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Summary of Submission of LAA Rebuttal Comments for Chapters 3, 9, 11, 13, and 25LTC Rules and Regulations, Tax Year 2015
*** REBUTTAL OF LOGA PROPOSALS ***
CHAPTER 3: PERSONAL PROPERTY FORMS
SUMMARY: LAA objects to the revised LAT 12 form that LOGA submitted on the basis the form wasrevised to correspond with their proposed income approach to value for Chapter 9 properties whichwe also object to (see below).
CHAPTER 9: OIL AND GAS PROPERTIES
SUMMARY: LAA objects to LOGA’s proposed income approach to value any property in this chapter,which we believe to be fundamentally incorrect methodology as applied to the property assessed underthis chapter. LAA opposes this proposed new valuation methodology based on the following objections:
1. The methodology may not be constitutional in Louisiana.2. The methodology’s premise of a blanket “contributory value” percentage of whole property
value attributable to taxable equipment is false.3. The methodology has not been suitably tested for its results and consequences, unintended
or otherwise.4. The methodology can produce large swings in value from one tax year to the next mainly
because of price volatility.5. The methodology’s proposed income approach is technically flawed.6. The methodology’s assumptions for prices and expense levels do not apply to individual
properties which can lead to protracted valuation disputes.
LAA also objects the inclusion of operating expenses in LOGA’s income approach proposal, as well asLOGA’s proposal to assign a token $100 value on shut-in (inactive) wells.
CHAPTER 11: DRILLING RIGS AND RELATED EQUIPMENT
SUMMARY: LAA objects to LOGA’s proposal to change the number of depth brackets for drilling rigsfrom 20 currently in the Rules to only nine.
LAA also objects to LOGA’s proposal to add an economic obsolescence consideration for a rig’sdowntime (under-utilization), as this is essentially a double-counting of obsolescence already beingallowed based on a rig’s condition.
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Summary of Submission of LAA Rebuttal Comments for Chapters 3, 9, 11, 13, and 25LTC Rules and Regulations, Tax Year 2015
*** REBUTTAL OF LMOGA PROPOSALS ***
CHAPTER 13: PIPELINES
SUMMARY: LAA objects to LMOGA’s proposal to continue the exclusion of the 4" and 8" raw data pointsfor derivation of the RCN figures for onshore pipeline segments.
LAA also objects to LMOGA’s proposal for the Rules to continue to promulgate a depreciable life of only26.5 years for all pipelines assessed under this chapter to a 20% good floor. LAA’s testimony supportsrevising this life to 35 years with a 30% good floor, using an “expectancy life formula” methodologythat more accurately models depreciation than the Marshall & Swift (aka IRS) methodology.
CHAPTER 25: GENERAL BUSINESS ASSETS
SUMMARY: LAA objects to LMOGA’s proposal to essentially re-write the entire chapter in order toconsolidate the three cost approach techniques currently in the Rules to just one, on the grounds thisis an unnecessary or inappropriate procedural improvement given the nature of the majority ofproperty assessed under this chapter (machinery and equipment, furniture and fixtures, etc.) that doesnot require an explicit consideration of economic obsolescence.
LAA also objects to LMOGA’s proposal to insert the word “appraisal” in front of “discretion” in theverbiage of §2501.A. This addition does not clarify any procedure or help derive any valuation resultand is basically redundant.
CHAPTER 25: SALT DOME CAVERNS
SUMMARY: LAA objects to LMOGA’s claim that salt dome cavern property in Louisiana is not currentlybeing assessed in a uniform manner.
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LAA Rebuttal of Industry Proposals for Chapters 3, 9, 11, 13, and 25LTC Rules and Regulations, Tax Year 2015
*** REBUTTAL OF LOGA PROPOSALS ***
CHAPTER 3: PERSONAL PROPERTY FORMS
LAA objects to the revised LAT 12 form that LOGA submitted which requires reporting of any oil or gas
price, operating expense level, or working interest percentage ownership relating to oil and gas
wells/leases. This LOGA proposal to revise the LAT 12 form was in conjunction with LOGA’s proposed
income approach appraisal methodology for oil and gas property (Chapter 9). LAA believes this
particular proposed income approach methodology is unconstitutional and/or unworkable for a variety
of reasons as discussed in detail in the following comments.
CHAPTER 9: OIL AND GAS PROPERTIES
LOGA proposes the LTC adopt a completely new valuation methodology that “carves out” a portion of
a calculated working interest (WI) value for a field, lease, or well. This “carved out” percentage of
WI value would then represent all the taxable subsurface oil and gas property along with all
production-related surface equipment personal property, including platforms, improvements, and
underground lease lines. All surface equipment is currently appraised separately from subsurface
property, which we believe to be fundamentally correct methodology.
This WI value would be calculated by a proposed formula which capitalizes the previous year’s actual
WI net income (or facsimile thereof) for the field, lease, or well. In essence, this proposal intends to
altogether replace the RCNLD cost approach methodology currently in the Rules for both surface and
subsurface property with a single income approach to value.
LAA opposes this proposed new valuation methodology based on the following objections:
1. The methodology may not be constitutional in Louisiana.
2. The methodology’s premise of a blanket “contributory value” percentage of whole property
value attributable to taxable equipment is false.
3. The methodology has not been suitably tested for its results and consequences, unintended
or otherwise.
4. The methodology can produce large swings in value from one tax year to the next mainly
because of price volatility.
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5. The methodology’s proposed income approach is technically flawed.
6. The methodology’s assumptions for prices and expense levels do not apply to individual
properties which can lead to protracted valuation disputes.
Below are comments addressing each of above concerns.
Constitutionality (See documents in EXHIBIT 1)
Per Louisiana constitution, mineral interests, which are real property, are not subject to ad valorem
tax. Assessors are prohibited from adding any value to land or improvements to land due to the
presence or monetization of minerals from beneath the surface of the land.
In states where this prohibition does not exist (for example, Texas, Utah, California, et al), mineral
interests are routinely appraised using an income approach to value whereas future net income
forecasted to be gained as of January 1 of the current tax year is discounted to present worth. This
technique of the income approach is known as “discounted cash flow” (DCF). The DCF technique is
preferred because it allows for variability in the pattern of future income to be forecast over discrete
time increments (such as year-by-year).
Obviously this DCF technique is very applicable to the oil and gas world in which parameters such as
production and price (the two main components of income) are known with certainty at the time of
the appraisal to change significantly over time. If the net income (after expense allowance) was
projected to remain stable in perpetuity, however, a direct capitalization of a single year net income
(using the basic appraisal formula Value = Income divided by Cap Rate) would mathematically yield
the same value as a discounted cash flow appraisal. In any case, the relevant income that’s converted
into an estimate of value at any point in time is always future income, not any past income.
LOGA’s proposal, in which a portion (15%) of a calculated WI mineral value is assumed to be equal to
the taxable equipment value, simply treads too closely to Louisiana’s constitutional prohibition of ad
valorem taxation of mineral interests for LAA to be comfortable with the proposal. This is particularly
true in LOGA’s methodology that contains allowances for both a working interest decimal and an
operating expense. This narrows and focuses the appraisal to a specific party’s interest (the working
interest owners). Because there is such a direct link to the underlying value of the mineral interests
held by one party, it’s questionable whether this proposed methodology for appraisal of taxable oil and
gas property in Louisiana could survive judicial review.
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LOGA’s proposal seeks to inappropriately conflate the value and profitability (or lack thereof) of the
working interest with the value of the subsurface and surface equipment. As such, LAA believes LOGA
may be attempting to obtain a “back-door” exemption to the taxability of their oil and gas subsurface
property and surface equipment.
LOGA might claim that their proposal substantially mirrors LAA’s proposal that seeks to establish
economic obsolescence amounts corresponding to certain production thresholds. On scrutiny though,
this claim will fall apart. LOGA seeks to directly link a value for personal property to the income
generated by oil and gas production in a given year. LAA, on the other hand, does not calculate or use
oil and gas production income in any direct fashion. LAA’s proposal merely references levels of
production as an external force outside the control of the operator that is the most obvious indicator
of economic obsolescence for the personal property as the property ages (the underlying assumption
being that more obsolescence is experienced with successively lower levels of production). In fact,
LAA’s proposal is only an expansion of the obsolescence method already promulgated by the Rules.
Contributory Value (See documents in EXHIBIT 2)
The underlying premise of the LOGA proposal is that the value of the subsurface and surface equipment
is embedded within the lease’s mineral interest value. This premise is simply incorrect for use in
appraisal methodology. The idea of this misguided premise apparently comes from the fact that, for
bookkeeping purposes, an allocation of total purchase price to the separate components of property
purchased is often made by the buyer after the transaction has closed, specifically, for Federal Income
Tax (FIT) treatment purposes. This allocation post-acquisition is demonstrably not the same thing as
a contemplated value of the separate assets (mineral interest versus equipment) before the transaction
occurs.
