Bank Financing of Secondary Recovery Projects

Abstract

Abstract Normally, much of the investment requirements of the average independent oil operator desiring to develop a secondary recovery project will be sought from a lending institution. The criteria by which The Chase Manhattan Bank judges such an application are discussed detail. To satisfy itself that the undertaking is one which it may be proper to finance, the bank considers managerial competence of the operator, the engineering information and program, and an economic analysis of the project and proposed financing. The application of these principles to the case of a successful water flood in the Mid-Continent area is presented to illustrate the importance of the bank's standards in considering the financing of a secondary recovery project. Good management and competent, continuing engineering guidance are considered essential to a financeable secondary recovery project. The quality of the properties must be proven by comparison of laboratory data and engineering studies with pilot flood performance. The amount of financing the bank will be willing to undertake is determined by an economic analysis and valuation method described in the paper. Introduction During the next 10 years, according to recent predictions, petroleum production in the United States will fail by over 10 billion bbl to meet domestic demand. A recent study forecasts domestic crude oil requirements of 9,155,000 B/D during 1957, rising to 13,375,000 B/D in 1966, which will total approximately 40.63 billion bbl for the decade. Predicted production rates in the United States range from 7,600,000 B/D in 197 to 9,250,000 B/D in 1966, amounting to only 30.44 billion bbl. That the industry has assigned a major role to secondary recovery in meeting the future deficiency is apparent from recent reports. Several researchers have been working on in situ combustion and at least one field test of this method is now in progress. Bottom-hole heaters have been tested and the use of hot-injection water has been advocated for water flooding. There is current interest expressed in the use of light hydrocarbon fractions for the displacing fluid. The use of carbon dioxide and of wetting agents in injection water has been the subject of many excellent articles on net waterflood techniques. These are only a few examples of the intense interest manifested in secondary recovery.