ESTIMATE OF DEPRECIATION ÓF EQUIPMENT USED IN THE OIL

AND GAS INDUSTRY.

CLASS A, No. 1.—DRILLING EQUIPMENT.

This includes engines, boilers, rig irons, and portable derricks.

It is recommended that four years' life be allowed to equipment as a whole, depreciated at the following rate:

Permanent derricks, rig irons, boilers, and engines left at the well are included under "Well equipment."'

Drilling tools (cable and rotary), and fishing tools are included under "Tools"-Class A, No. 5.

CLASS A, No. 2.-WELL EQUIPMENT.

As most equipment of a producing well has no separate value apart from the well, it is suggested that all wells and their equipment be depreciated at the same rate as the wells are depleted, using the same curve rate for both or where the life of the physical equipment is greater than the life of the deposit, then the depreciation rate of the physical equipment will be governed by the reasonable expectation of the life of the deposit.

When the life of the equipment is shorter than the life of the well, replaced equipment should be charged against maintenance and operation.

This method proved satisfactory in the appraisements of the Independent Oil Producers Agency of California, embracing some 130 companies, and is generally acceptable to all operators who have been consulted in the matter.

CLASS A, No. 3.-DEHYDRATORS.

These are either of electric, pipe, or tank type. The life of the pipe and tank dehydrators is very erratic as these burn out quickly with practically no

salvage. It is recommended that this type of equipment have a straight line depreciation as follows:

These results may be used for all classes of service—that is, oil producing, refineries, etc.

CLASS A, No. 5.-TOOLS.

This includes standard, rotary, and fishing tools. While rotary equipment may be shorter lived, it is, in general, offset by the standard tool equipment which will have a life of at least four years in many cases.

Owing to the excessive wear and tear and losses on such equipment an average life of three years is recommended, using an annual depreciation of 33 per cent.

CLASS A, No. 6.-TRANSPORTATION EQUIPMENT.

All transportation equipment, such as motor trucks, autos, wagons, horses, and harness, can be placed at a three-year life or an annual depreciation of 33 per cent.

In fact, the average life of automobiles is less than three years. The percentages of cost for horses, harness, and wagons is such that the whole can bə made one class with three years' life and consider no salvage.

CLASS A, No. 7.-WATER PLANTS.

Considering the water well, pump, steam power, gas and oil power, electric power as a class, they may be given a useful life of approximately 10 years, which allows a straight depreciation of 10 per cent.

CLASS A, No. 8.-ELECTRIC EQUIPMENT.

In considering electrical equipment, one may include the separate items of generators, various size motors, transformers, wiring (both indoor and outdoor), power lines, and switchboard.

As oil-well motors are not suitable for other uses and as the class of wiring usually done on leases is not up to utility company standards, it is recommended that a combined life on electric equipment be placed at 10 years, or an annual depreciation of 10 per cent.

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CLASS A, No. 9.-MACHINE SHOP.

In covering machine shop there is included wood buildings, power tools, blacksmith tools, small hand tools, shafting, and shop power, which will, on an average, have a seven-year life or a depreciation rate of 14 2-7 per cent. The smaller hand tools, of course, may have a life of not more than two years, but their cost is not important and the depreciation rate is lowered by the longer life of more expensive items, such as power tools, wood buildings, shafting, and shop power.

CLASS A, No. 10.-BUILDINGS.

Buildings are grouped into four general classes:

No. 1. Wood, which includes small dwellings, small outhouses, small warehouses, small power plants, and small platforms which are built on the ground. These have an average life of 10 years, which allows a depreciation rate of 10 per cent.

No. 2. Frame buildings, placed on brick or concrete foundation with siding and shingle or patent roof painted, have an average life of 15 years or a straight line depreciation of 6 2-3 per cent.

No. 3. Corrugated iron siding, renewable, has a life of six years or a depreciation rate of 16 2-3 per cent.

No. 4. Concrete, brick, and steel frame have an average life of 25 years or an annual depreciation rate of 4 per cent.

The permanent buildings may outlast the remainder of the plant; hence, no salvage value. Gulf Coast fields may claim shorter life on account of salt air conditions.

CLASS B.-PIPE LINES.

Pipe lines are subdivided into main line, pump stations (which include all equipment such as engines, pumps, boilers, etc.), auxiliary equipment, buildings, telephone and telegraph, and terminal facilities.

It is recommended that

Mains 6 inches in diameter or over be based on a 20-year life or an annual depreciation of 5 per cent.

Mains under 6 inches diameter be based on a 16-year life or an annual depreciation of 64 per cent.

Gathering lines be based on a 10-year life or an annual depreciation of 10 per cent, with a salvage of 10 per cent.

Pump stations, including all equipment, telephone lines, and terminal facilities a life of 10 years, or an annual depreciation of 10 per cent.

These conclusions were reached after carefully considering detailed data in which it was decided that pipe lines could be grouped into the subdivisions given above.

The subject of electrolysis in pipe lines has been investigated and the losses have proved to be very small and negligible in comparison with the amounts invested, so far as making any special allowances in depreciation.

Below is given the result of a pipe line 220 miles long, having 16 stations and costing $3,906,668.

CLASS C.-TANK CARS.

This class of equipment is of very stable construction, and it would appear that the maximum 20-year life can be accorded and a 5 per cent per annum depreciation established.

CLASS C.-REFINERIES.

In order to arrive at a depreciation figure for the refinery as a whole, it is necessary to determine the relative investment in each item of equipment as compared to total investment. The various items have been grouped into classes that have about the same rate of depreciation, and the depreciation for the whole plant calculated by multiplying each item by its rate of depreciation.

Refineries were divided into two classes, skimming plants and complete refineries—that is, refineries equipped with lubricating plants (but not having cracking plants). Figures for relative investment in each class of equipment were obtained from reports on valuation of refineries and from our own estimates.