For example, mineral interests are often sold (for a value above zero) with no equipment in sight - not
even a hole drilled yet. And on the other end of the spectrum, it’s entirely possible for a well at the
end of its producing life to have fabulously expensive equipment to be salvaged by all accounts, yet
its associated mineral interests be essentially worthless on the open market. Therefore, the allocation
of a total lease value to just the equipment can range from 0% to 100% - basically rendering the
contributory concept baseless and non-useful to the appraiser contemplating a fair market value for
a theoretical transaction between willing buyer/willing seller on January 1.
We often hear industry representatives claim that oil and gas equipment really or should have zero
market or assessed value because the value is somehow subsumed within the mineral interest value,
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because the equipment is “indispensable to the production of oil and gas from the lease.” Of course
this means the value of the equipment vanishes if the production stops and renders the mineral
interest worthless. This is a somewhat circular argument, and flawed for the reasons discussed above.
In Texas, where mineral interests are subject to ad valorem tax, an Attorney General Opinion directly
addressed this exact issue (AG Opinion No. DM-438 (1997); RE: Ad valorem taxation of equipment used
to produce minerals on mineral leasehold estate, and related questions). Howard CAD, via the Howard
County Attorney, requested an opinion on whether the production equipment, because it is
indispensable to the production of oil and gas on the leasehold estate, was taxable as an improvement,
fixture, or appurtenance to the realty and therefore included in the value of the leasehold interest.
The AG concluded (excerpts): "We conclude that irrespective of whether production equipment is real
or personal property, it must be appraised separately from its corresponding mineral leasehold
interest." And also: "We found no authority to support your view that property is considered an
improvement, fixture, or appurtenance to real property if it is "indispensable" to the property.
Furthermore, since a mineral interest is taxable whether it is "producing" or not, we decline to link the
tax classification of equipment to the status of the interest."
In summary, the best that can be said of the LOGA income approach proposal is that there could
theoretically be a logical relationship of some type between the value of the mineral interest and the
value of the associated equipment, the broad (and often unreliable) assumption being that more
and/or “better” equipment is needed to create more production and thus a larger income stream.
Exactly what that relationship is, and how it could be accurately determined and incorporated into an
ad valorem tax system that contemplates value at the individual property level basis, is simply
unknown at this time.
Tangentially related to this flawed LOGA premise that conflates the value of items of surface
equipment with the value of their associated wells/lease/field is the current Rules that promulgates
the use of the age of the wells or lease when determining the amount of depreciation to be granted
in the valuation of the surface equipment. LAA believes the LTC should annually adopt rules that
apply to currently assessable property in its current location and condition. To this effect, using
actual age, when known, for depreciation purposes when appraising specific items of surface
equipment is obviously more accurate than using the average age of any related wells, leases, or
fields.
The average age of nearby installations (like wells), however determined, has no discernable
relationship with the actual age of the specific equipment being appraised. Thus the appraised value
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of this equipment when using average age of the wells/lease is quite incorrect and does not meet the
statutory definition of fair market value which the assessor is charged to obtain for all properties.
Using actual age of the equipment, when known, for depreciation purposes also avoids having very
different values on identical equipment that happens to be located on different age wells/leases.
Using the equipment’s actual age to value this equipment promotes uniformity of appraisal, one of the
main bedrock principles of ad valorem taxation (the other one being the derivation of fair market
value).
LOGA’s proposed income approach methodology inappropriately assigns fair market value to surface
equipment based upon the economics of the equipment’s associated wells/lease. The valuation of
surface equipment, which is mobile and readily fungible, should be based upon the premise of
“removal for alternative use” whereas the intensity/profitability of the equipment’s current use is not
a legitimate consideration. LAA believes that, should the LTC adopt LOGA’s proposal, at the very least
the resulting value should not be inclusive of surface equipment.
Consequences (See documents in EXHIBIT 3)
The LOGA proposal would initially result in a sizable shift in taxable subsurface oil and gas property
value from the older and less productive wells to the newer and more productive wells. LAA has
actually promulgated this type of shift for many years now; however, our proposed means of obtaining
this goal has been to incrementally adjust the Replacement Cost New (RCN) and economic
obsolescence (EO) depreciation tables within the current RCNLD-based cost approach currently in the
Rules.
LAA has performed a parish-by-parish analysis of the shift in value that would result from adoption of
the LOGA proposal. The shift is significant. Our study treated all oil and gas production in the parish
as either one oil lease, one gas lease, or one of each if both oil and gas were present in the parish.
Our study assumed a uniform 75% net revenue interest for the working interest and uniform mid-range
operating expense levels as proposed by LOGA. These necessary blanket assumptions dampen the shift
that would actually occur when lease-specific decimal interests and operating expense levels are used.
The results of this study are stunning, showing a net loss of more than $100 million in taxes should
the LOGA income approach methodology be adopted by the LTC.
Another consequence of this LOGA proposal, not directly related to value per se, is the potential loss
of jobs at the Parish level. This is because one of the touted characteristics of the LOGA proposal is
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that the calculated value would represent all the subsurface as well as surface equipment related to
the wells or leases. Currently the Parish appraisal staff is responsible for inspections of this oilfield
equipment on an annual basis for discovery and condition evaluation purposes. In many Parishes this
responsibility is labor intensive and quite time-consuming if conscientiously done.
LAA is also concerned with potentially large swings in value from one tax year to the next should the
LTC adopt the LOGA proposal. These swings in value could drastically affect millage rates adopted
and/or actual taxes raised. More discussion of this concern is below.
Volatility (See documents in EXHIBIT 4)
Oil and gas prices are volatile, not only from day to day but also from year to year. Yearly production
from wells can also significantly vary, sometimes directly related to the price environment but also
depending on unscheduled downtimes when well workovers are periodically performed. It can also be
problematic for appraisers to recognize when production has increased due to workovers on existing
wells versus addition of new wells. The LOGA proposal would take these potentially anomalous events
and enshrine them into taxable value, when in reality the actual fair market value has not appreciably
changed.
A property tax system is ideally the most stable form of government revenue, compared to other
sources such as sales tax which is notorious for its unpredictability because of its direct link to the
vagaries of the economy at any point in time. States that have a personal income tax can also testify
to the relative instability of that revenue source. Incomes tend to soar in upswings of the economy
whereas “bubbles” come into existence with emerging technologies, entrepreneurial aggressiveness,
etc. Conversely, incomes retreat badly during recessions when unemployment rears its ugly head. The
oil and gas property values (and taxes) that would result from adoption of LOGA’s proposal would
unfortunately exhibit similarly undesirable characteristics because they would be inextricably tied to
last year’s income - good or bad.
LOGA has testified that their proposed income approach methodology will result in less volatility and
more predictability than the current system. This is demonstrably not true with regards to the dollar
amount of property tax industry would be paying to the entities. It is true with regards to the
percentage of their gross revenue industry would be paying. LAA believes it is LOGA’s ultimate goal
to basically morph the ad valorem (literally, per value) tax into a quasi-income tax whereas they can
accrue with more confidence a certain percentage of their revenue into an account dedicated for ad
valorem tax liability. As business practices go, this would certainly be more efficient for them to
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administrate. However, this leaves the entities dependent upon an income source that will wildly
swing from one year to the next based solely upon the industry’s previous year’s economic
performance. This is not an ad valorem tax system contemplated by or satisfying Louisiana legislative
intent, budgetary realities, or common sense.
Technical Flaws (See documents in EXHIBIT 5)
LAA believes there are several significant technical flaws in the LOGA proposal:
• The direct capitalization technique of the income approach is simply inappropriate for oil and
gas properties. The mineral interest value being calculated is wholly and fundamentally
incorrect without a normalization of income whereas anticipated "typical" income (not just
last year's income) is directly capitalized. This is precisely why we use discounted cash flow
methodology for mineral interest appraisals - to moderate short-term fluctuations in price and
income, high or low.
• LAA believes the formula should not include the WI decimal interest ownership percentage
of the lease. The equipment is associated with, and is necessary for, the creation of the full
production stream and revenue, not just the production and revenue owned by the working
interest owners. Using anything less than 100% of the income stream in the formula results
in only a partial indicated value by the income approach - in this case, the lessee’s value. The
lessor’s value is clearly missing from the LOGA formula. [The fact that the lessors do not buy
or own the equipment only points out the nonsensical nature of this LOGA proposal which
conflates mineral interest value with equipment value - in effect trying to force a square peg
into a round hole.] Also, using decimal working interests, which vary by lease, would create
non-uniform valuation for otherwise identically situated equipment.
• LOGA’s proposed methodology purportedly results in a value that includes all surface
equipment. Surface equipment is fungible and mobile; it consists of discrete assets with
active secondary markets. The true market value of such personal property assets (machinery
and equipment) is not tied to its current use as installed - therefore, income approach is not
a relevant method of appraisal for such equipment. Instead, its premise of value should be
in exchange to a willing buyer for removal for a similar or alternate use.
