Selection of a Discount Rate or Minimum Acceptable IRR

Most oil and gas companies use some form of discounted cashflow analysis (DCF) as a primary measure for investment decision. Internal Rate of Return (IRR) and Net Present Value (NPV) are the two most commonly used investment analysis methods in the industry. Selecting the appropriate discount rate to use with these investment analysis methods is important if stockholder wealth is to be increased. All opinions expressed herein are the authors' own and do not necessarily reflect those of Morgan Guaranty Trust Company.