GEOLOGIC AND ECONOMIC BACKGROUND 39 



of operating chiefly on funds derived from the sale of crude oil obtained 

 from producing properties discovered during the prior decade. A brief 

 overall picture of the increased replacement costs for new oil during that 

 period may be obtained from the data given below,f which show the rela- 

 tionship between the lease operating costs*, the drilling or development 

 costs,** and the exploration costs.*** 



During that decade the lease operating costs increased only about 17 per 

 cent. There was an average increase of about 70 per cent in basic wages 

 and other costs. Offsetting this increase in wages were two factors : an 

 increase in production per man-hour, due to the installation of better field 

 equipment as the producing fields became stabilized ; and, secondly, greater 

 production from wells as proration regulations were removed during the 

 war emergency. Better operating efficiency therefore held the lease operat- 

 ing costs below a value which might be expected in view of the general 

 price rises. 



During this time the development costs increased approximately 80 per 

 cent. This was nearly 10 per cent more than the average increase in basic 

 wages and other costs and shows the normal increase due to : greater depth 

 of wells, larger size of holes, heavier equipment, and the increase in the 

 number of dry holes. The percentage of dry holes rose from 13.5 per cent 

 to more than 27 per cent. 



Exploration costs, however, increased more than 400 per cent. Wages 

 in exploration work reflected the average increase in basic oil-field wages. 

 Tending to offset increased labor and material costs were the many ad- 

 vances which had been made in geological and geophysical techniques. 

 Nevertheless the exploration costs increased 30 times more than the lease 

 operating costs, and over 6 times more than the development costs. 



This greatly increased exploration cost was due chiefly to the decrease 

 in effectiveness of both geological and geophysical techniques, as old areas 

 were reworked and marginal areas extended. 



t Loc. cit. 



*Total operating costs divided by volume of production will disclose operating cost 

 per barrel. Ibid. 



**Total cost of oil wells completed each year, divided by volume of estimated oil 

 reserves recoverable from such wells, approximates development cost per barrel on a 

 replacement basis. Ibid. 



***Total of finding costs, divided by the volume of new reserves discovered in the 

 same year, approximates finding cost on a replacement basis. 



