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Understanding PV-10 Reserve Valuations
PV-10 represents the present value of estimated future oil and gas revenues, net of estimated direct expenses, discounted at an annual discount rate of 10%. This nomenclature is most commonly used in the energy industry, and is used to estimate the present value of a company's proved oil and gas reserves. In order to calculate PV10, an energy company's reservoir engineers develop a reserve report for every existing well and proved undeveloped well location. The reserve report takes into account each well's current production rate and forecast decline rate, and also its unique production costs and expenses to develop reserves. Future gross revenues are estimated by either using prevailing energy prices or applying an appropriate escalation rate. Non-property related and indirect expenses such as general and administrative overhead, debt service, and depletion and amortization are not considered in the computation of PV10.
The Basics of Oil and Gas
- Glossary of terms - visit website
- Illustrated glossary - visit website
- Site preparation - visit website
- Drilling - visit website
- Well completion - visit website
- Servicing - visit website
- How do basic oil and gas operations work - watch video
- Horizontal Direction Drilling - watch video
- Hydraulic Fracturing - watch video
- Formation of natural gas and oil. How it came to be - watch video
- Benefits of and need for Seismic Exploration in the Oil and Gas Cycle - watch video
- Products of Natural Gas and Crude Oil - watch video
Well Completion Systems
Industry Data and Pricing
- Real Time oil and gas market prices - Bloomberg
- U.S. Energy Administration energy outlook for 2016 - visit website
Classification of "Reserves"
The definitions of proved reserves are established by the Society of Petroleum Engineers , the World Petroleum Council, the American Association of Petroleum Geologists, the American Petroleum Institute, and the Society of Petroleum Evaluation Engineers. The Securities and Exchange Commission has its own set of definitions. though the only essential difference is that of holding prices constant (no increase based on estimated future conditions) but allowing escalation of prices based upon existing contracts, if any.
For more information regarding the generally accepted SEC reserve definitions please download the following document (SEC Reserves).