With a dome of known size and with known sands underlying a district, a scheme like the following might be constructed, but it is highly speculative. Royalty and pipe-line deductions have not been included.
(1) Area within reach of drill on dome-1000 acres; (2) Number of sands-2; (3) Total thickness of sands-50 ft.
History of sand of same character shows production averaging 5000 bbls. per acre for 10 years.
Total recoverable oil for 10 years normal expectation 1000 X 5000 at present market price, $3 = $15,000,000.
Expenses of obtaining oil.
Cost of 125 wells. @ $30,000 per well.
125 X $30,000 = $3,750,000 Operating expenses @ 500 per barrel = $2,500,000 Total $6,250,000Total expected profit = $15,000,000 — $6,250,000 = $8,750,000. Present value of this profit at 770 = $6,737,500.
Chances in area are 1 in 5 for obtaining oil. Value per acre then is: $6,737,500 $6,737,500 1000 (acres) X 5 5000 = $1347.50 per acre.
Allowing for a profit of 100 per cent, the highest amount an operator could afford to pay would be $1347.50 = $673.75 per 2 acre.
This and higher prices have been paid for land near or adjoin ing a well; but to go into a district 5, 10, or 20 miles from a pro ducing field and offer such a figure would be unwarranted. Even
where conditions governing production can be reasonably as sumed such methods are speculative.
At present, land around drilling wells without geological selec tion brings from $5 to $100 per acre depending on how close a well is to the land purchased. Considering the ordinary chances of 1:300, land on a good dome or anticline selected by geologists where the chances are 1:5 is worth 60 times more than ordinary acreage, or $350 to $6000. Of course one will not pay it, but logically the land is worth that much. In actual practice, how ever, the price ratio is approximately 2:1 for wells on favor able folds over those off such folds. In every case the buyer should determine an index formula for any area, and then buy accordingly.
Most estimates of values of undrilled lands, away from pro ductive areas are arbitrary, unscientific, and little understood. They too often represent a mere opinion or guess, but in light of good index figures they furnish the best known method.