Energy and natural resources
Full-cycle breakeven
The oil price a project needs to cover all its costs, including building it, and earn its required return.
Last reviewedWhat does Full-cycle breakeven mean?
The full-cycle breakeven is the oil (or gas) price at which a project's net present value is zero, counting all costs: exploration, development capital, operating costs, royalties and taxes, discounted at the company's required return, often around 10 percent. A half-cycle breakeven counts only future spending and ignores money already sunk, so it is lower. Example: a new field might need 10 per barrel of operating cost, 18 of development capital per barrel and 12 of taxes, royalties and required return, a full-cycle breakeven of about 40. Companies rank projects on it and ask whether they still make money if prices fall.
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Related terms
- Lifting costThe cost of producing oil or gas from wells that already exist, per barrel.
- Net present value (NPV)Today's value of all future cash flows, minus the upfront investment.
- BreakevenThe volume or revenue at which profit is exactly zero.
- Sunk costMoney already spent that cannot be recovered.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.
- Barrel of oil equivalent (boe)A unit that converts gas into barrels of oil by energy content, so oil and gas can be added together.
- Crack spread (refining margin)The gap between the price of crude oil and the prices of the fuels made from it.
- NetbackWhat a producer keeps per barrel after transport, royalties and production costs.