• LOGA proposes that economic obsolescence be considered as substantiated by the taxpayer
in writing (Section 907.B). Because an income approach to value inherently considers the
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economics of the subject property, LOGA’s proposal is double-counting this form of
depreciation.
• The formula ends with the application of an assumed 15% of capitalized value being equal to
all subsurface and surface equipment. There is no supporting documentation behind this 15%
figure. LAA does not believe this percentage is arbitrary, though; rather, we believe it was
derived as a means to an end, namely to get to a certain answer that will result in a certain
percentage of gross revenue for ad valorem tax burden. In this respect the whole LOGA
formula is essentially an income tax in disguise. The formula could just as well be shortened
to cut to the chase and say ad valorem taxes will be 2% of last year’s gross revenue, period.
Indeed, proponents of flat tax scenarios would be quite pleased with this proposal.
• It assumes equipment value is embedded within the mineral interest value. See discussion
above for more details why this assumption is incorrect.
Expense Levels
The LOGA proposal assumes operating expenses can be estimated as several flat levels (percentages)
of gross income for all wells/surface equipment related to either certain areas and/or certain types
of wells. It might be needless to say, but every well or lease is unique and has unique costs to operate.
For example, not all onshore oil wells have the same level of operating expense. Deeper wells or wells
that produce larger volumes of fluids generally have larger pumping units that require more fuel. Some
properties are operated with secondary or other enhanced recovery production techniques which
require additional equipment which of course entails additional maintenance costs. Leases that
produce large volumes of associated water require equipment that can dispose of this water
(additional service well, pumps, etc.). The examples of differentiation are endless.
More to the point, are the industry taxpayers going to globally accept an assumed flat percentage of
income attributable to operating expense? Or will they ultimately appeal their valuation based on the
fact their expenses are significantly higher than this flat percentage in the formula? Can assessors take
their knowledge of specific oil and gas well operations and allow a different (say, lesser) percentage?
What will the rules be in adjudicating value differences when it will be so easy for a taxpayer to
demonstrate how the adopted formula does not meet their particular operating circumstances?
LAA believes this component of the proposed LOGA formula may cause unforeseen and perhaps never-
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ending administrative problems relating to this “exception to the rule” line of reasoning. In LOGA’s
proposal, it appears that exceptions can become the rule.
Other
In addition to LAA’s concerns about the income-based methodology discussed above, LAA strenuously
objects to LOGA’s proposal to assign a token $100 value on shut-in (inactive) wells.
Many wells that are shut in for long periods of time are not plugged and abandoned, but instead are
re-worked, recompleted, or otherwise brought back online as a producer as economics dictate. Per
Department of Natural Resources’ Office of Conservation rules (LAC 43:XIX.137), an operator is
required to submit a "Schedule of Abandonment" for approval by the Commissioner of Conservation for
all inactive wells (i.e., wells that have been shut in for 6 months or longer) that are deemed to have
"no future utility" (NFU). There does not appear to be a specified time frame recommended or
promulgated by the DNR for this submission . Specifically, Rule 4 merely states that this schedule shall
include a "... program for the orderly plugging of wells which should be consistent with prudent
operating practices and take into account any economic considerations and other circumstances which
would affect such a program of plugging wells."
It is LAA’s contention that many wells that appear to be "permanently shut-in” are not properly
classified as NFU and therefore do not have an abandonment schedule in place. It appears that an
operator can simply file a shut-in well as having future utility and therefore get around the
requirement of submitting a schedule of abandonment for an indeterminate amount of time. Rule 2.b
says all these wells should be "reviewed periodically by the district manager who, at his discretion, may
require an operator to supply additional information to justify the classification." LAA questions
whether this periodic review by DNR is actually taking place in a consistent and ongoing fashion.
As long as the wells remain in place, whether they are producing or shut-in, the parish would be called
upon to provide the services that the property tax pays for. Everything from fire, police,
environmental, etc., would still be offered by the parish for these properties. This is essentially the
same situation as someone who has a rental property that is not currently being rented; the parish
does not reduce the value of that property simply because it is not being used.
LAA believes that adopting an arbitrary $100 value for wells shut in will serve no purpose other than
to grant an unintended and unearned tax incentive for operators that makes it easier to avoid the
timely plugging and abandoning of shut-in wells.
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CHAPTER 11: DRILLING RIGS AND RELATED EQUIPMENT
LOGA’s proposal for tax year 2015 (as well as LAA’s) for this chapter incorporated cost data from the
4th-qtr 2013 Hadco International “The Oilfield Appraiser” equipment newsletter. The 1st-qtr 2014
newsletter will be published soon. By long-standing agreement with the industry to jointly submit
using the most recently available Hadco data, LAA proposes to update the submitted proposals by
incorporation of this more recent Hadco data, when/if that data becomes available.
LOGA proposes fair market values for drilling rigs using the nine (9) depth brackets (increments of 2500
feet) as shown in the Hadco International newsletter. In contrast, LAA's proposal offers fair market
values corresponding to twenty (20) depth brackets (increments of 1000 feet), starting at 3000 feet
rating and ending at 25,000 feet. These incremental values were derived by interpolation and
extrapolation, and a subsequent curve fitting, of the Hadco data that is provided in the more limited
depth ranges (increments of 2500 feet). The depth ratings brackets as currently styled in Table
1103.A, which the LAA's proposal utilizes, provide for a more distinguishable assessed value from one
rig to another. Therefore LAA recommends these twenty (20) depth brackets be retained for the
coming tax year.
LOGA also proposes the LTC adopt an economic obsolescence schedule for drilling rigs related to a rig’s
downtime (under-utilization) experienced in the previous calendar year. LAA disagrees with this
proposal on grounds that the correct premise of value for mobile and readily fungible equipment (like
drilling rigs) is for “removal for similar or alternative use” whereas the level of intensity of current use
is not a legitimate valuation consideration. Rigs are highly mobile and as such do not suffer value loss
only because they’re not working full-time any particular year. The market data that Hadco provides
(remember, these are actual sales prices) does not specify any lengths of time the rigs in their
database have worked or not worked in the previous year (or quarters of year). Buyers do not
particularly care about this particular criteria (length of downtime); they only care about the
condition of the rig at the time of purchase, which is one of only two distinguishable parameters of
market value tracked by Hadco (the other one being depth rating).
To the extent that a rig’s condition has deteriorated due to being stacked for an excessive amount of
time, the Rules already provide for adjustments to value as needed based on condition. Therefore,
any additional adjustments to value based on utilization would be in effect double-counting this form
of depreciation.
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*** REBUTTAL OF LMOGA PROPOSALS ***
CHAPTER 13: PIPELINES (See documents in EXHIBIT 6)
Regarding the RCN figures for onshore pipelines in Table 1307.A, LMOGA disagrees with LAA’s proposal
to add the 4" and 8" raw data points to the population sample before deriving the exponential curve
fit that determines the formula used to derive the RCN figures ($/mile) based on diameter size.
LMOGA is correct in that these two data points have been discarded in the past by LAA. However,
every tax year brings the opportunity to review, and change if necessary, previous years’ methodology
and supporting calculations. Without this annual review, failures of omission or commission may be
needlessly repeated for no reason other than to extend the status quo.
LAA’s position is that inclusion of the 4" and 8" raw data points measurably improves the curve fit and
derives a mathematical formula more in sync with the raw data itself. The inclusion of this additional
available raw data brings both the “low” end (small diameter) and top end (large diameter) of the
curve more into compliance. This is easily verified by a quick analysis of the raw data versus the
concluded RCN for the 4" and 42" diameter sizes (the two extremes for which raw data exists), for last
year versus this year:
Tax Year 2015 (proposed by LAA):
RCN ($/mile)
Diameter Raw Data Concluded Diff (%)
4" 373,004 217,299 -41.7%
42" 4,238,254 4,242,366 0.1%
Tax Year 2014 (adopted by LTC):
RCN ($/mile)
Diameter Raw Data Concluded Diff (%)
4" 382,524 201,504 -47.3%
42" 4,394,356 4,553,763 3.6%
In addition, LAA’s proposed curve fit for tax year 2015 is more sound per the R2 correlation coefficient
that Excel calculates to show how accurately the formula associated with the curve fit can predict the
RCN given any particular diameter size. [Verbiage per Excel’s help menu: “A trendline is most accurate when its
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R-squared value (a number from 0 to 1 that reveals how closely the estimated values for the trendline correspond to your
actual data) is at or near 1.”]
The R2 correlation coefficient for tax year 2015's curve fit is 0.9822. For comparison, the R2
coefficient for last year’s curve fit was 0.9790. While both of these values are excellent, 2015's
coefficient is higher than 2014's. Thus from a technical standpoint, the trendline integrity of the
onshore pipeline curve fit has been arguably improved with the inclusion of the 4" and 8" raw data
points.
