The Petroleum Engineer's Function in Oil and Gas Financing
- Charles R. Dodson (California Bank)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- April 1960
- Document Type
- Journal Paper
- 19 - 22
- 1960. Original copyright American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc. Copyright has expired.
- 5.5.2 Core Analysis, 5.1.2 Faults and Fracture Characterisation, 2.4.3 Sand/Solids Control, 4.2.3 Materials and Corrosion, 3.1.6 Gas Lift, 5.7 Reserves Evaluation, 6.1.5 Human Resources, Competence and Training, 5.6.9 Production Forecasting
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Although petroleum engineering as a profession is relatively new timewise, it has matured rapidly and become a recognized and essential element in the financing of oil and gas operations. Most oil operators have become accustomed to working with the bank petroleum engineer and know that certain requirements must be met to obtain loans. It is worth noting that petroleum engineers have found bank work to be interesting, varied and rewarding. For the alert, competent and ambitious, there are ample opportunities for advancement and promotion to officer status.
The main objectives in this discussion are to comment on financing oil and gas operations by banks and to discuss in some detail the importance, content and usefulness of the engineering report in establishing the value of a property as collateral and in forecasting production for repayment of a loan. It may seem contradictory to the popular idea of conservative bank practice that a bank would accept as collateral for loans oil and gas still in the reservoir rock-commodities that are fluid, mobile, cannot be inspected or insured and must be produced from wells and sold in order to make payments on the loans. However, experience with loans based on properly engineered reserves has been most satisfactory and many oil-minded banks claim they have never had a bad oil loan.
Oil loans are not new to banks; they were started in the early thirties, increased noticeably after 1935 and especially since 1945. In the meantime, banks have made hundreds of oil loans and found them not only safe and profitable, but helpful in developing the growth of important relationships in regard to deposits and use of other bank services. The acceptability of the oil loan to commercial banks is due primarily to (1) legislation that regulates oil production to prevent waste, (2) recognition of correlative rights, (3) increased engineering ability to estimate with reasonable accuracy reserves and forecasts of production and (4) advanced production technology. These factors have tended to stabilize prices and substantially improve reliance on reserve estimates and forecasts of revenue.
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