Overview
PV10 (Present Value at 10% discount) is the standard metric used by the SEC and oil and gas companies to value proved reserves. It represents the present value of estimated future net revenues from proved reserves, discounted at 10% per year, before income taxes. PV10 is the single most important number in reserves reporting, A&D transactions, and bank borrowing base calculations.
Theory
PV10 uses the SEC-mandated 10% annual discount rate applied to future net cash flows from proved reserves. Unlike NPV used for investment decisions, PV10:
- Uses SEC pricing rules (12-month average for proved reserves)
- Excludes income tax
- Includes only proved (1P) reserves
- Is reported in the annual 10-K filing
Formulas
PV10 (Annual)
PV10 = Σ [NCF_year / (1.10)^year]
Monthly Discounting
PV10 = Σ [NCF_month / (1 + 0.10/12)^month]
Net Cash Flow (Annual, Pre-Tax)
NCF = Gross_Revenue - Royalties - LOE - Production_Taxes - CAPEX
= (Oil_prod * Oil_price + Gas_prod * Gas_price) * NRI - LOE - Sev_tax - CAPEXStandardized Measure vs PV10
SEC requires the "Standardized Measure of Discounted Future Net Cash Flows" (SMOG) which includes income tax. PV10 excludes income tax:
PV10 = Standardized_Measure + PV_of_future_income_taxes
Reserve Life Index
RLI = Remaining_reserves / Annual_production (years)
Value per BOE
$/BOE = PV10 / Proved_reserves (BOE)
For A&D benchmarking, calculate value per BOE from the specific transaction or use public references such as SEC filings, SPEE reserve guidance, and published market commentary. Do not treat public examples as Petropt-calibrated asset pricing.
Worked Example
Given: Proved reserves R, current rate q_0, exponential decline D, public benchmark price P, LOE per barrel from lease records or a textbook assumption, production tax rate from the applicable jurisdiction, NRI from title, and future CAPEX from the development plan. This example is illustrative methodology, not Petropt-validated reserve pricing.
Year 1:
Production_1 = q_0 * 365 * (1 - exp(-D)) / D
Revenue_1 = Production_1 * P * NRI
LOE_1 = Production_1 * LOE_per_bbl
Production_Tax_1 = Revenue_1 * tax_rate
NCF_1 = Revenue_1 - LOE_1 - Production_Tax_1 - CAPEX_1
PV_1 = NCF_1 / 1.10
Year 2:
Rate start_2 = q_0 * exp(-D)
Production_2 = Rate start_2 * 365 * (1 - exp(-D)) / D
NCF_2 = Revenue_2 - LOE_2 - Production_Tax_2 - CAPEX_2
PV_2 = NCF_2 / (1.10)^2
Continue to economic limit (NCF < 0), sum all PV terms.
PV10 equals the sum of discounted annual net cash flows at the SEC 10% discount convention. Value per BOE equals PV10 divided by proved reserves.
Need this calibrated to your asset?
For reserve-category calibration, SEC price treatment, and asset-specific PV10 sensitivities, request an Asset Decision Pack.
Request Asset Decision PackValid Ranges
| Parameter | Public/Textbook Treatment |
|---|---|
| Discount rate | Use the SEC PV10 convention for proved-reserve reporting |
| PDP value | Calculate from asset cash flows or reference public transaction disclosures |
| PDNP value | Adjust for completion timing, risk, and required capital using public reserve definitions |
| PUD value | Apply SEC development-plan requirements, risk timing, and future CAPEX assumptions |
| Reserve life (PDP) | Calculate as remaining reserves divided by annual production |
| LOE | Use lease records, operator filings, or a clearly labeled textbook assumption |
Need this calibrated to your asset?
Want reserve-category and operator-specific PV10 ranges? Contact info@petropt.com or request access to the Economics suite.
Request Economics AccessSEC Pricing Rules (Proved Reserves)
- Use unweighted arithmetic average of first-day-of-month prices for prior 12 months
- Adjust for differentials (location, quality)
- No price escalation or inflation assumed
References
- SEC Regulation S-X, Rule 4-10 — Financial Accounting for Oil and Gas Producing Activities.
- FASB ASC 932 — Extractive Activities — Oil and Gas.
- SPE-PRMS (2018). Petroleum Resources Management System.
- Thompson, R.S. & Wright, J.D. (1985). Oil Property Evaluation. Thompson-Wright Associates.