American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

Introduction

We are in an extremely fascinating industry - not only considering the oil industry as such, but especially one of the more interesting phases of it that we as petroleum engineers are engaged in. That is, petroleum engineers are engaged in. That is, the buying of producing oil and gas properties. The buying of producing oil and gas properties is a natural adjunct of the oil industry, which is essentially a trade industry. Once the liquid or gaseous product is located and is brought into production, it assumes a value. We as engineers have or should have the technical ability to estimate properly how much of this product is located in a particular reservoir and is recoverable by known means. Then by utilizing this estimated amount and applying the proper economic factors, we can determine a value for a particular well or wells, oil and/or gas field, or a group of fields. There is always a temptation for an engineer, when evaluating a prospective purchase, to take the attitude that since, "I purchase, to take the attitude that since, "I am technically qualified," it is my function to look at the safety factors involved in the estimate or, as I maintain, take the negative approach, and look for reasons why the purchase should not be consummated. That is always the safe, but as I strongly believe, the wrong approach. The purpose of this paper is to emphasize the point that in order to buy production we have to properly evaluate all production we have to properly evaluate all factors, both technical and psychological and, in fact, be in the "buying mood". If we have a purpose and a reason together with the purpose and a reason together with the wherewithal to buy, then in order to do so, we have to think positively and look at the plus factors involved and weigh them in their proper perspective with the existing negative factors. perspective with the existing negative factors. Of course, if at the outset we see too many negative factors, then we should not pursue the purchase. However, if the proper plus factors purchase. However, if the proper plus factors are present and there is a probability of a trade, our main function as engineers engaged in property acquisitions should be to try to make property acquisitions should be to try to make the trade based upon the best technical and economic basis. Obviously, in order to do so we have to explore positively the reasons to make the trade.

WHAT DOES A BUYER PAY FOR PRODUCTION?

An often-used statement is: "The purchase price for a property is its fair market value." price for a property is its fair market value." As we know, this statement has many definitions The most commonly used is that the "fair market value" is the price that a willing buyer will pay a willing seller at the market place. This pay a willing seller at the market place. This in itself implies a trade type of psychology.

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