A Philosophy for Exploration

Abstract

Factors Influencing Exploration Oil finding is not a precise science; therefore, it must be guided along philosophic lines. Oil is where you find it, and potential oil areas can be classified as either fairway or long-shot, with all shades of gradation between the two. True fairway areas, themselves, have many gradations and classifications. In South Texas along the Frio-Vicksburg trend, for example, oil is found from 4,000 to 6,000 ft in wells which cost a bare $50,000. The majority of land there is held in small tracts, and it is not uncommon for a wildcat well to be drilled on a 320-acre lease. The ratio of discovery to dry hole is good, but it is exceedingly difficult to find large oil accumulations. Nothing is more discouraging than to have made a discovery or two and then find that only 1 million bbl have been added to reserves. Admittedly 1 million bbl of oil is a real asset, but for the company that produces that amount in a week or a month it does not help much to maintain reserves. The Miocene belt of Coastal Louisiana is another typical fairway area. Ratios of discoveries to dry holes are favorable there also, and leases on relatively large tracts of land are sometimes available. Producing sands are sometimes thick, and discovery often leads to developing important large oil and gas reserves. On the other hand, most of the area is inaccessible and the pay sands are deep. Wells usually cost more than $250,000 to drill and, in some areas, can consistently cost twice that much. Large reserves can be discovered so that costs per barrel for finding oil are competitive. In such an area, the larger companies can hope to build reserves. Other factors influence the choice of an area for exploration. Competition is always present, and the type of this competition is an important consideration. Areas such as South Texas are ideally suited for the small operator, to whom drilling of a $50,000 well is a big event in the year. The small operator will find ready financial assistance from the "high tax rate boys", and he probably will spread his risk by having only a piece of several wildcats. Something about being in the 75 to 90 per cent tax bracket causes people to want to participate in any old play-particularly in the last quarter of the tax year. As a result of this urge and the willing cooperation of small wild-catters, lease costs, royalty rates and brokers overrides all increase-and the sizes of lease blocks decrease. A pattern becomes established for the area.