Oil and gas investors, public and private, corporate and personal, use a range of metrics to evaluate the projected performance of the investments they consider. These metrics include both intuitive and analytical methods.

Two easy-to-use and popular analytical financial evaluation methods are net present value (NPV) and internal rate of return (IRR).

The underlying basis for calculating NPV is that a dollar today is worth more than a dollar tomorrow. Present dollars in hand are worth more than future dollars that are both uncertain and yet-to-be-realized. The NPV calculation is ...