Price per Flowing Barrel
What Is Price per Flowing Barrel?
In finance, "price per flowing barrel" is a measurement used to estimate the value of a company that produces oil and gas. This calculation is performed by separating the company's enterprise value (EV) by the number of barrels it produces in a commonplace day. Enterprise value measures a company's total value.
To ascertain:
- Price per flowing barrel = EV/production barrels each day
For those new to the concept of EV, a similar articulation can be changed as follows:
- Price per flowing barrel = (market capitalization + total debt - total cash)/production barrels each day
How Price per Flowing Barrel Works
Price per flowing barrel is a simple heuristic for evaluating the inexact value of an oil and gas company. Of course, in reality [investors](/financial backer) and analysts comprehend that there are numerous extra factors that must be thought about before determining whether a given company is an alluring investment. These incorporate the political risks associated with the locales where their projects are found, the quality of their equipment and faculty, and their history of revealing and developing new projects, among numerous others.
As well as evaluating the value of oil and gas companies, the price per flowing barrel metric can likewise be utilized to estimate the value of specific oil and gas projects. As such, a more itemized analysis of an oil and gas company could include calculations of the individual price per flowing barrel of every one of their major projects. In that scenario, the numerator in the ratio would comprise of the internal costs associated with the project, rather than the EV of the company as a whole.
In the event that the analyst sees that the company's later projects show a trend toward progressively positive price per flowing barrel ratios, this might demonstrate that the company is turning out to be more efficient at distinguishing and taking advantage of new projects. While playing out these types of project-specific examinations, the term "cost per flowing barrel" is frequently used to keep away from confusion with the company-level valuation.
Enterprise value is viewed as a more complete variant of equity market capitalization, as it takes a gander at the company's market cap, short-term and long-term debt, and any cash on the balance sheet.
Real-World Example of Price per Flowing Barrel
To outline, consider a company with a market cap of $20 billion, $500 million of debt, and $100 million of cash. On the off chance that that company produces 600,000 barrels each day, its price per flowing barrel would be:
- Price per flowing barrel = ($20,000,000,000 + $500,000,000 - $100,000,000)/600,000 = $34,000
Investors and analysts can then utilize this measurement to compare the valuation of a specific company against contending companies that have comparative production projects. For instance, in the event that one of its rivals has comparable projects however has a Price Per Flowing Barrel of just $25,000, then, at that point, that contender might be viewed as a more appealing investment opportunity.
Features
- The price per flowing barrel is a measure that is utilized to evaluate the rough value of a company in the oil and gas sector.
- The purpose of the price per flowing barrel metric is to compare the company's enterprise value to the number of barrels it creates every day.
- There are a number of different factors investors likewise consider while attempting to evaluate the value of a company in the industry, including the history of the company and political considerations, among others.
- A rendition of this measurement can likewise be utilized to estimate the value of specific projects inside the oil and gas sector.
