What is PV10 Net Asset Value?

[dan_s]

One of our members sent me an email this morning asking me to define PV10 NAV and why I believe it is an important way to value a stock.
Here is my response:

PV10 NAV = the present value discounted at 10% of an upstream company's yet to be produced of oil, gas and NGLs (confirmed by a 3rd party engineering firm) + current asset - total liabilities divided by the number of shares outstanding. < It is calculated as of a point in time (year-end) and based on SEC guidelines in the U.S. The guidelines for commodity prices are different in Canada.

All public upstream companies are required to include a year-end reserve report that has been certified by a 3rd party engineering firm (i.e. Netherland Sewell) in their annual 10K report. Since the 3rd party engineering firm has some liability for overstating proved reserves, the numbers are very conservative.

The reserve report shows proved developed (PDP) total proved (P1), probable (P2) and possible (P3) reserves under the assets held by the upstream company. Go to the link below to see the year-end reserve report for Callon Petroleum. The reserve report starts on page 88.
https://www.callon.com/investors/sec-filings/10-k-filings

Go to page 93 to see how the Standardized measure of discounted future net cash flows ("PV10 of P1 reserves") is calculated for you. From there you can go back to the balance sheet to find current assets, total liabilities and outstanding share count.

I mention "PV10 Net Asset Value" in a lot of my posts because a profitable upstream company should never trade below its PV10 NAV. < Using book value per share to value an upstream company can be very misleading. Just remember that no profitable going concern upstream company should trade below book value per share because they are required to mark-to-market their oil & gas assets if commodity prices drop suddenly. Today CPE, CPG and VTLE are trading below book value. All three of them are extremely profitable.