--> Abstract: Entrepreneurial Geology: Fundamentals of Oil & Gas Property Evaluation, Robert Von Rhee, #90097 (2009)

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“Entrepreneurial Geology: Fundamentals of Oil & Gas Property Evaluation”

Robert Von Rhee1

1KVR Energy, LLC

Acquisition of petroleum properties for exploitation has been a popular and successful business model for the past two decades. For success the goal must be achieving profitability, wherein your purchase price is recovered and the property’s revenue generates an acceptable return on your investment. Financial evaluation of existing production is usually performed via discounted cash flow (DCF) analysis. Alternatively, a simple cash-flow multiple may be appropriate. In its simplest mode reserves are categorized as proven/unproven and producing/non-producing. Non-producing reserve entities are defined as Proved-Developed-Behind-Pipe (PDNP), Proved-Undeveloped (PUD), Probable (PROB) and Possible (POSS). Non-producing reserves entities are best valued via DCF analysis. Non-producing reserves entities may add value often equaling or exceeding that of current production. The evaluation or creation of these entities is critical to evaluation for purchase and exploitation of prospective properties. Geologists may be involved in the evaluation/identification of proven and unproven non-producing reserves. A geologist evaluating such properties who understands the valuation process will more accurately advise his company relative to a purchase price. A skilled geologist may generate ideas that become valued reserves entities. Property evaluation requires the geologist to consider the entire “earth-cube” and produce necessary geological interpretations for reserve additions in producing zones, shallower or deeper zones, offsets, and via seismic, or secondary, tertiary and unconventional projects. By understanding the concepts of reserves entities such as PDNP, PUD, PROB, and POSS the geologist will see a direct line between idea generation and the company’s financial success.

 

 

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