Reserves MBOE Cum\'l Cash Flow PV10 PDNP 400,000 $ 8,000,000 $ 275,000 You are m

Question

Reserves MBOE

Cum'l Cash Flow

PV10

PDNP

           400,000

$       8,000,000

$ 275,000

You are meeting with a company that is presenting an asset that is available for purchase. Their presentation included a summary from their reserves report in which the seller noted that the PDNP reserves above were behind pipe reserves. Cash flow and Cumulative PV10 for the behind pipe reserves were presented as well.

Following the meeting, your evaluation team mentions that the behind pipe reserves appeared to be an excellent target for increasing the value of the asset once you buy it. Based on your knowledge of reserves and financial metrics, why did the team make that statement after only a cursory review of the assets?

Reserves MBOE

Cum'l Cash Flow

PV10

PDNP

           400,000

$       8,000,000

$ 275,000

Explanation / Answer

PDNP = Proved, developed but Non Producing

As the PV is higher than the cumulative cash flows, it is standing in a promising situation - as it will pick up in the near future; this is the reason for the decision made by the team;

As the background knowledge of PDNP and behind pipe reserves will substantiate their decision:

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