Energy · Oil & Gas
Oil & Gas Sector Primer
Oil and gas equity analysis primer with an Excel valuation model. Covers reserves, netbacks, breakevens, NAV, EV/DACF and capital returns.
2026 Edition · data as of June 2026
- pages
- 40
- sections
- 15
- model sheets
- 15
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The full primer
£25 / ~$32
- 40 pages, 15 sections
- Worked examples and applied cases
- 2026 Edition, data as of June 2026
Excel model
Valuation template
£45 / ~$58
- 15 sheets (.xlsx)
- Runs the primer's worked valuations live
PDF + Excel model Best value
Both files together
£59 / ~$76
- The 40-page primer
- The 15-sheet Excel model
- £70 bought separately · £11 less
Complete Energy Library
All three Energy industries: three primers, three Excel models (Oil & Gas, Midstream, and Refining).
Inside the primer
The 15-section contents, a worked valuation page, and the Excel dashboard.
Contents
- 01 How Exploration and Production (E&P) Companies Make Money
- 02 Listed E&P Company Types
- 03 The E&P Lifecycle and Reserve Ladder
- 04 Segments, Basins and Price Realisation
- 05 Revenue Drivers: Production Times Price
- 06 Cost Structure: Netback, F&D and Recycle
- 07 Decline Curves and the Reinvestment Treadmill
- 08 Valuation Frameworks
- 09 Worked Example: Multi-Period Portfolio NAV
- 10 Applied Case: PV-10 and the Standardised Measure
- 11 Applied Cases: Breakevens and Capital Returns
- 12 The Companies in This Primer
- 13 Key Metrics and Screening
- 14 Risks, Benchmarks and Comparative Case Study
- 15 Glossary and Cheat Sheet
Worked examples and applied cases · 40 pages · 15 sections · 2 worked NAVs
The Excel model
Educational material. This primer and its model are not investment advice or a recommendation to buy or sell any security, and they are not personalised. Worked valuations use illustrative calibrations, not fair-value estimates for any company.
Exploration and production companies sell undifferentiated oil and gas at market prices. Margin lives in the operating netback after royalties, lease operating expense and transport; reserves are inventory that depletes every production day, so replacement drilling is not optional for a going concern. Standard EV/EBITDA and earnings multiples travel poorly across basins and decline profiles. The tools that fit are reserve-based NAV for the inventory and EV/DACF for cash-flow screening, with survey breakevens and corporate claims kept in separate columns.
E&P valuation benchmarks by reserve category
A barrel already flowing is worth more than one still in the ground, so an E&P NAV risks and discounts each reserve category on its own terms. These are the primer's working rules for analyst NAV builds.
| Reserve category | Risking factor | Discount rate | What it covers |
|---|---|---|---|
| Proved developed producing (PDP) | 0.95-1.0x | 8-10% | Fields on production today |
| Proved developed non-producing (PDNP) | 0.80-0.95x | 10-12% | Wells drilled but not yet on line |
| Proved undeveloped (PUD) | 0.60-0.85x | 12-15% | Booked but undrilled locations; SEC rules require development within five years |
| Exploration prospect | 0.10-0.30x | 18%+ | Early-stage optionality only |
A whole-company NAV in the primer discounts at 10% nominal, the rate the SEC uses for PV-10, with a 25% blended US tax rate. On the relative screen, large-cap producers read at about 3-6x EV/DACF (enterprise value over debt-adjusted cash flow) and premium shale operators at 6-8x; below 3x, look for distress or a short reserve life before calling it cheap. Underneath both sits the recycle ratio, netback divided by finding and development cost. It should clear 2.0x, and below 1.0x each reinvestment dollar destroys value.
Worked example: an E&P NAV valuation
Take a hypothetical producer with three fields: tight oil, shale gas and a long-life oil sands lease. The primer runs each field year by year at $70/bbl WTI and $3.00/MMBtu Henry Hub. Replacement capex holds each field's output flat, royalties and escalating costs come off, and after-tax cash is discounted at 10%. NAV then adds the corporate layer.
| Step | Amount |
|---|---|
| Field 1, tight oil (350 MMBOE, 22% annual decline) | $4,155M |
| Field 2, shale gas (500 MMBOE, 28% annual decline) | $801M |
| Field 3, oil sands (1,200 MMBOE, 2% annual decline) | $5,608M |
| Sum of field NPVs | $10,564M |
| Plus cash | +$1,000M |
| Less debt | -$3,000M |
| Less PV of corporate G&A ($150M/yr rising 2.0%, 30 years at 10%) | -$1,680M |
| Equity NAV | $6,884M |
| NAV per share (1,500M shares) | $4.59 |
Field 1 shows the per-barrel logic. Its realised price is $55.68/BOE, a blend of oil at WTI less a $3 differential, gas and natural gas liquids. Year 1 produces 30 MMBOE and $1,670 million of revenue. A 20% royalty, $360 million of operating cost and $270 million of replacement capex leave $706 million pre-tax, $530 million after tax and $482 million in present value.
