The Workback Method and the Value of Helium

It is sometimes the case that the value of a resource at one stage of production must be assessed in the absence of a well defined market at that stage. One tool for valuation is the "workback" method, which imputes a value to a resource at an early processing stage by subtracting from an observed price for the resource at a more refined stage all of the costs incurred between the two stages. The workback method has been used by the courts in attempting to assess the wellhead value of helium extracted from helium-bearing natural gas streams during the Helium Conservation Program. This paper describes conditions necessary for a correct application of the workback method generally, and then provides an economic analysis of two court decisions using the workback method in the helium industry. Most importantly, the paper shows why a correct application of the workback method requires an understanding of market structure, whether the method is applied to helium, other natural resources, or more general multistage production processes.