What is realized price effectiveness?
Realized price effectiveness is defined as excess or shortfall of a realized price to a cost item, scaled by cost item. In other words, realized price effectiveness tells us how much higher or lower a company’s realized price is compared to its production costs.
ConocoPhillips’s realized price effectiveness
As you can see in the above graph, realized price effectiveness tells us that for 3Q16, ConocoPhillips’s (COP) realized price, without hedging benefit, was ~77.0% above its production cash cost and ~16.0% below its total production cost for the same quarters.
Almost all other upstream companies, including Murphy Oil (MUR), Southwestern Energy (SWN), and Range Resources (RRC), have reported a negative 3Q16 realized price effectiveness in terms of total production costs.
- realized price: oil and gas revenue scaled by total production
- production cash cost: LOE (lease operating expenses) + production and ad valorem taxes + transportation expenses + G&A (general and administrative) cash expenses + interest cash expenses
- total production cost: cash cost + DD&A (depletion, depreciation, and amortization)