to prevent price decline) . The development of the giant East Texas Field in a 

 financial depression paved the way to permanent proration by statute. Proration 

 meant that wells would henceforth produce not at capacity, but at their MER 

 (Maximum Efficient Rate) , a percentage thereof, or some other alleged equitable 

 system of restriction. This also meant payouts in terms of years instead of weeks, 

 and the need of much more capital — the first well no longer would finance the 

 drilling of all the later wells on a large tract ; money had to be borrowed. 



As wells no longer produced at capacity, there were now no decline curves; 

 so all of the curve liturgy had to be replaced by some other method by which 

 the ultimate production of a lease could be predicted early in its life. Loans 

 were to be arranged, mergers made, unitizations accomplished, and properties 

 to be bought and sold — the oil business had to go on in spite of proration, and 

 some new scheme of valuation had to be adopted. 



Fortunately, subsurface geology had grown greatly during the decline- 

 curve days. Much had been learned about structure, reservoir rocks, connate 

 water, explusive mechanisms, and a host of other important items. In arriving 

 at an estimate of recoverable oil (usually referred to as reserves) the estimator 

 could use all of these data. With all of this modern information, some of the 

 speculation about the subsurface geology of the reservoir was eliminated, and 

 the reserve estimate was rendered progressively safer. 



While proration was still an infant, the electric log came to the aid of 

 subsurface geologists. It is hard to overestimate the utility of electric logs in any 

 phase of subsurface geology, but valuation as we know it today in most areas 

 could not exist without these logs. In fact, reliable reserve estimates are often 

 made with no other information except a map and a set of electric logs. 



MARKET VALUE Almost all valuations fall into two classes: (1) 



market valuation, or (2) the engineering or 

 analytical valuation. Little has been written about the market value of a petrol- 

 eum property except in the law books. The fair market value is said to be "the 

 amount that would be paid on a certain day by an informed buyer, able and 

 willing to buy, and accepted by an informed seller, willing but not forced to sell." 

 This theoretical trade made by two theoretical parties is the courts' attempt to 

 determine what a property is really worth at a specific time. For most legal 

 purposes, it is this "fair market value" in which the judge and jury are interested, 

 and which they are trying to determine. For some tax and estate purposes, this 

 fair market value is the appraisal that is needed, and in such cases no amount 

 of counting acre-feet and calculating will do. One must attempt to reconstruct 

 what would have been a fair trade at the stated time. 



The best evidence of fair market value is an actual sale of that par- 

 ticular property, or some part of it, at that time. But, of course, that never 



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