808 Subsurface Geologic Methods 



found that 227 mmcf have been produced, and that a reserve of 4,701 

 mmcf is left. 



The converting of gas reserves into dollars is the same as for oil, 

 except possibly that it is more of a certainty. Gas is sold under long-term 

 contracts, usually 10 to 20 years, at stipulated prices; for this reason the 

 price does not fluctuate as greatly or as rapidly as the price of oil. It is 

 easier to foresee what the gas price is to be in years ahead, and it is much 

 more likely to remain at the present level than is oil. Also, gas deliveries 

 are scheduled for years ahead, so it is easier to estimate over how long 

 a period gas production will be extended. 



If the future price and future deliveries of the well are not covered by 

 contract, it is assumed that the rate of production and price will remain the 

 same. A schedule of future income year by year is set up, with expected 

 future expenses deducted. The costs of operating gas wells are usually much 

 lower than costs for oil wells. The present value of each year's income is 

 discounted back to present value; final salvage value is discounted; and 

 these are all added together to give the total present worth of the property. 



Many gas wells, particularly those in high-pressure reservoirs, pro- 

 duce a liquid called "condensate." This liquid was in the sand, but it was 

 there as a vapor. It condenses into a liquid when brought to the lower 

 pressure and 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 five bbls. per 

 mmcf 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 (4,338 X 5) is discounted back to present value by using a five- 

 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 geolo- 

 gist 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 producing properties. For instance, oil has sold recently from $.80 

 to $1.05 a barrel in the reservoir, and gas at 1 to 2^ 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. 



