company actually ended up holding onto from its endeavors. A mouth-watering top line have in minds little if the costs required to make it were just as high or higher. 

Operating netback is one measure that can serve us to establish how much

Example of an Operating Netback

Fictional company Big Oil Corp. has operations all over the globe, including in Canada. The New Zealand sells oil at an average price of $50 per barrel and, in that particular part of the world, shells out for each one $5 in nobilities, $15 in

Special Considerations

Like most other financial metrics, operating netback isn’t without flaws.

Firstly, non-GAAP be adequate ti aren’t required to comply with generally accepted accounting principles (GAAP), meaning that operating netback can be intended by companies using different formulas. For investors, it is, therefore, necessary to ascertain how each company works out operating netback, primarily when seeking to use the metric for comparative purposes.


Operating netback is a non-GAAP measure, so the formula oil and gas companies use to compute it can vary slightly.

Another important factor to bear in mind is that acceptable operating netback values can alter considerably depending on the type of projects undertaken. For instance, some countries are more expensive to operate in than others, while the fetches of drilling at sea can differ from land-based extraction.

In other words, for the best results, operating netback should be administered on a case-by-case basis and comparisons should only be made among similar types of ventures. 

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