LMOGA also proposes no change to the 2014 Rules regarding all aspects of the physical deterioration
component of depreciation as exhibited in Table 1307.C. LAA opposes this portion of LMOGA’s proposal
and instead, based on generally accepted appraisal methods and supporting documentation,
recommends the LTC:
• Revise the depreciable life to 35 years;
• Revise the floor percent good from 20% to 30%; and
• Adopt an “expectancy life formula” methodology to more accurately model the loss in value
due to this depreciation component.
The life expectancy guidelines in Marshall & Swift are mostly pulled straight from IRS tables. In
extended conversations with Ed Martinez (Manager, Technical Support) of Marshall & Swift, he notes
that per the instructions at the top of page 14 the default position for most of the categories in this
table is that the lives come directly from the IRS and as such are most useful for calculating
depreciation for FIT purposes. Only the categories denoted with an asterisk have an actual study and
support from appraisers, et al, behind them, and as such show lives more representative for fair
market value appraisal purposes. In fact, only 15 categories (out of the approximately 150 categories
in the table) have this asterisk. The remaining 135 categories have lives that come from the IRS that
allows a modified accelerated cost recovery system (MACRS) for depreciation purposes.
Mr. Martinez cautions us that using the life expectancy guidelines as published in Marshall & Swift
without first determining the proper effective age of the property would result in improper conclusions
of fair market value. Using actual age without consideration of major maintenance or upgrade of
significant components (“sustaining capital”) will result in chronic under-valuation. Effective age for
this category of property is typically of newer vintage than actual age due to the effects of sustaining
Pritchard & Abbott, Inc. (Printed: July 23, 2014) Page 13 of 17
LAA Rebuttal of Industry Proposals for Chapters 3, 9, 11, 13, and 25LTC Rules and Regulations, Tax Year 2015
capital. It is the actual age less the age which has been taken off by maintenance above and beyond
routine, such as structural reconstruction, removal of functional inadequacies, modernization of
equipment, etc.
Because the current Rules and Regulations do not offer any specific guidance how to determine
effective age for this category of property--and indeed it is a subjective determination that is not
administratively practicable at all times--LAA proposes a floor percent good of 30%.
LAA recommends the LTC adopt a depreciation table (physical deterioration component only) using
Expectancy Life methodology whereas an expectancy life factor is equal to the percent good at any
particular age. Expectancy Life is a common and easily applied age-life method of depreciation and
is based on the principle of remaining useful life of a property. Age-life methods relate depreciation
to the accrual of funds necessary to replace the non-salvageable portion of the property over a stated
period of time assuming a typical rate of return. Given a fixed life, a greater assumed rate of return
implies less depreciation is taking place (because the accrued funds can earn more interest to build
the replacement cost of the assets within that time frame). A shorter life implies either a higher rate
of return and/or a greater amount of annual depreciation.
Age-life methods of depreciation measure value as the present worth of the future returns from a
property's continued use as opposed to cost accounting methods used primarily for IRS cost allocation
(tax write-off) purposes. For a complete discussion of valuation depreciation, please reference
"Engineering Valuation and Depreciation" by Marston, Winfrey and Hempstead (ninth printing, 1982).
Because the rate of return calculated for ad valorem tax fair market valuation purposes tends to
remain steady over time, the chosen service life in relation to the property’s actual age ends up
directly determining the annual depreciation amount. The bottom line is that an expectancy life
calculation is rather straightforward in its application and models the physical deterioration component
of depreciation more accurately than the method currently in the Rules.
Pritchard & Abbott, Inc. (Printed: July 23, 2014) Page 14 of 17
LAA Rebuttal of Industry Proposals for Chapters 3, 9, 11, 13, and 25LTC Rules and Regulations, Tax Year 2015
CHAPTER 25: GENERAL BUSINESS ASSETS
LMOGA’s proposal essentially recommends removal of cost approach Procedures 1 and 2 currently in
Chapter 25, consolidating the whole chapter into a single procedure (similar to what is now cost
approach Procedure 3). LAA does not agree this is a necessary or appropriate procedural improvement
given the nature of the majority of property assessed under this chapter (machinery and equipment,
furniture and fixtures, etc.).
LAA believes Chapter 25 to be well crafted for an ad valorem tax appraisal system that necessarily
must incorporate administrative convenience and uniformity. Currently it promulgates the use of the
cost approach for the types of properties contemplated to be assessed under this chapter. It does NOT
offer "three cost approaches" as LMOGA states. It does offer three techniques of the cost approach,
each of which is well suited for the varying levels of appraisal complexity and property types faced by
assessors.
LMOGA also recommends the insertion of verbiage instructing assessors to use market and/or income
approach indicators of value when or if reliable information is available. While it is a laudable goal
to use all three approaches to value for appraisal of any property (cost, market, income), it is often
impractical from an administrative (time and labor) standpoint to consider all three approaches for
every property given the nature of the majority of property assessed under this chapter (machinery
and equipment, furniture and fixtures, etc.) that doesn’t sell in the marketplace based on income or
market approach indicators of value.
That said, LAA recognizes it is possible for income and/or market data to potentially indicate an
obsolescence for some types of property appraised under Chapter 25, although the derivation can be
complex and often quite subjective. LAA believes this is exactly when Procedure 3 should be used by
all parties to make sure fair market value is being achieved. In fact, the Rules specifically state in the
instructions on page GB-4: “Procedure 3 shall be used to develop fair market value when supporting
data for the analysis of economic and/or functional obsolescence has been submitted.” (§2501.H.3,
emphasis added). However, on page GB-1, §2501.D states that “An assessor or taxpayer wishing todeviate from Procedure 1 shall bear the burden of proving that the alternative procedure electedestablishes the fair market value of the property.” These instructions, taken as a whole, indicate thatany calculation of economic obsolescence is fraught with peril and should not be undertaken lightlyor without sufficient evidence that clearly proves its existence.
Pritchard & Abbott, Inc. (Printed: July 23, 2014) Page 15 of 17
LAA Rebuttal of Industry Proposals for Chapters 3, 9, 11, 13, and 25LTC Rules and Regulations, Tax Year 2015
LMOGA’s proposal also requests the word “appraisal” be added in front of “discretion” in the verbiageof §2501.A to “clarify the type of discretion that is necessary” for an assessor to exercise. While LAAdoes not particularly object to this proposal, LAA submits that adding the word is redundant anddoesn’t materially change any process or result. If an assessor is performing appraisal duties whenderiving taxable fair market values in a uniform manner (and obviously we believe this is what assessorsdo), then the discretion being exercised is in fact appraisal discretion. If the assessor “ignores orunreasonably discounts the evidence....” (LMOGA’s verbiage), the assessor is in fact exercisingappraisal discretion in either outright rejecting the submitting evidence after considering it, oraccepting the evidence in some partial fashion after considering it. No laws or rules were broken inthe assessor’s exercise of this appraisal discretion, and fair market values (at least in the Assessor’sopinion) have been constitutionally achieved.
It appears LMOGA's chief reason for their proposal is to force assessors to explicitly consider and/orgrant functional and/or economic obsolescence in all appraisal work they do. Currently, procedures1 and 2 don't specifically instruct assessors to do this. LAA believes the instructions for the assessorsto strongly defer to Procedure 1 unless necessary to use Procedures 2 or 3 are in this chapter inrecognition of the fact that obsolescence is not a valid consideration for many types of mobile andfungible personal property that should be assessed under a premise of value related to “removal forsimilar or alternate use.” Therefore LMOGA’s proposal, particularly with regards to elimination of costapproach Procedure 1, is essentially overkill for the job at hand.
What LMOGA has proposed for Chapter 25 (similar to LOGA’s proposal for Chapter 9) is almost acomplete re-write of the chapter. While LMOGA’s proposal does not ask for a sea-change in appraisalmethodology itself like LOGA does for Chapter 9, LAA would prefer that assessors and personal propertyappraisers who deal with this chapter on a daily basis be offered the opportunity to work with LMOGAand LTC staff to identify areas where “cleaner” language and/or more streamlined procedures couldbe employed to the benefit of all parties.
Lastly, LAA does not agree with LMOGA striking out the sentence in Procedure 3 defining what"munificence" is (negative economic obsolescence). External forces do exist that can either subtractor add value to a property. The external forces that can add value (for example, a unique fluctuatingmarket, entrepreneurial position, or the business side of the property) are generally believed to befleeting or short-term in nature due to supply and demand forces, along with good old-fashioned competition, that serve to quickly (or eventually) bring the subject property’s market back intoharmony. To the extent “excess” income or return is deemed to create intangible or non-taxableproperty, the parties to the appraisal should be allowed to continue to discuss and reconcile theirviews in this regard on a case-by-case basis.
