What is PV10

PV10 is the present value of estimated future oil and gas revenues net of estimated direct expenses and discounted at an annual discount rate of 10%. Used primarily in the energy industry, PV10 is helpful in estimating the present value of a corporation’s proven oil and gas reserves.

To calculate PV10, reservoir engineers create a reserve report for existing wells and proven undeveloped well locations, taking into account every well’s present production rate, individual production costs, expenses for reserve development, and the forecast decline rate.


Reservoir engineers estimate future gross revenues by applying a suitable escalation rate or by using prevailing energy prices. Indirect expenses, such as debt service, depletion, amortization, and administrative overhead, as well as expenses not related to property, are not factored in when calculating PV10.

Even though the PV10 calculation is widely used by investors and market analysts, it is not a financial metric calculated in accordance with generally accepted accounting principles (GAAP) because it does not factor in the effect income taxes will have on future earnings. It typically differs from the standardized measure, a metric that is a directly comparable with GAAP financial measure.

PV10 and Enterprise Value

The PV10 calculation is often written as the EV/PV10 calculation. Enterprise value (EV), or firm value (FV), measures the market value of the enterprise.  It is calculated by summing the enterprise's market capitalization, preferred stock, and debt, and then subtracting cash and cash equivalents.  Essentially, EV can be thought of as a hypothetical takeover price; if the company is taken over, the acquiring corporation assumes the company’s debt and retains its cash. If a company’s PV10 value is higher than its EV, the stock is theoretically priced below the value it will generate over time. If the EV is less than the PV10, the company’s stock is appealing to investors.


For example, consider Exxon Mobil in 2012. The corporation’s EV at that time was $449 billion. By the end of 2012, Exxon had just over 25 billion oil-equivalent barrels of guaranteed reserves. The goal of the corporation is to replace all of its yearly production with new reserves; therefore, this figure remains constant. With these figures, Exxon Mobil’s EV/reserve was $17.80, which indicates that its value can be approximated at roughly $18 times the company’s proven barrels of oil reserves. Considering all of Exxon Mobil’s 2012 figures, the corporation’s PV10 was $176 billion.

Bottom Line

In general, it is difficult to place a value on oil and gas reserves and future earnings. The PV10 metric is useful in determining an approximate value in an industry that is arguably one of the most difficult for investors to understand and evaluate accurately.