The major function of exploration is to find sufficient oil (this term includes natural gas and associated liquids) to meet the continually increasing peace-time needs of the free world and to build up surplus productive capacity which will be available in case of war. This means that, over a period of years, additions to oil reserves must be greater than production if we expect supply to continue meeting demand.

It is evident that economic exploration must find oil at a cost which, when added to development and producing costs, gives a total per barrel cost less than the posted price for the crude. If it fails to do this it will cease to be a vital phase of the oil industry. Exploratory costs (total, per-barrel-discovered and per-barrel-produced) have been on the upgrade for a number of years; the trend is still up. Some published figures suggest that exploration is becoming a non-economic endeavor. This

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has been true always for some operators at the same time that other operators were reaping satisfactory rewards. It should be commented that continuation of the 27½ per cent depletion allowance and a crude-price commensurate with the risks involved are essential if exploration is to retain its important place in our oil-economy. The geographical location, time of discovery, type of oil discovered, depth of drilling, and subsurface conditions encountered are a few of the variables that affect the economics of exploration.

It is probable that some of us in exploration are spending a disproportionate share of our thought and energy in calculating the ultimate dollar value of possible oil not yet discovered. It is appropriate for us to know whether the prospect that we recommend is likely to produce a few thousand barrels or a hundred million barrels ultimately. It is a waste of an oil-finder's talents, however, to calculate exactly how much oil, gas, and liquids will be discovered, the gravity of the oil, the pay-out time, and the ultimate return to risk ratio--all on undiscovered oil. Such calculations tend to dull the sharp edge of enthusiasm of the oil-finder. The accountants are good at such figures.

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