FACTORS GOVERNING VALUATION 437 



by the Government and State technical bureaus in the oil fields is the 

 effort to overcome water difficulties. Over 2,000 barrels dail}^ have been 

 added to the production of the Mid-continent field within the last few 

 months, directly as a result of the effort of the petroleum division of the 

 United States Bureau of Mines in shutting off offending waters. The 

 annual vahie of tlio oil thus conserved is $1,825,000, or enough to finance 

 the oil division for many years. Other examples of a like nature might 

 he cited from California and elsewhere among the producing States. 



No problem is usually given so little consideration in opening up new 

 fields as the water problem — none is usually as important eventually. 

 Water is the specter of all fields. When the production comes from a 

 few large wells, as in Mexico, the specter looms large and its hand may 

 cut down millions in value instantaneously; when numerous wells con- 

 tribute to the total yield, the grim shadow is less ominous, but is, never- 

 theless, as certain to levy its toll as in -the fields of larger wells. Within 

 the same week that this paper was started the great Portrero de Llano 

 well, No. 4, of the Pearson's, in Mexico, changed suddenly from oil to 

 an emulsion of oil and hot water. From a producer of 35,000 barrels of 

 oil per day, valued at $17,500, to a well of questionable value is a good 

 illustration of the injurious effects of water. It might be remarked in 

 passing that this is one of the greatest oil wells the world has ever seen, 

 its total production to date being over 105 million barrels, valued at over 

 50 million dollars. 



ESTIMATIOX OF OIL RESERVES 



Tlio ])rincipal economic use of oil geology is in the location and estima- 

 tion of oil reserves. The estimates serve as a basis for the valuation of 

 the deposit as distinguished from the surface value of the land and the 

 improvements. Several methods of estimating oil reserves are in use. 

 The two principal types are (1) those which involve a study of the ex- 

 tent, thickness, and character of the reservoir rock, its saturation, pres- 

 sure under which the oil exists, and any other factors which may throw 

 light on the probable contents of the reservoir, and (2) those which 

 utilize the actual production of wells as a basis for calculating the future 

 production of these or similarly located wells. 



The first method is the only one applicable to undeveloped fields, and 

 for such is most useful in arriving at rough approximations of the possi- 

 bilities. Its use, however, necessitates, among other uncertain factors, 

 the assumption of a ratio between tlie "contained" and "recoverable'^ oil 

 that is at once arbitrary and unreliable. 



The second metliod, wliich utilizes figures based on the actual perform- 



