Valuation and Subsurface Geology 793 



be approximately equal regardless of their relative ages." In other words, 

 a fifty-barrel-a-day well that is ten years old will produce about as much 

 oil in the future as a fifty-barrel well that is one year old. 



Of course, decline curves had little to do with subsurface geology. 

 Our knowledge of subsurface geology was expanding each decade, but 

 figuring reserves was a matter of daily production figures and graph 

 paper. Family curves, composite curves, running averages, comparative 

 ratios, cumulative-productive curves — all had their sponsors and special 

 uses. Plotting the curves on logarithmic or semi-logarithmic papers made 

 a straight line out of the curves and aided in their projection. 



The matter of estimating how much oil a well would produce in the 

 future from facts on its past production, and the past production of other 

 wells, attained a high degree of proficiency with an exacting standard of 

 accuracy. The future production of a well could be closely predicted, 

 with or without a knowledge of subsurface geology. It is still true that 

 when decline curves are available (as in the later life of wells, when they 

 will no longer make their allowable, and are thus being produced at 

 capacity) a proper projection of the curve gives the best possible estimate 

 as to both the ultimate production of a well and the rate of that production. 



Proration 



One of the really great changes in the oil industry came in about 1931 

 with the advent of over-production. The oil industry has always been 

 plagued by over-production and periodic price declines. As early as 1926 

 legal efforts were made to curtail production equitably (always claimed 

 in the cause of conservation, but actually 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 "de- 

 cline curve" days. Much had been learned about structure, reservoir 

 rocks, connate water, explusive mechanisms, and a host of other im- 

 portant items. In arriving at an estimate of recoverable oil (usually 



