This exploration model provides an analytical method for predicting potential recoverable hydrocarbon reserves in mature geological potential recoverable hydrocarbon reserves in mature geological basins or areas. Incorporated are two basic features associated with exploration: the decline in effectiveness of drilling and the future growth of newly discovered reserves. The model has numerous applications in planning and evaluating exploration activities. Introduction Methods of forecasting trends in discovery rates and potentially recoverable hydrocarbon reserves have potentially recoverable hydrocarbon reserves have varied widely in the past. Definitions of proved reserves have been adopted by most concerned organizations, but definitions for future potential, "prospective", "probable", or "possible" reserves have not been standardized as extensively as may be desired. However, the two basic methods for estimating potential reserves employ fundamentally the same approaches as those for estimating proved or blocked-out reserves. In the volumetric methods for estimating potential reserves during the early stages of exploration in a geological basin or area, an estimate of the total cubic miles of potentially petroliferous sediments is multiplied by a unit recovery factor per cubic mile, based on an analogy with factors for more maturely developed basins or areas. A well defined example of the use of volumetric methods as a basic approach to estimating potential reserves is presented in a 1968 report by the Potential Gas Committee. Methods for estimating future potential reserves for a geological basin or area in more mature stages of exploration are analogous to performance methods used for estimating proved reserves during the later life of a reservoir. Past trends in exploration performance are used, in effect, to delineate the most performance are used, in effect, to delineate the most likely trends in the future that relate to estimates of ultimate recovery from incremental exploratory efforts. The exploration performance method, as presented in this paper, incorporates two important considerations to illustrate how they can and should be included to produce more meaningful results. The first consideration, well known to petroleum engineers, is the concept of an "economic limit". Production decline curves, when used to estimate Production decline curves, when used to estimate remaining reserves, are not extended beyond the economic limit of operation, which is the production rate that will yield a net revenue from crude oil or natural gas sales equal to the incremental cost of operating a well, lease, or field. Similarly, a forecast of potential ultimate economically recoverable reserves must include the determination of a realistic economic limit based on incremental costs of exploratory effort. The second consideration makes full use of the AGA and API reserve classifications and statistics. Data from these sources permit an evaluation of:the declining effectiveness or decay of new field reserves discovered by incremental exploratory footage drilled, andthe growth of reserves in previously discovered new fields. The effectiveness of exploration is derived from the first-year estimates of proved reserves discovered in new fields and the exploratory proved reserves discovered in new fields and the exploratory footage drilled during the corresponding discovery year. Growth of new field reserves is illustrated by the fact that each new field discovered originates its own continuing stream of additions to first-year reserve estimates through reserve changes during subsequent years. JPT P. 671

Abstract The appraisal of producing properties and profitability analysis of a proposed capital expenditure are based on the same principles. In both problems a projection of future cash income is compared to one or more capital expenditures. Several different methods have been in use either to compute a price to obtain a given earning power on the investment or to compute the earning power which will result from a given capital expenditure. One of these, the "Average Annual Rate of Return" method, computes in a simple manner the ratio of the present value of the future earnings after amortization to the present value of the undepreciated balances of the investment over the life of a project. This method, not well known generally, appears to have some rather unique advantages in reducing the computation work required, eliminating trial-and-error solutions, and providing a more accurate answer when applied to oil industry investments subject to the unit-of-production basis of amortization. Its derivation is given and its versatility demonstrated in the solution of certain everyday investment problems. A number of charts, useful in applying this method to profitability analysis and appraisal work, are provided. The current trend in the market values of producing properties is shown. Introduction Making sound capital expenditure decisions requires an objective means of measuring the productivity of individual investment proposals. Since the best measure of the economic worth of such proposals is their ability to produce profits, it is common practice to grade proposed capital expenditures according to their annual earning power as a percentage of the outstanding capital. The same principles which govern the determination of the rate of return of proposed capital expenditures also apply generally to the problem of determining the appraisal value or purchase price of income-producing oil and gas properties. Both problems are of prime importance in the producing phase of the oil business, where management is faced daily with decisions to drill or not to drill certain development wells, or with the determination of the appraisal value of producing properties.

After a brief review of the results of the past drilling activity and the production history of the Denver-Julesburg basin to date, the merits of this play are discussed from an economic viewpoint. An analysis of the relative importance of stratigraphy and structure in forming the Lower Cretaceous traps is presented. The cost of drilling dry holes and producers in the basin is discussed and its effect on the economics of producing marginal wells analyzed. The Denver-Julesburg basin at present with its hundreds of Lower Cretaceous fields and thousands of wells represents a unique opportunity for statistical analysis. A of 5,700,000 acres was chosen on the east flank and a statistical correlation prepared of the estimated ultimate recovery per field and the number of delineating dry holes per field as a function of the productive field area. This correlation shows some well defined trends from which significant conclusions can be drawn. A frequency-density distribution of the fields found was then prepared and plotted versus ultimate field recovery, which again indicated a well defined pattern. A mathematical relation is presented, relating the number of fields of a given size found after drilling a known number of wildcats to the total number of fields of that size originally occurring in the sample area for the assumptions of: (a) random drilling in the productive trend; (b) pattern drilling in the productive trend; and (d) drilling on geophysical and geological leads in the trend. After computing the frequency-density of occurrence from the frequency-density distribution of fields found, it is shown how this mathematical relation can also be used to make a forecast of the average results to be expected from future drilling.