794 Subsurface Geologic Methods 



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 ren- 

 dered 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 electrical 

 logs in any phase of subsurface geology, but valuation as we know it 

 today in most areas could not exist without electrical logs. In fact, re- 

 liable reserve estimates are often made with no other information except 

 a map and a set of electrical 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 petroleum 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 pur- 

 poses, 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 happens; disputes do not occur when the answer is known. Litiga- 

 tion and tax disputes arise in the area of uncertainty, and usually are due 

 to a conflict between optimists and pessimists. If there were a sale, a 

 fair sale, of that particular property at that time, one could establish 

 fair market value without knowing any subsurface geology, or for that 

 matter, without knowing anything about the oil business. 



But fair market value must always be proved by comparison, infer- 

 ence, and analogy. The next best evidence is records of sale from county 

 deed records of adjoining properties or of similar properties elsewhere. 

 Oil companies keep records of transactions submitted to them, and these 

 tend to show fair market value. Also, traders in that area frequently 

 know of transactions or near-transactions on similar properties, which 

 are admissible evidence in some proceedings. 



As soon as one begins to study adjoining or similar properties, he is 

 dealing in subsurface geology. An adjoining lease may raise such ques- 

 tions as: Is it up or down structure? Is it a gas or water-drive reservoir? 

 Does the producing section thicken or thin in that direction? Does the 



