Valuation of Prospective Untested Properties.—The valuation of prospective properties is subject to so many unknown factors that it is difficult to arrive at conclusions.
The following conditions govern values: (a) structural condition; (b) depth of oil sands; (c) number of oil sands expected; (d) thickness of sands; (e) porosity of sands; (f) character of oil expected; (g) geographic relation to other oil fields; (h) area of property; (i) accessibility, (1) roads, (2) railroads; (j) pipe-line facilities; (k) refining facilities; (l) market conditions.
No one has yet discovered any method but actual drilling by which to determine absolutely the presence or absence of com mercial production in any area.
A careful study of the geological conditions, i.e., seepages of oil, sands favorable for oil reservoirs, domes, anticlines or terraces favorable for oil accumulation, of thick bodies of carbonaceous or petroliferous shales is desirable and may throw some light on the presence or absence of oil in the area.
It is worth while to know that 95 per cent of all the oil fields of the world are on domes, anticlines, or terraces, or that 19 out of 20 oil fields are found under such conditions. It has been found in certain areas that such folds produce as follows: Osage, Oklahoma, 90 per cent folds productive, Wyoming, 50 per cent, California, 75 per cent, and out of all known tested folds the proportion producing is 20 per cent.
It is also recognized that drilling haphazard without geological selection means one test in 300 to bring in a field. The geologist may reduce the hazard to 1 in 5. With a known selected fold in a general area the chances are then about sixty times better than those without careful selection.
The amount of acreage within reach of the drill is important. If but 500 acres can be reached with the drill, the property, other conditions being equal, is one-tenth as valuable as one having 5000 acres within reach of the drill.
There is, however, a limit regarding size. If too small the operating units are hardly worth while, and if too large the area will not likely be a rich producer. Medium-sized units of from
1000 to 5000 acres are most desirable.
It is, of course, well understood that a two-sand country is more valuable than one; three more valuable than two and so on. Often, however, one sand is the main productive sand of a district, and that one sand may produce more oil than all the others combined. The well-known Bradford sand of Pennsyl vania, the Bartlesville sand of Oklahoma, the Woodbine sand of Louisiana, the Frontier sands of Wyoming are the main sands sought in those particular fields, and if these or any other well known sands are thought to underlie an area, greater value is attached to it than if average sands exist.
A thick sand if fully saturated, will produce more oil than a thin one of the same character. One 100 ft. thick should produce 10 times the oil of a sand 10 ft. thick under the same conditions of saturation.
Porosity is also a factor. The more porous sands range from 15 to 25 per cent voids, and the tighter sands 5 to 10 per cent. Given a porous condition, a porous sand is worth more than one less porous. The character of the oil expected, of course, in fluences the desirability of the land. Heavy fuel-oil land with oil at $1.50 per barrel will be worth only one-half as much as land under which $3 oil is expected.
Accessibility means, of course, the ease with which the acreage could be developed. If in a difficult country and 100 miles from railways the cost of a pipe line would be $15,000 per mile for 8-in. line. Consequently there would be little or no profit left.
The above factors all determine the value of land and in part are all factors of the size of wells and their longevity. The true measure is really the value of oil to be expected, and the chances of obtaining the same. There are, however, so many unknown factors that it would be foolhardy to make estimates of future recovery. One could assume definite conditions to exist and then base returns on those conditions, but the whole pyramid would tumble if one of the conditions was not met.