FACTORS GOVERNING VALUATION 435 



Ql'AXTITY A\D RATE OF PIWDUCTION 



Obviously, the amount of recoverable oil iii any property is the pre- 

 eminently dominant factor governing valuations. It furnishes the one 

 great element of chance which makes the oil industry the greatest gam- 

 bling game in the world. Second only in commercial importance to the 

 quantity of oil in the property is the rate at which the fluid may be re- 

 covered. These two factors, quantity and rate of recovery, are dominated 

 to a large extent by the geology of the deposit; hence the importance of 

 the work of the geologist as applied to valuation. 



The quantity of oil in any deposit depends on the structure of tlie con- 

 tainer, extent of the deposit, both laterally and vertically, and on the 

 character and porosity of the reservoir rock. The rate of production and 

 the quantity of "recoverable oil," as distinguished from "contained oil," 

 is de[>endent on the above factors and, in addition, on hydrostatic, hy- 

 draulic, and gas pressure (which in turn are dependent on depth below 

 the surface, etcetera), on the viscosity of the oil and the connection that 

 exists between the oil and associated waters. 



The relationship between valuation and such factors as the lateral ex- 

 tent of deposit are too obvious to merit mention. Structure enters largely 

 into the value of oil properties; in many instances it is the dominant 

 factor of accumulation, and therefore of value, while in others its potency 

 may be shared with lithology. Domes and anticlines and their various 

 modifications are usually the more favorable structures for oil, although 

 fault zones and unconformities play an important role in its accumula- 

 tion. The value varies with the position of the property on the struc- 

 ture, usually inversely with the distance of the property from the centers 

 of accumulation. The influence of vertical extent is in connection with 

 the fact that the production varies with the intake surface of the well, 

 and this in turn is in proportion to the depth of producing rock through 

 which the well penetrates. Likewise the pressure under which th'e oil 

 exists, its viscosity, and the degree and type of porosity of the container 

 have a definite relation tb the percentage of the contained oil that may 

 be recovered and the rate at which it may be produced. Production 

 varies with the pressure and inversely with the viscosity. Coarse-grained 

 reservoir rocks or oil-yielding formations with large pores or cavities 

 give up more of their contents than those with small cavities. These 

 factors have a direct bearing on the rate of production, and therefore on 

 the present value of the deposit, for it is obvious that a certain quantity 

 of oil that may be recovered quickly is worth more at any given time than 

 a similar quantity requiring a longer time for recovery. As illustrating 

 this point, consider the relative value 'of an acre of ground in one of the 



