A "gas and oil loan," as the term generally is used, is a loan secured by a mortgage on a productive property capable of producing future net income from the production of hydrocarbons. The primary security is the expected income from the property; the secondary security is the net worth of the borrower. A gas and oil loan is self-liquidating. The loan is reduced each month by payments from runs. Such loans generally carry a higher rate of interest than other loans, because the cost of processing and servicing such a loan is greater. Operations of many producers could not be carried on if money were not available through bank loans on future production. Generally, an operator who has completed and paid for his interest in two producing wells may obtain a loan from a bank or drilling, equipping, and completing a third well; the bank takes all three wells as security for the loan. A development loan secured by several wells in several different fields is preferred by banks, because of the widespread security.

Evaluation of oil and gas properties includes estimation of recoverable reserves, future rate of production, annual net income, and economic limit of the property. An evaluation report should be realistic and should not be adjusted for "personal safety factors." A property may be re-evaluated as each new well is completed. The objective in evaluation of gas and oil properties is to determine the present value of future net income from the property. Estimates must be made of future production, rate of production, future selling price, cost of producing, cost of additional wells and equipment to produce estimated future production, and present-value interest-discount factor.

Except for the present-value discount factor, which can be secured from standard tables, all the factors can be estimated if sufficient data are available. Methods used to estimate the volume of recoverable hydrocarbons vary slightly, depending on the content of the reservoir. Different methods are used to estimate recoverable reserves in a free-gas reservoir, a condensate reservoir, and an oil reservoir. The results of estimates should be checked by several different methods, e.g., volumetric, production-decline curves, rate-cumulative decline curves, reservoir pressure-cumulative production curves, and material-balance calculations.