New York Paper February, 1918 - Methods of Valuing Oil Lands (with Discussion)

This paper is abstracted from the report of the Appraisement Committee of the Independent Oil Producers' Agency, of which the writer was Chairman. The other members of the committee were M. V. McQuigg and R. S. Haseltine. To Thomas Cox, engineer in charge of the investigation, and to his efficient staff of assistants, is due the credit for the detail work necessary in carrying out the plan of the Committee. It treats only of the valuation of the lands, wells, and piping, without going into details of equipment and other features. It was recognized, early in the operation, that the value of oil lands was the value of oil ,to be extracted and marketed, less the costs attendant thereon. Referring this back to the costs in cents per barrel, it became obvious that surface improvements, absolutely necessary in the production of oil, from wells then drilled, had no separate and independent value aside from the value of the land, but that any excess equipment, not necessary for the production of oil from present wells, such as drilling tools, well casing, etc., should be given a present condition value. In valuing the properties of the Independent Oil Producers' Agency, the Committee has considered the following facts: 1. That from each property there will ultimately be produced a certain total quantity of oil. 2. That in the production of that oil a certain total quantity of money will be expended. 3. That a certain total amount of money will be received from the oil. 4. That the total net receipts will be the total gross receipts less the cost of development and production. 5. That the present value of the net receipts must be such an amount that when invested by a purchaser it will be returned with 8 per cent, interest additional during the life of the property. The initial procedure consisted in making a general reconnaissance of the entire district in which the property was located and determining the lithological and structural conditions underlying the area. The data obtained from each individual tract comprised the logs of all the wells