Pritchard & Abbott, Inc. (Printed: July 23, 2014) Page 16 of 17
LAA Rebuttal of Industry Proposals for Chapters 3, 9, 11, 13, and 25LTC Rules and Regulations, Tax Year 2015
CHAPTER 25: SALT DOME CAVERNS
LMOGA proposes that a working group of various stakeholders be formed to study the assessment ofsalt dome cavern property, including wells and related equipment. LMOGA suggests this propertycannot be legally appraised until the LTC adopts rules and regulations that “insure the uniformassessment of salt dome property, including associated wells and equipment.” LMOGA also claims thatno such uniform rules and regulations exist and no such uniform rules and regulations have beenstudied by the LTC “because the LTC, the owners and operators of salt caverns and most assessors haveassessed salt caverns as part of the land.” LAA disagrees with all these suggestions and claims.
First of all, LAA believes Chapter 25 (General Business Assets) of the LTC’s Rules and Regulations servesvery ably as a “catch-all” chapter for the many types of general business assets that cannot all bespecified individually in other chapters else the Rules become so lengthy as to be impractical or tooadministratively burdensome for assessors and taxpayers to use. Chapter 25 also serves to allowassessors to appropriately and uniformly appraise unique properties that are certainly constitutionallytaxable but not specifically enumerated in other chapters.
LMOGA admits in their proposal that salt dome cavern property in production and used as storage iscomplex and so the valuation is likewise complex. In fact, LMOGA recognizes the uniqueness of eachcavern but appears to make the classic mistake of desiring uniform results of assessment instead ofuniform methods of appraisal. The uniqueness of each cavern and related property, along with thefact that a relatively small number of these type of caverns even exists, naturally inhibits thederivation of a one-size-fits-all RCN schedule of some type, much less obsolescence considerations. That said, uniformity of appraisal can be (and is being) achieved by focusing on methodology, not inputvariables, exactly as Chapter 25 promulgates.
LAA submits that salt dome cavern property is currently being assessed, and indeed has been assessedfor many years, uniformly in Louisiana within parishes and across the state using Chapter 25 of theLTC’s Rules and Regulations. All the various appraisal issues listed by LMOGA beginning on page 5 oftheir proposal are in fact currently being appropriately taken into account by the assessors specific toeach cavern appraisal. There is simply no non-uniformity issue regarding appraisal of salt domecavern property in Louisiana. This is an obvious red herring argument by LMOGA that should bedismissed by the LTC for lack of foundation.
Pritchard & Abbott, Inc. (Printed: July 23, 2014) Page 17 of 17
EXHIBIT 1:
Constitutionality of Income Approach for Oil and Gas Properties (Chapter 9)
Constitutionality of New LOGA/LMOGA Methodology
Income Approach is not unconstitutionalIf criteria is established by law and applied uniformly throughout the state (basic constitutional principle stated in Rules §105.A)
Revised Statutes provide for additional standards and principles in establishing methods and procedures (§107.A)LTC must follow Revised Statutes that outline procedures for enacting changes to the Rules (§107.B)
8
Constitutionality of New LOGA/LMOGA Methodology (cont.)
Fair Market Value (§107): “...the highest price estimated in terms of money which property will bring if exposed for sale on the open market with reasonable time allowed to find a purchaser who is buying with knowledge of all the uses and purposes to which the property is best adapted and for which it can be legally used.”
Forward looking; past events may or may not be usefulAssumed premise of value is most likely for continued use in production of oil and gas, and not for removal and/or liquidation of property.
Criteria for Income Approach (§111): “...an appraisal technique in which the anticipated net income is processed to indicate the capital amount of the investment which produces the net income.” 9“Fair Market Value”
Constitutionality of New LOGA/LMOGA Methodology (cont.)
Appraisal of mineral rights for ad valorem tax isunconstitutional.
Oil and gas leases are immune from taxes other than severance taxes under Article VII, section 4(B) of the Louisiana Constitution: “No further or additional tax or license shall be levied or imposed upon oil, gas, or sulfur leases or rights. No additional value shall be added to the assessment of land by reason of the presence of oil, gas, or sulfur or their production therefrom.”
Inclusion of the WI NRI (and possibly the operating expenses also) in the LOGA/LMOGA formula arguably implies appraisal of a mineral right.
Operating expense as a percentage of gross revenue - OK.Actual operating expense – not OK.
10
EXHIBIT 2:
Contributory Value of Equipment to Mineral Interest Value
P&A Response to Equip Value Protest.wpd (February 18, 2012) Page 1 of 2
P&A Response to Protest of Leasehold Equipment Value Assessed toWorking Interest Owner in Addition to Mineral Interest (Real) Value
*** Argument No 1: Discussion of the law itself ***
Section 23.24 (Furniture, Fixtures, and Equipment)
(a) “If real property is appraised by a method that takes into account the value of furniture, fixtures, and equipment in or on thereal property, the furniture, fixtures, and equipment shall not be subject to additional appraisal or taxation as personal property.”(emphasis added)
P&A RESPONSE: The CAD’s value for the mineral interest does not take into account the value offurniture, fixtures, and equipment in or on the real property. In fact, the CAD’s value for the mineralinterest has been reduced by allowance of operating expenses in the projection of future cashflow neededto maintain and periodically replace the equipment necessary to produce the well.
(b) “In determining the market value of the real property appraised on the basis of rental income, the chief appraiser maynot separately appraise or take into account any personal property valued as a portion of the income of the real property, and themarket value of the real property must include the combined value of the real property and the personal property.” (emphasisadded)
P&A RESPONSE: The CAD’s value for the mineral interest (the real property) is not based on rentalincome at all. The income projected in the CAD’s discounted cashflow appraisal is derived from futuresales of oil and gas. The only value that could be even loosely construed as based on “rental” incomewould be the royalty owner’s value. In a mineral lease, the royalty owner is the lessor (the party whowould receive rental income) and the working interest owner is the lessee (the party who would makethe payments). The CAD does not assign any equipment value to the royalty owner.
*** Argument No. 2: A Texas Attorney General Opinion that discusses this exact issue ***
AG Opinion No. DM-438 (1997); RE: Ad valorem taxation of equipment used to produce minerals onmineral leasehold estate, and related questions.
Request:
Howard CAD, via the Howard County Attorney, requested an opinion on whether the productionequipment, because it is indispensable to the production of oil and gas on the leasehold estate, wastaxable as an improvement, fixture, or appurtenance to the realty and therefore included in the value ofthe leasehold interest. The request was sought to help clarify a delinquent tax situation where thetaxpayer was claiming the four-year statute of limitations had expired as it potentially pertained to theequipment value portion of the total working interest value.
Opinion (excerpts):
“We conclude that irrespective of whether production equipment is real or personal property, it must be appraised separately fromits corresponding mineral leasehold interest.”
“We found no authority to support your view that property is considered an improvement, fixture, or appurtenance to real propertyif it is “indispensable” to the property. Furthermore, since a mineral interest is taxable whether it is “producing” or not, we declineto link the tax classification of equipment to the status of the interest.”
P&A Response to Equip Value Protest.wpd (February 18, 2012) Page 2 of 2
*** Argument No. 3: A mineral interest is appraised differently than a Hotel/Motel ***
Most people in the property tax business refer to Section 23.24 as the “Hotel/Motel” law, and for good reason.It was passed by the legislature with the appraisal of hotels and motels in mind.
While a mineral interest and a hotel are both “Real property” per Property Tax Code, Section 1.04(2), there’sa crucial distinction in the appraisal of a mineral interest and a hotel/motel. A mineral interest, or any interestfor that matter, is an inherently intangible property, whereas a hotel/motel is tangible in that the hotel/motelcan be seen, weighed, measured, felt, or otherwise perceived by the senses. [It should be noted that onlyintangible personal property is exempt from taxation, not intangible real property.] A mineral interest doesnot have improvements and land included in the appraisal. This fact makes the appraisal of a mineral interestquite different than the appraisal of a hotel/motel and conceptually precludes the applicability of Section23.24 to mineral interests.
An appraisal of a hotel/motel is typically performed using an income approach to value, often with adiscounted cashflow technique that estimates a future net income stream which is then reduced (discounted)to present (January 1) worth. The act of discounting a projection of future income takes into account the timecost of money and all forms of risk.
Up to this stage, this appraisal process is essentially identical to the appraisal process of an income-producingmineral interest. However, there is an additional step taken in the appraisal of a hotel/motel that is NOTperformed in the appraisal of a mineral interest. This additional step is the “reversion” of the property at theend of its forecasted economic life to reflect that land (and possibly the building/improvements also) stillexists, has value, and can be sold at that time.
This reversion is the “recapture” component of a discounted cashflow appraisal for the non-wasting assetsportion of the total property. This recapture component is not applicable to a mineral interest, because amineral interest (or more specifically, the underlying oil and gas reserves that give the interest its value) iscompletely a wasting asset. Put another way, there is no non-wasting real property asset to recapture as thereis with a hotel/motel.
