Changes in net return prices attributed to a single company over time may also indicate whether production is more or less profitable. If the net return price of a selected oil company has increased over time, this could indicate the future success of the sector, while a company that shows the decline in netback prices could be a concern for investors. It notes that Netback is not a generally accepted accounting principles (GAAP) equation. The formula presented here is a standard, but different companies might calculate Netback a little differently. The most recent data show that the total net return price (or value) of total natural gas on the LNG facility GAS counter at prevailing natural gas and LNG prices in June/July 2019 is essentially negative, with a fluctuation margin of approximately USD 4/MMBtu. For comparison, the price of Henry Hub is currently 2.40 USD/MMBtu. The image below shows the estimated July liquefaction contribution margins for alternative trades on JKM`s last trading day in June (not cleaned for Asian spot day prices). Analysts may be confused by the observation that current low prices still fundamentally reflect a Henry Hub “Cost Plus” model. It is only by chance that this happens on a competitive marginal cost basis. It is a phenomenon of normal duality of economic theory.
The price picture becomes even more complex when netback prices and end-user market price index price models work. This means that the current price floor could be lowered to about USD 1.50/MMBtu. The advantage is that such a marginal change, partly related to higher emission costs, will lead to an increase in demand for natural gas in the energy sector, which supplants coal outside the United States. In fact, this is the limit of the only real LNG growth segment. Producers such as Cabot Oil and Gas Corp. have focused on cost control and diversified their efforts to market well sales to consumers, including gas distribution companies, other regional markets and electricity producers. Energy industry representatives say some producers have gone so far as to sell gas under so-called “Netback” agreements that guarantee buyers a commercial margin while guaranteeing land prices to producers who cover production costs. Oil and gas companies have gone so far that they sell their products under such a large number of net return agreements. This contract or agreement guarantees the customer or purchaser of oil or gas a commercial margin or discount margin, while guaranteeing the land price for the producing companies in order to cover the costs of production.
The result is a win-win situation for both parties. Again, some are concerned about such an agreement because, in the 1980s, similar agreements by oil producers, who had a surplus of oil and were anxious to sell oil on the market, led to a sharp drop in oil prices, as net prices forced refiners to maintain their activities despite the sharp drop in oil prices. Netback, however, is not a standardized equation. Several companies can calculate Netback and Netback/BOE using different methods and use different elements to use or exclude them. Netback/BOE can continue to be used to consider changes over time for a given company, but it is important to adjust the equation when comparing competitors to ensure that they are comparable values. Although Netback shows differences in profitability, there is no reason for the discrepancy: net price differences can be caused by differences in production techniques. B, for example, if the company participates in land or offshore operations, as well as in different territorial schemes. Netback/BOE is also a very useful measure that can be considered in comparing a comparable business analysisAs of comparable business analyses are carried out.