- 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.
Investment dictionary. Academic. 2012.
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