For ad valorem tax appraisal purposes, there is no value to a mineral interest at the end of its economic life(when oil and gas can no longer be produced and/or sold profitably) because there is no land or improvementsto sell. At that point the mineral interest is valued at zero. Yet the fact remains that any equipment that issalvageable still has value and therefore must be appraised for ad valorem tax purposes because there is noexpress exemption for this property. In essence, this equipment represents the only property that is“recaptured” in the appraisal of a working interest owner’s total property.
The conclusion is that equipment value is clearly NOT embedded within the mineral interest value.Leasehold equipment must be appraised separately to ensure that all property capable of being “recaptured”is accounted for in the appraisal of the working interest owner’s total subject property.
Average Age vs Actual Age as it relates to IAAO Standard on Valuation of Personal Property
Compliance with IAAO Standard on Valuation of Personal Property:
The IAAO Standard addresses the scope of appraising Personal Property for assessment purposes. Assessors are instructed on all aspects of assessing Personal Property as indicated in the following excerpts…
Discovery of personal property is addressed as follows:
Information that should be obtained about the personal property of the business includes the following:
• A complete listing of all tangible personal property, including machinery, equipment, furniture, fixtures, computers, and other tangible fixed assets with their location, year purchased and year manufactured, and acquisition or construction cost together with what is included in this cost amount, such as shipping, freight, sales tax, licenses, and so forth
• A complete listing, with full descriptions and costs of all leasehold improvements, noting which items may already be assessed as real property
• A complete listing of leased equipment with the name and address of the lessor, information on the equipment (including name of manufacturer, date of manufacture, description, model number, serial number, list price, and original cost, if available), lease number, and terms of lease (if possible, a copy of the lease agreement should be obtained)
• A complete listing of loaned or consigned items including a brief description (e.g. vending machines), and the name and address of their owner(s)
• A complete listing of items in inventory, rented or leased as part of the business’ normal operation.
Reporting of Personal Property is addressed as follows:
The first year a taxpayer files a reporting form, the information reported should include a listing of all personal property giving a description, date acquired, and original acquisition or construction cost of each item. If an item was acquired used, the manufacture date and historic cost of the item should be determined if possible. In subsequent years, the taxpayer may be asked to report only the addition and deletions to the initial listing, with appropriate details and costs. This system promotes verification and valuation accuracy.
Source: Standard on Valuation of Personal Property approved December 3, 2005 by International Association of Assessing Officers
Average Age vs Actual Age as it relates to the Uniform Standards of Professional Appraisal Practice
Compliance with Uniform Standards of Professional Appraisal Practice:
IAAO requires that all appraisal work performed by its members in the United States and Canada be compliant with Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation and the IAAO Code of Ethics and Standards of Professional Conduct. Excerpts follow…
USPAP Standards Rule 7: Personal Property Appraisal Development
Standards Rule 7‐1
In developing a personal property appraisal, an appraiser must:
(a) Be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal…
Standards Rule 7‐2
In developing a personal property appraisal, an appraiser must:
(e) Identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, including:
…(iii) all other physical and economic attributes with a material effect on value;
Comment: Some examples of physical and economic characteristics include condition, style, size, quality, manufacturer, author, materials, origin, age, provenance, alterations, restorations, and obsolescence.
Source: http://www.uspap.org/#/78/
506,704,971$ a. O&G Surface Equipment, Assessed Value Statewide (Depreciated) as per 2013 LTC Annual Report(88,264,001) b. Less Plaquemines Equipment (Depreciated) as per 2013 LTC Annual Report(73,844,750) c. Less Desoto Equipment (Depreciated) as per 2013 LTC Annual Report(11,029,620) d. Less Red River Equipment (Depreciated) as per 2013 LTC Annual Report(8,880,220) e. Less Webster Equipment (Depreciated) as per 2013 LTC Annual Report
324,686,380 f. O&G Surface Equipment, Assessed Value Statewide (Depreciated) per 2013 LTC Annual Report, Less Plaquemines, Desoto, Red River, & Webster
80% g. Multiplied By % Of O&G Surface Equipment On Average Age Floor 20% Multiplied By % Of State Wells Not On Floor259,749,104 h. Est. Value Of 80% Of O&G Surface Equipment (Incorrectly Depreciated) 64,937,276 Est. Value Of 20% Of State Wells (Depreciated)
20% i. Divided By Average Age Floor Percent Good1,298,745,520 j. Est. Value Of 80% Of O&G Surface Equipment Before Depreciation
50% k. Multiplied By Est. Depreciation Of Actual Age Application649,372,760 l. Est. Value Of 80% Of O&G Surface Equipment (Correctly Depreciated per Actual Age)
64,937,276 m. Add Est. Value Of 20% Of O&G Surface Equipment (Correctly Depreciated per Actual Age)714,310,036 n. Total Est. Value Of O&G Surface Equipment (Correctly Depreciated per Actual Age) less Plaquemines, Desoto, Red River, and Webster
88,264,001 o. Add Plaquemines Equipment73,844,750 p. Add Desoto Equipment11,029,620 q. Add Red River Equipment8,880,220 r. Add Webster Equipment
896,328,627$ s. Total O&G Surface Equipment Assessed Value Using Actual Age (Approximate)
Comparison: 896,328,627 Total Est Assessed Value of O&G Surface Equipment Using Actual Age (Approximate)506,704,971 Total O&G Surface Equipment, Assessed Value Statewide (Depreciated) per LTC 2013 Annual Report 389,623,656$ Difference Between Using Actual Age vs. Average Age In A State Where The Majority Of Wells Are Valued At The Floor
0.1078 Statewide 2013 Weighted Average Millage as per 2013 LTC Annual Report
42,001,430$ Tax Dollars (Approximate) prior to Millage Rollback
Estimating Fiscal Impact of Actual Age on Surface Equipment Depreciation StatewideLTC Rules and Regulations, Chapter 9
LAA.2015 Rules Regulations Copy of 2013FiscalImpactEquipmentbyActualAgeRevised.xlsx Page 1
EXHIBIT 3:
Consequences of LOGA’s Proposed Income Approach Methodology
123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566
67
A B G P R U V W X
Parish Oil Production
2012 DNR Gas Production
2012 DNR
Capitalized Value using 10.5% cap
rate
TOTAL Assessed Value per Proposed Income Approach
TOTAL Assessed Value per 2012 Cost
Approach
Difference in Assessed Value, Income Approach vs Cost Approach
