Nigel Curson, Alastair McLachlan and Aidan Charlton, Penspen Limited, UK, present a statistical derivation of the present value (PV10) of a step-out development based on remaining life.
T
he oil industry uses the PV10 value to evaluate hydrocarbon assets. It is a calculation of the present value of estimated future hydrocarbon revenue, less direct expenses. It is discounted to the present using an annual rate of 10%. In practice, when
Figure 1. Step out development.
applied to a post plateau and declining oil or gas reservoir connected to a host platform or processing facility by a relatively long pipeline, the PV10 value is limited by the asset’s remaining life, including pipelines and wells. Having to intervene for a repair or access to a well with declining
15
