Production from Multiple Horizons: Costs, Return on Investment and Chances of Multiple Success

Abstract

The purpose of this paper is to show how one can assess the worth of undertaking the drilling of an horizon in an already producing oil field based upon information already available from prior drilled horizons in the same field. The device we use to illustrate one way to assess this worth is the return on investment ratio (ROI) for each and every horizon when costs are to be shared between horizons. Other measures of worth are also available, such as accumulated gains versus accumulated costs. The advantage of the ROI is that it enables a corporation to determine quickly what the effective worth is of each horizon in relation to fractions of the total costs assigned to each formation, and also helps with tax discussions when each horizon is viewed as an individual entity for tax purposes, or when a corporation is interested in farming-out some, but not all, of the producing horizons to raise capital for further exploration and/or development needs.