News

Things are (maybe) looking up in the oil patch.

We’ve got the IEA and Harold Hamm both predicting $60 oil by the end of the year; the “plunge” allegedly brought on by the deferral at Doha actually turned out to be more whimper than bang; and the storage at Cushing may get some breathing room soon.

So maybe, just maybe, we have hit the bottom, and if so, well it’s time to buy, right?

During the downturn, we have encountered quite a few bankruptcies, some M&A, a whole lot of debt restructuring, some cost-trimming in both services and G&A, and other financial and operational measures by E&P companies. Those that are still alive have a few promising assets up their sleeves.

Since many E&P companies are publicly traded, one of the best sources of information is via the companies’ investor presentations. In most cases you can find the most recent presentation (as a pdf or powerpoint) on the companies’ web site under “investor relations” or something similar. For example on Matador Resources web page, there is an “investors” tab on the top nav, and the final option on the drop down is “presentations and webcasts”

Since many of the terms within these presentations are necessarily arcane financio-wizard speak, I thought I would do a series of posts to help shed some light on a few of the important concepts.

PV10

According to Investopedia,

PV10 is the 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.

Proved Reserves is a measurement of how much hydrocarbons can be recovered from the companies’ acreage with a reasonable amount of certainty. Typically this calculation is done on a per-well location basis and then added together.

So PV10 is a way to value the hydrocarbons that you control that are still in the field, based on the amount of rese...