434 R. ARNOLD- — OIL GEOLOGY IN RELATION TO VALUATION 



essaying to be an oil geologist without a working knowledge of the tech- 

 nical side of the business is pretty sure to meet with failure in commer- 

 cial work. One need look back only a few years — a very few years — to a 

 time when oil men would have laughed with scorn at the statement that 

 there was any connection whatever between geology and the oil industry. 

 Today every important oil and gas company in the world has its corps of 

 oil geologists^ and on their opinion rests the investment of most of the 

 millions of dollars which annually go into prospecting and development 

 ■work. 



Oil geology and technology are comparatively new sciences, largely 

 developed within the last ten years. To the geologists and engineers who 

 have specialized on and developed these subjects, the author wishes to 

 render acknowledgment for the information on which this paper is based. 



Factors Governing the Valuation of Oil Properties 



classification of the factors 



The factors governing the production of oil, and hence the valuation 

 of oil properties, may be discussed conveniently under four headings : 

 (1) character of the oil, (2) quantity and rate of production, (3) cost 

 of production and transportation, and (4) the certainty with which all 

 of these factors may be predicted. 



CHARACTER OF OIL 



The quality of any commodity is usually one of the determining fac- 

 tors of its value. In the case of oil, this is preeminently so. Eoughly 

 speaking, the value of oil, and hence of the property producing it, is 

 inversely in proportion to the specific gravity of the fluid. This is true, 

 not because this particular physical characteristic of oil measures its de- 

 sirability, but because it indicates inversely, in a general way, the relative 

 contents of the more valuable derivatives which may be obtained from it 

 through distillation. Oils of low specific gravity contain the naphtha, 

 gasoline, and other desirable light distillates, while the high gravity oils 

 are composed largely of constituents such as fuel oil, which are of lesser 

 value. There are, of course, exceptions to this rule — oils with special 

 properties which make them unusually valuable — ^but in general the spe- 

 cific gravity is the ruling factor. As illustrating this point, it is to be 

 noted that in all quotations of value the gravity — usually recorded in the 

 Beaume scale in this country — always is mentioned and is the only 

 physical property entering into the quotation. 



