Assessing Risk in Estimating Hydrocarbon Reserves and in Evaluating Hydrocarbon-Producing Properties (includes associated papers 18606 and 18610)

Garb, Forrest A.

doi:10.2118/15921-pa

Cited by 41 publications

(16 citation statements)

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“…A discounted-cash-flow projection serves as the basis for nearly all FMV estimates, but the final value involves ecopolitical considerations that are usually not the responsibility of the evaluator. 5. The decision to purchase producing properties at a particular price is a business decision that involves long-term objectives, source of capital, and perception of future prices.…”

Section: Discussionmentioning

confidence: 99%

The Evolution of Economic Forecasts and Risk Adjustments in Property Evaluation in the U.S.

Hickman¹

1991

Journal of Petroleum Technology

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Section: Discussionmentioning

confidence: 99%

The Evolution of Economic Forecasts and Risk Adjustments in Property Evaluation in the U.S.

Hickman¹

1991

Journal of Petroleum Technology

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“…Thi s has then 1 ed to sal es and purchase pri ces of proved producing properties being in the 67% to 75% range of the present worth discounted at prevailing rates (Garb, 1988). Although not researched by us in detail, the history of this type of discounting for ri sk and des i re for profit may 1 i e with the funds from the late 1970's and early 80's where "right of presentment" was offered to limited partnership investors.…”

Section: Risked Present Worthmentioning

confidence: 98%

Risk Analysis in Hydrocarbon Appraisals

Gustavson¹,

Murphy²

1989

All Days

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Since the presentation in 1984 of the author's paper on "Comparison of Methods for Determining Fair Market Values," (SPE Preprint 13769), the authors have had an opportunity to evaluate the risk analysis methods used both by industry as well as by their own firm in over thirty appraisal cases. The industry cases were further analyzed as part of the class work in the University of Tulsa-sponsored seminar on "Appraisal of Oil and Gas Properties," where critical review by many market sector representatives was applied. With these data as a base, a study has been made of the adequacy (or lack thereof) of the risk analysis in oil and gas property appraisals. It has been found that of the property appraisals. It has been found that of the four methods generally used by industry for fair market value determination, only one adequately addresses risk analysis and allows numerical treatment of the subjective part of the appraisal. We term this method the Risked Present Worth method, while the other three are generally known as the BOE method, the Cumulative Cash method and the Targeted ROR method. None of these latter three methods, while frequently used, allows for a systematic approach to risk analysis. In contrast, the Risked Present Worth method provides for a distinction between the effects of provides for a distinction between the effects of time-value-of-money and the mechanical, operator and market-related risks. In the continuing development of this method over the last four years, it has become possible to develop checklists for subjective assessment of the various types of risk toward determination of a single risk factor which subsequently can be multiplied into the unrisked present worth of the future cash flow and yield an present worth of the future cash flow and yield an acceptable fair market value. These checklists are designed to allow risk analysis by appraisers of varying levels of skill or experience. They are also designed to provide default values where some details about an oil or gas property may be unavailable. The method currently defaults (if absolutely no information is available) at a risk factor of 0.73 for proved developed producing properties as of fall, 1988. Additional market data properties as of fall, 1988. Additional market data evaluations performed during the preparation of this paper show a slight downward trend toward 71%. The paper show a slight downward trend toward 71%. The detailed risk analysis, which can be performed on the basis of additional property information, may increase or decrease the risk factor. Under current economic conditions (winter, 1988), the present worth at 10% would be used as a base for the unrisked present worth, but could be accurately adjusted to reflect the prevailing interest rates. Introduction Oil and gas property appraisals have many uses, most commonly in cases of sale or purchase of properties. Also, the determination of an oil property's fair market value may be required in cases of bank loan collateral determination, for internal development planning in oil companies, in estate planning and in planning in oil companies, in estate planning and in different types of condemnation and litigation. In almost all cases, a single number, namely the fair market value (rather than a range) is required and this creates an inherent problem for the appraiser, whether he or she functions as an independent expert or as an official in a company. Definition of Fair Market Value The Uniform Appraisal Standards for Federal Land Acquisitions (Inter-Agency Land Acquisition Conference, 1973) from a base for fair market value determination, not only for land acquisitions but also for oil and mineral property appraisals. P. 33

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“…Figure 3 attempts to illustrate this in probabilistic terms, and is an update of the familiar illustration showing the range of estimates decreasing with time to converge on the ultimate recovery (DeSourcy, 1979, Garb, 1988, and many others).…”

Section: Visualizing Uncertaintymentioning

confidence: 99%