OT30382 - Capital Gains

Valuation of Oil Assets (including shares). 31 March 1982. Unexplored Areas.

Companies may be prepared to acquire UK and UKCS exploration acreage with little known prospectivity for strategic or other reasons (e.g. to maintain a stock of acreage) in the same way that quarrying concerns will pay for the rights to sand or gravel deposits on land, notwithstanding a remote chance of obtaining permission for extraction. However, the consideration in latter deals is generally nominal, according to the Minerals Valuer, and in the absence of any known sales (as opposed to farm-outs) in 1982, the value of unexplored areas is likewise thought to be fairly small.

Seismic techniques were less sophisticated in 1982 than at present and the evidence was perceived as unreliable, perhaps only a means of demonstrating where not to drill. Only one in six exploration wells were successful in locating a significant discovery in 1982. Even in 1985, a consultant in a firm providing reservoir engineering and economic evaluation services to the oil industry worldwide (including the North Sea) told a conference on buying oil reserves that in relation to new discoveries:

• " It is usual in (our) experience that little more is offered to gain an interest than the drilling of a certain number of wells. In large areas of the North Sea, seismic data quality is such that without well control, there are huge uncertainties and a prospective buyer would be well advised to limit his risk at an early stage."