Avg Mills 2012
Tax Dollar Difference based on Average Millage
(N/10.5%) (Q x 15%) (T + U) (R ‐ V) (W x X) Acadia 1,241,283 5,527,764 $496,668,695 $11,175,046 $51,758,790 ($40,583,744) 73.3 ($2,974,788)Allen 332,293 2,402,377 $136,464,660 $3,070,455 $6,472,890 ($3,402,435) 150.9 ($513,427)Ascension 26,645 84,184 $10,530,339 $236,933 $1,050,890 ($813,957) 107.1 ($87,175)Assumption 358,079 5,193,101 $156,950,680 $3,531,390 $6,708,740 ($3,177,350) 101.1 ($321,230)Avoyelles 164,538 46,632 $63,228,633 $1,422,644 $4,944,010 ($3,521,366) 67.5 ($237,692)Beauregard 2,391,050 8,550,354 $948,748,537 $21,346,842 $37,261,447 ($15,914,605) 115.0 ($1,830,180)Bienville 174,185 165,875,189 $697,073,908 $15,684,163 $102,247,620 ($86,563,457) 101.7 ($8,803,504)Bossier 615,618 209,075,783 $1,030,394,552 $23,183,877 $106,366,480 ($83,182,603) 101.9 ($8,476,307)Caddo 2,084,536 257,618,457 $1,777,750,288 $39,999,381 $101,428,370 ($61,428,989) 137.9 ($8,471,058)Calcasieu 1,889,095 10,223,424 $762,755,613 $17,162,001 $22,075,370 ($4,913,369) 110.9 ($544,893)Caldwell 11 1,716,021 $6,525,095 $146,815 $9,164,950 ($9,018,135) 151.3 ($1,364,444)Cameron 4,157,124 46,483,849 $1,769,660,420 $39,817,359 $50,419,290 ($10,601,931) 147.4 ($1,562,725)Catahoula 210,856 37,464 $80,942,985 $1,821,217 $1,238,590 $582,627 94.4 $55,000Claiborne 1,394,210 15,056,297 $591,479,184 $13,308,282 $34,166,383 ($20,858,101) 75.2 ($1,568,529)Concordia 489,499 305,993 $188,740,189 $4,246,654 $2,272,010 $1,974,644 102.2 $201,809Desoto 318,148 1,133,727,858 $4,430,081,083 $99,676,824 $307,450,861 ($207,774,037) 116.7 ($24,247,230)E Baton Rouge 578,396 6,995,962 $248,227,655 $5,585,122 $2,405,900 $3,179,222 113.3 $360,206E Carroll $0 $0 125.0 $0E Feliciana 137,249 263,393 $53,595,102 $1,205,890 $2,674,590 ($1,468,700) 50.3 ($73,876)Evangeline 2,014,427 7,605,715 $800,835,899 $18,018,808 $20,961,370 ($2,942,562) 72.5 ($213,336)Franklin 32,518 ‐ $12,460,991 $280,372 $2,186,552 ($1,906,180) 91.4 ($174,225)Grant 168,632 ‐ $64,620,264 $1,453,956 $325,326 $1,128,630 171.4 $193,447Iberia 2,507,582 42,004,654 $1,120,530,272 $25,211,931 $38,507,652 ($13,295,721) 69.6 ($925,382)Iberville 639,834 1,395,714 $250,489,930 $5,636,023 $8,505,270 ($2,869,247) 104.5 ($299,836)Jackson 41,459 30,069,928 $130,152,934 $2,928,441 $81,499,070 ($78,570,629) 99.4 ($7,809,921)Jefferson 1,367,133 15,931,148 $584,427,634 $13,149,622 $17,800,496 ($4,650,874) 102.7 ($477,645)Jefferson Davis 736,932 6,535,729 $307,230,218 $6,912,680 $16,333,672 ($9,420,992) 104.5 ($984,494)Lafayette 322,582 4,326,407 $140,054,691 $3,151,231 $8,669,938 ($5,518,707) 84.9 ($468,538)Lafourche 6,227,637 33,345,475 $2,513,161,097 $56,546,125 $96,766,820 ($40,220,695) 125.8 ($5,059,763)LaSalle 2,458,716 5,954,355 $964,813,545 $21,708,305 $8,712,740 $12,995,565 159.4 $2,071,493Lincoln 563,688 38,136,169 $360,924,294 $8,120,797 $44,729,860 ($36,609,063) 87.9 ($3,217,937)Livingston 820,914 345,548 $315,889,673 $7,107,518 $3,280,110 $3,827,408 110.9 $424,460Madison 359 ‐ $137,570 $3,095 $0 $3,095 104.5 $323Morehouse 95 606,182 $2,339,896 $52,648 $2,179,820 ($2,127,172) 90.6 ($192,722)Natchitoches 13,412 11,001,600 $46,945,597 $1,056,276 $3,006,460 ($1,950,184) 90.7 ($176,882)Orleans ‐ 25,349 $96,326 $2,167 $0 $2,167 148.3 $321Ouachita 46,251 3,740,336 $31,936,792 $718,578 $5,397,135 ($4,678,557) 92.6 ($433,234)Plaquemines 16,360,472 56,341,001 $6,483,475,418 $145,878,197 $213,765,067 ($67,886,870) 62.5 ($4,242,929)Pointe Coupee 559,263 20,264,611 $291,316,701 $6,554,626 $40,277,990 ($33,723,364) 54.8 ($1,848,040)Rapides 216,077 732,433 $85,584,569 $1,925,653 $7,385,146 ($5,459,493) 112.2 ($612,555)Red River 37,007 353,757,223 $1,358,458,636 $30,565,319 $74,493,740 ($43,928,421) 93.3 ($4,098,522)Richland 2,087,634 15,967 $800,047,988 $18,001,080 $3,613,730 $14,387,350 75.2 $1,081,929Sabine 48,173 222,476,997 $863,872,620 $19,437,134 $44,562,990 ($25,125,856) 89.3 ($2,243,739)St Bernard 627,504 3,280,920 $252,928,822 $5,690,898 $6,290,890 ($599,992) 110.1 ($66,059)St. Charles 690,527 4,134,194 $280,321,857 $6,307,242 $13,539,869 ($7,232,627) 113.6 ($821,626)St. Helena 353,149 96,813 $135,695,595 $3,053,151 $5,262,090 ($2,208,939) 121.5 ($268,386)St. James 98,034 610,956 $39,888,542 $897,492 $6,299,685 ($5,402,193) 108.7 ($587,218)St. John the Baptist 28,198 49,531 $10,993,772 $247,360 $253,907 ($6,547) 117.5 ($769)St. Landry 370,481 1,913,209 $149,239,572 $3,357,890 $10,275,260 ($6,917,370) 58.6 ($405,358)St. Martin 1,133,550 2,751,385 $444,834,862 $10,008,784 $15,340,732 ($5,331,948) 100.8 ($537,460)St. Mary 3,233,563 67,701,503 $1,496,376,292 $33,668,467 $67,107,253 ($33,438,786) 93.4 ($3,123,183)St. Tammany ‐ ‐ $0 $0 $0 $0 151.0 $0Tangipahoa 60,403 21,069 $23,226,664 $522,600 $3,348 $519,252 85.8 $44,552Tensas 226,125 479,013 $88,471,995 $1,990,620 $1,737,792 $252,828 103.0 $26,041Terrebonne 5,325,712 43,296,807 $2,205,355,921 $49,620,508 $105,663,740 ($56,043,232) 96.2 ($5,391,359)Union 64,886 4,199,828 $40,823,847 $918,537 $15,857,110 ($14,938,573) 71.5 ($1,068,108)Vermilion 2,719,967 49,500,761 $1,230,402,018 $27,684,045 $48,430,440 ($20,746,395) 97.3 ($2,018,624)Vernon 334,230 2,378,358 $137,115,651 $3,085,102 $13,179,340 ($10,094,238) 124.8 ($1,259,761)Washington 2,648 4,159 $1,030,525 $23,187 $149,420 ($126,233) 120.5 ($15,211)Webster 963,606 34,653,113 $500,938,402 $11,271,114 $43,530,210 ($32,259,096) 104.0 ($3,354,946)W Baton Rouge 282,316 1,322,021 $113,207,978 $2,547,179 $8,412,120 ($5,864,941) 84.5 ($495,587)W Carroll ‐ ‐ $0 $0 $0 $0 68.8 $0W Feliciana 25,948 66,530 $10,196,162 $229,414 $167,449 $61,965 79.6 $4,932Winn 355,039 321,353 $137,273,101 $3,088,645 $1,196,924 $1,891,721 108.8 $205,819
TOTALS: 70,729,498 2,940,578,166 $38,277,942,749 $861,253,712 $1,955,765,714 ($1,094,512,002) $99.862 ($109,300,081)
Income Approach Spreadsheet O&G.Entire State.xlsx (07/10/2013) LAA Page 1 of 1
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676869
A B D F G I K
Parish Oil Production
2012 DNR
2012 Income $94.12 average oil
price Oil Income after 43% Expense Deduction
Gas Production 2012 DNR
2012 Income $2.66 average gas
price
Gas Income after 80% Expense Deduction
(B X $94.12) (D less 43%) (Gas Prod X $2.66) (I less 80%)
