DEFINITION of 'EV/2P Ratio '
The EV/2P ratio is an investment term that refers to the valuation of oil and gas companies. The enterprise value (EV) divided by the proven and probable (2P) reserves shows what multiples the company is trading at. The enterprise value reflects the company's total value. Proven and probable (2P) refers to geologic reserves, such as oil, that are more likely than not able to be recovered. This is determined through geological and engineering modeling.
BREAKING DOWN 'EV/2P Ratio '
The EV/2P ratio calculates the enterprise value per proven and probable reserves. These values constantly fluctuate and are used by investors to speculate on the future value of a potential investment. When the multiple is high, the company of interest would be trading as a premium for a given amount of oil in the ground; a low valuation would suggest a potentially undervalued firm.