Montana oil and mining journal. [volume] (Great Falls, Mont.) 1931-1953, 1935-02-09
ASH DAD-HE KNOWS

A Montana member of this organization who
is now in New York on an extended business visit
write us this week regarding his investigation of the
royalty business in New York He was astonished
at the prices of royalties quoted in New York.
"T'hey buy them on zOhGt they ProdAc-
inq today and nevey figure on zOhGt the future
may be-" he qVyites. In fact, they are all sold
bv statesmen zOto neaeY can anything
in the future They sell stuff that IS all drilled
ont and at the maxinant production and OF
course don't tell the client that from here IN its
going to be less and less every month.
We consider it very unfortunate that any person
should buy royalty who is unable to figure its value
The first requisite of successful royalty buyer is
good lead pencil. We have frequently stated that
an ounce of gold is thing of value. Precisely it is
worth $35 today. But the who will pay $50
for an ounce of gold is indeed foolish unless he wishes
to GAMBLE that the price of gold is going up.
The same is true of a royalty. The man who
buys a royalty buys OIL IN UNDERGROUND
STORAGE. Under very fortunate contract, called
lease that royalty oil will be delivered to the owner
if and when produced, free of cost of production IT
the investor pays for his oil than it is worth,
he is in the same position the man who buys an
ounce of gold for more than it is worth
For that reason, the work of this organization
is for the most part educational We first try to
show an investor how to FIGURE royalties for him
self Whenever he is called upon to buy royalty,
his first step is to reduce the cost to the PRODUC
TION PER ACRE necessary to pay him profit
If he discovers that he is paying price based upon
the necessity of yield per which only Signal
Hill or a Spndletop field has ever been known to
make he will back away from it, no matter WHAT
the rate of return may be-
The first and paramount realization in royalty
value is the fact that OIL IN THE GROUND is
the determining factor of value. We know what the
AVERAGE acre of ground in all the principal oil
fields in the United States HAS produced. We
know from the history of older fields what the prob
able yield per acre will be in younger fields.
Coupled with that information, we have the
guidance of engineers who know how to approximate
the content of a given formation This is deter
mied by formula which every royalty buyer should
have It involves such factors as sand thickness
and porosity and it is possible for the average person
to make fair estimate of the PROBABLE re-
coverable oil in field where average sand thickness
and those other factors have been determined by
wells drilled.
Larger operators never invest in drilling cam
pagn until they know their satisfaction that
there is a PROBABLE quantity of oil under each
acre of ground to justify the cost of drilling In
other words, Cut Bank operator will not continue
spending $4,000 per well unless he is positive that
he is going to get MORE than $4,000 worth of oil
from each well. He is assured of this fact by his
engineers before he proceeds
In like manner the royalty investor must know