EV/2P Ratio

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.

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RELATED FAQS
  1. How does an oil and gas company measure and state their reserves?

    Understand how oil and gas companies estimate possible reserves and how different classifications are used to designate the ... Read Answer >>
  2. How is it possible for a company to have a negative enterprise value?

    Learn about enterprise value and how value investors use it to find good companies with undervalued stocks. Negative enterprise ... Read Answer >>
  3. What is the difference between enterprise value and equity value?

    Valuating a business accurately depends heavily on the purpose of the valuation. Learn how enterprise value and equity value ... Read Answer >>
  4. What's the difference between enterprise value and market capitalization?

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  5. What is the difference between market capitalization and enterprise value?

    Understand the basics of market capitalization and enterprise value, how they measure company value and how they differ in ... Read Answer >>
  6. What is the difference between proven and probable reserves in the oil and gas sector?

    Learn how those in the oil and gas sector classify oil reserves and the specific differences between proven and probable ... Read Answer >>
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