38 EXPLORATION GEOPHYSICS 



important one. The sole purpose of petroleum geophysics is to furnish 

 preliminary information which can be used in the evaluation of prospective 

 oil land. Current evaluation of oil land, however, may have alternative 

 purposes: (1) discovery of prospects for immediate drilling, and (2) dis- 

 covery of prospects suitable for maintenance of reserve. In the first class, 

 search is for prospects which, by reason of location, shallow depth, and 

 other factors, can be exploited rapidly and profitably in modern markets 

 under modern proration requirements. Under maintenance of reserve, on 

 the other hand, will fall prospects which because of greater depth, high 

 drilling and production costs, poor location with reference to accessibility 

 or markets, proration requirements, etc., are unsuitable for immediate 

 exploration. These prospects are therefore considered as a future reserve 

 on the assumption that increasing price due to diminishing supply will 

 eventually allow them to be profitably produced. 



Relationship between Supply and Demand 



Periodically, the question of an adequate oil supply becomes of vital 

 importance. At such times, the oil production in the United States exceeds 

 the total discovery of new oil. Many and various factors contribute to this 

 unfavorable condition, the most important being the complex relationship 

 between exploration and the price of oil, which often is of a politico- 

 economic and technological nature. The complexity of conditions may be 

 illustrated by considering the period from 1938 to 1948. 



During that time a major cause of the discouraging relationship 

 between the production of oil and the discovery of new domestic fields was 

 the type of controlled economy which prevailed. The petroleum industry 

 in 1940 was the second largest in the United States, and probably the 

 most outstanding example of an industry that had developed under private 

 initiative, where open competition and a sane economy gave us world 

 leadership. When this condition was suppressed by unfavorable legislation 

 and regulations, initiative was stifled and aggressive exploration was inhib- 

 ited. During the war period of controlled price ceilings for crude oil, 

 profits were not sufficient to yield a return adequate to stimulate explor- 

 ation in the high-risk areas. Wildcatting was suppressed, and much of the 

 drilling was directed toward the proving-up of the more favorable pros- 

 pects, and the extension of known producing areas. The inhibiting efifectf 

 of too low a price was particularly exaggerated after issuance of the "hold- 

 the-line order" in April, 1943, which froze the price of oil at substantially 

 a fixed level, while labor and material costs were allowed to advance. 

 During this same period, exploration difficulties continually increased. 

 Between 1943 and 1947 the average income from the sale of crude oil was 

 approximately 35 cents less per barrel than the replacement cost of new 

 oil. The industry as a whole avoided bankruptcy by the simple expedient 



t Report on the Cost of Finding, Developing, and Producing Crude Petroleum, submitted to the 

 Office of Price Administration by the National Crude Oil Industry Advisory Committee, February 11, 

 1946. 



