temperature at the surface. The amount varies from less than 10 to more than 

 100 barrels per million cubic feet. If the reservoir is under water drive, the 

 yield of condensate will remain substantially constant; but, if it is under gas- 

 expansion drive, the yield will decline as the pressure drops. 



In the example field, it is assumed that the yield is 5 barrels per million 

 cubic feet of 54° API condensate. Since there is a water drive, it is further 

 assumed that the yield will remain the same, and that the price will remain at 

 $2.90. 



As in the case of oil, the future sales price of this 21,690 barrels of distillate 

 (4338 X 5) is discounted back to present value by using a 5-percent discount 

 factor. This factor is added to the present value of the gas. The distillate is 

 worth more if the gas is to be produced quickly than if it takes a long time, as 

 time brings on a heavier discount factor. 



CHECKING THE VALUE The final result of the valuation study should 



be checked by the geologist by any and every 

 means available to him. As stated above, he should know the average acre-foot 

 recoveries from similar recoveries. If his reserve estimate is far out of line, he 

 should know why. 



He should know the average selling price of oil in the ground and of gas 

 in the ground. This price he can constantly know by analyzing the sales of pro- 

 ducing properties. For instance, oil has sold recently from $0.80 to $1.05 a 

 barrel in the reservoir, and gas at 1 to 2i/£ cents per thousand. These figures 

 often enable one to check the present-worth estimate because sales are often 60 

 to 70 percent of present worth. 



Whenever decline curves can be constructed, they should always be used. 

 The solution should be worked out by projecting the curve. The curve should 

 come out in the proximity of the computed estimate — if it does not, another 

 check should be made. If any material-balance equations can be solved, they 

 should always be used — even though they give data only on the entire field, they 

 often confirm or deny the conclusions. 



The evaluator should always go on the property, physically inspect every- 

 thing he can see, quiz the gauger who handles the lease, and get the latest pro- 

 duction figures he has. In setting up a reserve estimate, the valuator says by 

 implication that he expects the wells to produce for years and years — he must 

 be certain they are not already beginning to fail. 



CONCLUSION Accurate valuation of oil-and-gas properties 



now depends entirely on a proper understand- 

 ing of the conditions existing in the producing reservoir. Since one cannot go 



810 



