PV10%
From ESER oil and gas
The estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development costs, using prices and costs in effect at the determination date, without giving effect to non-property related expenses such as general and administrative expenses, debt service and future income tax expense or to depreciation, depletion and amortization, discounted using an annual discount rate of 10%.
As the basis for calculation of PV10, reservoir engineers develop a reserve report for each existing well, whether producing or shut-in, and for each proved undeveloped well location. The reserve report takes into account:
(i) current rate of production (or estimated initial rate of production of a proved undeveloped location);
(ii) the rate at which production, assuming no further reserve additions, is expected to decline;
(iii) future production costs unique to each well;
(iv) development costs associated with the proved undeveloped reserves; and
(v) any production taxes that must be paid. To calculate the estimated future gross revenue to be generated from the production of proved reserves, engineers must apply an expected price to be received from the sale of such production. Such expected price typically equals the price in effect at the determination date either held flat or escalated at some appropriate rate.