The oil sands field carries 53% of the field value on a thin average netback of $17.18/BOE, because its reserves barely decline. A one-year cash-flow multiple cannot see that difference in reserve life; the NAV can. The primer prints each field's schedule, the blowdown case with no replacement capex, and a grid across price and discount rate. The Excel model runs the same build on your own fields.
Which E&P valuation method fits which company
| Company type | Primary method | Check with | Why |
|---|---|---|---|
| Pure-play E&P | Going-concern NAV | EV/DACF | The assets are upstream reserves; the cash-flow screen cross-checks the NAV |
| Premium shale producer | NAV plus recycle ratio | FCF yield; EV/DACF against the 6-8x band | Capital discipline and F&D cost separate peers with similar NAV |
| Oil sands producer | NAV over the mine life | Corporate breakeven at the WCS price | Near-zero decline; the heavy-oil differential drives margin |
| Integrated major | Sum-of-the-parts | Standardised measure for the upstream leg only | Downstream and chemical cash flows sit outside an upstream NAV |
| Acquirer or break-up case | Blowdown NAV | Going-concern NAV | No replacement capex; booked reserves run off |
What the full primer adds
The primer walks that toolkit through in sequence: issuer types and the reserve ladder, price realisation by basin, then netbacks, F&D and recycle, and the decline treadmill. Valuation frameworks lead into a multi-period portfolio NAV worked end to end, then applied cases on PV-10 versus the standardised measure, breakevens, and capital-return frameworks. Screening closes with the peer set, key metrics, and the risk checklist.
Free guides on the site unpack individual pieces (reserves reports, netbacks, decline curves, EV/DACF versus NAV) so you can revise one concept without reopening the full PDF. The companion Excel model runs to fifteen sheets, from per-field DCFs through to a breakevens-and-DACF screen, with every commodity price set on one assumptions sheet. Swap in a producer's own field data and the model reprices around it.
Sheets: Quick Start, Instructions, Assumptions, Field 1, Field 2, Field 3, Consolidated, EV-DACF, F&D & Recycle, Reserve Replacement, Reserves & Life, Netback Build, Breakevens, Sensitivity, Dashboard.
E&P valuation: free guides
- Decline Curve Analysis Explained: How to Model Production
- How to Read an Oil & Gas Reserves Report
- F&D Costs by Basin: Finding & Development Cost Benchmarks
- EV/DACF vs NAV: How to Value Oil & Gas E&P Companies
- PV-10 vs NAV: What the Standardised Measure Misses
- Operating Netback per BOE: Calculation and Benchmarks
- Shale Breakevens by Basin: the Dallas Fed Survey
E&P valuation FAQ
- How do you value an E&P company?
- Start with net asset value (NAV). Project each field's production, price it at a stated long-term deck, deduct royalties, operating costs, replacement capex and tax, and discount the after-tax cash at 10%. Sum the fields, add cash, and deduct debt and the present value of corporate G&A. Then cross-check on EV/DACF, enterprise value over debt-adjusted cash flow, which normalises for leverage.
- What is a normal EV/DACF multiple for an oil and gas producer?
- Large-cap producers read at about 3-6x EV/DACF mid-cycle, and premium shale operators with the strongest capital discipline at 6-8x. Below 3x usually signals distress, high leverage or a short reserve life rather than value. Run the asset checks first (netback, recycle ratio, reserve replacement against decline) and read the multiple last.
- What discount rate is used in an oil and gas NAV?
- The primer uses 10% nominal for a whole-company NAV, the same rate as the SEC PV-10 disclosure. When barrels are valued by reserve category, the working rules run 8-10% for proved developed producing reserves, 10-12% for developed non-producing, 12-15% for proved undeveloped and 18% or more for exploration prospects, each with its own risking factor.
- What is the difference between PV-10 and NAV?
- PV-10 is the SEC present value of proved reserves only, discounted at 10% on the trailing 12-month average price, before tax and before corporate G&A. The standardised measure is its after-tax sibling. An analyst NAV uses a forward price deck, may include risked probable reserves, deducts corporate G&A and funds the replacement capex needed to hold production flat. Treat PV-10 as a sanity check, not a valuation.
- What is a good recycle ratio?
- The recycle ratio divides operating netback by finding and development (F&D) cost per barrel. Above 2.0x, reinvestment creates value; below 1.0x, it destroys it. At $70/bbl WTI the primer's worked oil barrel nets $41.00 against $11.00 of F&D, a 3.7x recycle, while a dry-gas barrel equivalent at $3.00 Henry Hub nets $5.40 and recycles at about 0.5x on the same cost.
See this methodology applied to a real company:
EOG Resources (EOG) →