Abstract: Economic Values Using Distributed Ranges of Values of Reserves and In-Situ Market Values

John A. Pederson, John Lohrenz

The policy of the Department of the Interior is to issue mineral leases at fair market value (FMV). Comparable sales and income approaches to FMV are acceptable from a legal viewpoint, with comparable sales preferred. The usual way of implementing the comparable-sales approach is to consider the in-situ market values on a unit basis of the mineral being considered.

FMV can be a range with a specific "best" value. A comparable sales-approach model has been developed that uses separate probabilistic oil and gas reserves and unit values of each of these two products. Probabilistic input data with various different distributions are tested. The results, which are estimates of FMV, are essentially log normally distributed regardless of the input distribution. The results also show the necessity of taking care in defining the type and range of distribution in input-data values for probabilistic calculation as well as the "best" or modal values. Even apparently subtle changes to the distributions for some input-data values can affect drastically the expected market value.

AAPG Search and Discovery Article #90971©1976 AAPG-SEPM Rocky Mountain Sections 25th Annual Meeting, Billings, Montana