Papers - Valuation Methods - Valuation of Flood Oil Properties (Abstract with Discussion; see also Technical Publication No. 323)

The flooding process was originally the result of accidents to casing and tubing, but it has gradually passed from an accidental condition to a definite engineering procedure. In spite of the general sheetlike char-acter of the major sand body, the position of shale bands, their thickness, the size of the grain and variations in effective porosity all give the sand different characteristics in different layers and in different places in the same layer. This condition has an important influence on the movement of flood oil and water, and on the yield per acre, as well as a bearing on what shall be considered the best method of handling flood wells. . A valuation takes into consideration six factors: (1) Flooding methods, of which four have been in common use, as follows, in order of effective recovery, (a) circular flood, (b) line flood, (c) five-spot and (d) five-spot with delayed drilling; (2) recovery per acre, which is definitely related to the oil content, the porosity, the method of flooding, the spacing program, and the continuity of the water supply; (3) the rate of production per well per day, which is definitely related to the mcthod of flooding, the oil content and the porosity of the sands; (4) the operating cost of the well, including royalty, overhead, taxes, etc. (Operating costs are usually expressed as unit cost per barrel.); (5) the expected price per barrel. It is safer to use the average price over a number of years than to attempt to forecast future price fluctuations. The discount factor (the sixth factor) used in appraisal of Bradford flood properties should be less than that commonly applied to other properties, because the hazards of operations have been reduced almost to those of a manufacturing industry.