putting the finishing touches on the well would begin at a certain time. "It's going to be a gusher, boys," yelled a man who had paid "I'll give you $50,000 for your lease," challenged a new oil millionaire from Wichita Falls. "Nothing doing," was the reply. Contrary to original expectations, the drill did not get down to the sand where oil was believed to exist in big quantities until two days after the work was resumed. Instead of the delay diminishing the excitement, it grew hour by hour. Hundreds of thousands of dollars were paid for the oil rights to land within a radius of 10 to 15 miles of the wild-cat well. Leases close around the hole sold readily for $350 an acre, while as far distant as 12 miles practically all the land was leased for varying prices, but none lower than $5 an acre. More than 48 hours after drilling was resumed in this wild-cat hole the sand was reached and a small showing of oil was obtained. From a commercial standpoint, the well was a failure. . . . It is estimated that the owners of land who leased their properties for $5 to $250 an acre made several million dollars out of the bottomless boom. 3 In this case it is difficult to avoid a suspicion that the few thousand dollars spent in cement, pipe line, and storage facilities may have been a profitable investment. Investigating an Oil Property Even in oil we find most careful investigation so far as investigation can be profitably carried. The experienced oil man-who is usually the successful oil man-employs a geologist to determine the possibilities of the field and the best locations for his prospective wells. He also employs his own experience gained in other costly efforts, to assist the geologist. He gets as near proved ground as he can for his test wells and he indulges in "wildcat 3 Manufacturers Record, February 12, 1920. ting" when it is the only way and when the indications are favorable enough, in his opinion, to justify the risk. The following outline of procedure is that of the up-to-date successful executive who carefully considers every side of a proposition before investing the money of his company in expensive ventures which may prove unprofitable. Assume that a well has been drilled in a new part of Oklahoma, with an initial production of 200 barrels per day. An 80-acre tract near this well is offered at $200.00 per acre. The executive immediately consults his geological and production departments regarding the possibilities of production being obtained, the probable size of the wells and the cost of operation. The geological department makes a careful detailed survey of the area surrounding the discovery well, mapping the surface structure, and, as far as possible, indicating the probable subsurface structure, basing the latter opinion on information gained from similar conditions in other pools in the vicinity and from any dry holes that may have been drilled in the area under consideration. Statement of Conditions The report shows that the discovery well is located structurally on top of a dome covering about 1,000 acres and that the producing sand was encountered at a depth of 3,200 feet. The 80-acre tract under consideration is about halfway down the dip on the dome, and the probabilities are that wells of 100 barrels initial production will be developed. The production department estimates that a well of that depth will cost $50,000.00 (the actual average cost of a well of this type in 1919 drilled by one of the large companies was $47,134.48), and that it will cost 70 cents per barrel to lift the oil. The production engineer compares the conditions indicated by the new well with a similar condition existing in the old and better known fields and finds that on an average a well in the Mid-Continent field produces 32.3% of its ultimate production in the first year, and that a well in this assumed locality will, with an initial production of 100 barrels per day, produce during the first year 9,500 barrels of oil. The royalty on a lease is usually one-eighth delivered to the pipe line free of cost. The lifting cost is, therefore, applied to the gross barrels lifted. The gross production and local taxes amount to 4% of the net oil. As 9,500 barrels is 32.3% of the total production of the well, the total production would be 29,400 barrels, or, deducting the oil already produced, there are 19,900 barrels to be produced during the life of the property. From the above gross profits the portion of the bonus for the lease and the overhead expense chargeable to the well must be paid. Interest on the investment must also be charged. It is evident that VOL. 1-10 the purchase is not warranted. This is an exact review of a problem presented to the writer by a client. . . . In the example given if the sand had been 1,800 to 2,000 feet in depth, the lease would have been profitable. If such had been the case the drilling cost would only have been one-third the cost of a well 3,200 feet deep. If the tract had been better located it would have made wells of 200 barrels initial capacity and the purchase would have been advisable. . . . The above methods are used by practically all the successful companies in the oil business." 4 Mowry Bates in Magazine of the New York Petroleum Exchange, November, 1920. CHAPTER XIII INVESTIGATION OF SPECULATIVE ENTERPRISESINVENTIONS Speculative Possibilities of Inventions In invention we find the whole field still untouched by the cold hand of science. Here until the new device is fairly well crystallized the trained expert is at a discount. No matter how penetrating his intellect nor how great his ability, he cannot block out the inventor's brain and announce the values in sight. He cannot even make a reliable prediction as to what will be accomplished by the inventor, or, save in the most obvious of cases, his invention. Whenever the design is unique or conditions are new, the best of machinists or mechanical engineers can do but little more than guess-and frequently they do not even guess intelligently. by Nor is the uncertainty at an end when the vision of the inventor has crystallized in tangible form-when the invention emerges a completed and presumably a usable mechanism. Especially is this true when the purchasing public is the arbiter of its fate. Then the decision is hard to foretell. After all has been said, one must conclude that the exploitation of a new invention, intended to meet a general demand-like a new collar button, a new hairpin, or even a new camera-is at best a mere gamble. The psychology of the "people" is so complex that the value they will place on a new article is absolutely unpredictable; the public buys because a new device or a new toy takes its fancy, whether it be automatic cameras or automobiles. The best that the promoter can do is to distribute his risks by giving a variety of new inventions a chance to show their power of attracting the public demand and investing in each at first only enough to test the probable market. The successful promoter of such enterprises gradually acquires skill in |