Chapter 13: Incremental Economics Available to Purchase

Strictly speaking, all petroleum economics is incremental in the sense that only relevant cash flows matter; relevant cash flows being cash flows that are created by the company doing something new (and also that cross its border with the outside world; from Chapter 2). So such cash flows are additive to those the company will experience anyway—they’re incremental to them in other words.

Incremental economics is something else, however. It’s a means of deriving certain relevant cash flows, and therefore the net cash flow associated with doing something new, when there are particular circumstances that make it impossible to do by considering the something new on its own, in isolation from the rest of the company.