What is Price per Flowing Barrel?
Price per flowing barrel is a measure of an oil and gas company's valuation as compared to the number of barrels of oil or gas it produces.
How Does Price per Flowing Barrel Work?
The formula used to calculate a company's price per flowing barrel is:
Let's assume oil company XYZ produces 50,000 barrels per day of oil per day and its market capitalization (shares outstanding x share price) is $45,000,000. XYZ also has debt in the amount of $30,000,000. It has $2,000,000 of cash on hand.
Using the formula above, Company XYZ’s price per flowing barrel is:
PPFB = ($45,000,000 + $30,000,000 - $2,000,000) / 50,000 = $1,460
Why Does Price per Flowing Barrel Matter?
Price per flowing barrel is a way to value an oil and gas company; it essentially is the company's equity value per barrel. Price per flowing barrel is also one of the easiest ways to find the value of an oil and gas company. However, it does not incorporate any future production from undeveloped areas. It is also important to note that price per flowing barrel is only useful when comparing companies with similar production operations.