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What is the best approximate measure for a buyer or seller of producing oil and gas properties to quickly estimate asset value in today's market? As a useful rule of thumb, many A&D professionals multiply a property’s net daily production rate by a dollar per Mcf or barrel multiple. But what is the appropriate rate multiple to use?
Statistical analysis done by Energy Spectrum Advisors Inc. ("ESA") shows that a potential buyer or seller can use the property's Proved R/P in order to determine the appropriate rate multiple and, thereby, the approximate sale price (R is defined as Total Proved Reserves, and P is defined as Current Net Daily Production Annualized.) ESA publishes a quarterly report that incorporates this analysis of the U.S. upstream M&A activity for the trailing 12 months (see bottom of page for links to past and present M&A Activity Reports.) Click here to see press releases for the oil and gas deals used in the most recent R/P analysis. The two graphs below show the results of our most recent analysis for both majority gas and majority oil transactions. Please note that our data set only includes publicly announced transactions. |
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Armed with ESA's Proved R/P valuation formula (click here to use the R/P Valuation Tool), one needs only to know current net daily production rate and risk-adjusted (i.e. buyer-perceived) total Proved reserves in order to quickly estimate the fair market value of a producing oil & gas property. Please note that this Proved R/P valuation tool is an approximate measure of value and is not meant to replace the rigorous technical analysis of ESA's standard valuation practices.
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