Acadia 1,241,283 $116,829,556 $66,592,847 5,527,764 $14,703,852 $2,940,770Allen 332,293 $31,275,417 $17,826,988 2,402,377 $6,390,323 $1,278,065Ascension 26,645 $2,507,827 $1,429,462 84,184 $223,929 $44,786Assumption 358,079 $33,702,395 $19,210,365 5,193,101 $13,813,649 $2,762,730Avoyelles 164,538 $15,486,317 $8,827,200 46,632 $124,041 $24,808Beauregard 2,391,050 $225,045,626 $128,276,007 8,550,354 $22,743,942 $4,548,788Bienville 174,185 $16,394,292 $9,344,747 165,875,189 $441,228,003 $88,245,601Bossier 615,618 $57,941,966 $33,026,921 209,075,783 $556,141,583 $111,228,317Caddo 2,084,536 $196,196,528 $111,832,021 257,618,457 $685,265,096 $137,053,019Calcasieu 1,889,095 $177,801,621 $101,346,924 10,223,424 $27,194,308 $5,438,862Caldwell 11 $1,035 $590 1,716,021 $4,564,616 $912,923Cameron 4,157,124 $391,268,511 $223,023,051 46,483,849 $123,647,038 $24,729,408Catahoula 210,856 $19,845,767 $11,312,087 37,464 $99,654 $19,931Claiborne 1,394,210 $131,223,045 $74,797,136 15,056,297 $40,049,750 $8,009,950Concordia 489,499 $46,071,646 $26,260,838 305,993 $813,941 $162,788Desoto 318,148 $29,944,090 $17,068,131 1,133,727,858 $3,015,716,102 $603,143,220E Baton Rouge 578,396 $54,438,632 $31,030,020 6,995,962 $18,609,259 $3,721,852E CarrollE Feliciana 137,249 $12,917,876 $7,363,189 263,393 $700,625 $140,125Evangeline 2,014,427 $189,597,869 $108,070,785 7,605,715 $20,231,202 $4,046,240Franklin 32,518 $3,060,594 $1,744,539 ‐ $0 $0Grant 168,632 $15,871,644 $9,046,837 ‐ $0 $0Iberia 2,507,582 $236,013,618 $134,527,762 42,004,654 $111,732,380 $22,346,476Iberville 639,834 $60,221,176 $34,326,070 1,395,714 $3,712,599 $742,520Jackson 41,459 $3,902,121 $2,224,209 30,069,928 $79,986,008 $15,997,202Jefferson 1,367,133 $128,674,558 $73,344,498 15,931,148 $42,376,854 $8,475,371Jefferson Davis 736,932 $69,360,040 $39,535,223 6,535,729 $17,385,039 $3,477,008Lafayette 322,582 $30,361,418 $17,306,008 4,326,407 $11,508,243 $2,301,649Lafourche 6,227,637 $586,145,194 $334,102,761 33,345,475 $88,698,964 $17,739,793LaSalle 2,458,716 $231,414,350 $131,906,179 5,954,355 $15,838,584 $3,167,717Lincoln 563,688 $53,054,315 $30,240,959 38,136,169 $101,442,210 $20,288,442Livingston 820,914 $77,264,426 $44,040,723 345,548 $919,158 $183,832Madison 359 $33,789 $19,260 ‐ $0 $0Morehouse 95 $8,941 $5,097 606,182 $1,612,444 $322,489Natchitoches 13,412 $1,262,337 $719,532 11,001,600 $29,264,256 $5,852,851Orleans ‐ $0 $0 25,349 $67,428 $13,486Ouachita 46,251 $4,353,144 $2,481,292 3,740,336 $9,949,294 $1,989,859Plaquemines 16,360,472 $1,539,847,625 $877,713,146 56,341,001 $149,867,063 $29,973,413Pointe Coupee 559,263 $52,637,834 $30,003,565 20,264,611 $53,903,865 $10,780,773Rapides 216,077 $20,337,167 $11,592,185 732,433 $1,948,272 $389,654Red River 37,007 $3,483,099 $1,985,366 353,757,223 $940,994,213 $188,198,843Richland 2,087,634 $196,488,112 $111,998,224 15,967 $42,472 $8,494Sabine 48,173 $4,534,043 $2,584,404 222,476,997 $591,788,812 $118,357,762St Bernard 627,504 $59,060,676 $33,664,586 3,280,920 $8,727,247 $1,745,449St. Charles 690,527 $64,992,401 $37,045,669 4,134,194 $10,996,956 $2,199,391St. Helena 353,149 $33,238,384 $18,945,879 96,813 $257,523 $51,505St. James 98,034 $9,226,960 $5,259,367 610,956 $1,625,143 $325,029St. John the Baptist 28,198 $2,653,996 $1,512,778 49,531 $131,752 $26,350St. Landry 370,481 $34,869,672 $19,875,713 1,913,209 $5,089,136 $1,017,827St. Martin 1,133,550 $106,689,726 $60,813,144 2,751,385 $7,318,684 $1,463,737St. Mary 3,233,563 $304,342,950 $173,475,481 67,701,503 $180,085,998 $36,017,200St. Tammany ‐ $0 $0 ‐ $0 $0Tangipahoa 60,403 $5,685,130 $3,240,524 21,069 $56,044 $11,209Tensas 226,125 $21,282,885 $12,131,244 479,013 $1,274,175 $254,835Terrebonne 5,325,712 $501,256,013 $285,715,928 43,296,807 $115,169,507 $23,033,901Union 64,886 $6,107,070 $3,481,030 4,199,828 $11,171,542 $2,234,308Vermilion 2,719,967 $256,003,294 $145,921,878 49,500,761 $131,672,024 $26,334,405Vernon 334,230 $31,457,728 $17,930,905 2,378,358 $6,326,432 $1,265,286Washington 2,648 $249,230 $142,061 4,159 $11,063 $2,213Webster 963,606 $90,694,597 $51,695,920 34,653,113 $92,177,281 $18,435,456W Baton Rouge 282,316 $26,571,582 $15,145,802 1,322,021 $3,516,576 $703,315W Carroll ‐ $0 $0 ‐ $0 $0W Feliciana 25,948 $2,442,226 $1,392,069 66,530 $176,970 $35,394Winn 355,039 $33,416,271 $19,047,274 321,353 $854,799 $170,960
TOTALS: 70,729,498 $6,657,060,352 $3,794,524,401 2,940,578,166 $7,821,937,922 $1,564,387,584NOTE 1: Working interest (WI) will vary well by well.NOTE 2: Operating expense will vary well by well.
Income Approach Spreadsheet O&G.Entire State.xlsx (07/10/2013) LAA Page 1 of 3
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676869
A
Parish
AcadiaAllenAscensionAssumptionAvoyellesBeauregardBienvilleBossierCaddoCalcasieuCaldwellCameronCatahoulaClaiborneConcordiaDesotoE Baton RougeE CarrollE FelicianaEvangelineFranklinGrantIberiaIbervilleJacksonJeffersonJefferson DavisLafayetteLafourcheLaSalleLincolnLivingstonMadisonMorehouseNatchitochesOrleansOuachitaPlaqueminesPointe CoupeeRapidesRed RiverRichlandSabineSt BernardSt. CharlesSt. HelenaSt. JamesSt. John the BaptistSt. LandrySt. MartinSt. MarySt. TammanyTangipahoaTensasTerrebonneUnionVermilionVernonWashingtonWebsterW Baton RougeW CarrollW FelicianaWinn
TOTALS:
L N P Q R
Oil Income after Exp Deduction + Gas Income after Exp
Deduction WI Income @ 75%
Net Revenue Interest
Capitalized Value using 10.5% cap
rate
15% of Capitalized Value represents "equipment value"
TOTAL Assessed Value per Proposed Income Approach
(F + K) (L x 75%) (N/10.5%) (P x 15%) (Q x 15%)
$69,533,617 $52,150,213 $496,668,695 $74,500,304 $11,175,046$19,105,052 $14,328,789 $136,464,660 $20,469,699 $3,070,455$1,474,248 $1,105,686 $10,530,339 $1,579,551 $236,933$21,973,095 $16,479,821 $156,950,680 $23,542,602 $3,531,390$8,852,009 $6,639,006 $63,228,633 $9,484,295 $1,422,644
$132,824,795 $99,618,596 $948,748,537 $142,312,281 $21,346,842$97,590,347 $73,192,760 $697,073,908 $104,561,086 $15,684,163$144,255,237 $108,191,428 $1,030,394,552 $154,559,183 $23,183,877$248,885,040 $186,663,780 $1,777,750,288 $266,662,543 $39,999,381$106,785,786 $80,089,339 $762,755,613 $114,413,342 $17,162,001
$913,513 $685,135 $6,525,095 $978,764 $146,815$247,752,459 $185,814,344 $1,769,660,420 $265,449,063 $39,817,359$11,332,018 $8,499,013 $80,942,985 $12,141,448 $1,821,217$82,807,086 $62,105,314 $591,479,184 $88,721,878 $13,308,282$26,423,626 $19,817,720 $188,740,189 $28,311,028 $4,246,654$620,211,352 $465,158,514 $4,430,081,083 $664,512,162 $99,676,824$34,751,872 $26,063,904 $248,227,655 $37,234,148 $5,585,122
$7,503,314 $5,627,486 $53,595,102 $8,039,265 $1,205,890$112,117,026 $84,087,769 $800,835,899 $120,125,385 $18,018,808$1,744,539 $1,308,404 $12,460,991 $1,869,149 $280,372$9,046,837 $6,785,128 $64,620,264 $9,693,040 $1,453,956
$156,874,238 $117,655,679 $1,120,530,272 $168,079,541 $25,211,931$35,068,590 $26,301,443 $250,489,930 $37,573,490 $5,636,023$18,221,411 $13,666,058 $130,152,934 $19,522,940 $2,928,441$81,819,869 $61,364,902 $584,427,634 $87,664,145 $13,149,622$43,012,231 $32,259,173 $307,230,218 $46,084,533 $6,912,680$19,607,657 $14,705,743 $140,054,691 $21,008,204 $3,151,231$351,842,554 $263,881,915 $2,513,161,097 $376,974,164 $56,546,125$135,073,896 $101,305,422 $964,813,545 $144,722,032 $21,708,305$50,529,401 $37,897,051 $360,924,294 $54,138,644 $8,120,797$44,224,554 $33,168,416 $315,889,673 $47,383,451 $7,107,518
$19,260 $14,445 $137,570 $20,635 $3,095$327,585 $245,689 $2,339,896 $350,984 $52,648
$6,572,384 $4,929,288 $46,945,597 $7,041,840 $1,056,276$13,486 $10,114 $96,326 $14,449 $2,167
$4,471,151 $3,353,363 $31,936,792 $4,790,519 $718,578$907,686,559 $680,764,919 $6,483,475,418 $972,521,313 $145,878,197$40,784,338 $30,588,254 $291,316,701 $43,697,505 $6,554,626$11,981,840 $8,986,380 $85,584,569 $12,837,685 $1,925,653$190,184,209 $142,638,157 $1,358,458,636 $203,768,795 $30,565,319$112,006,718 $84,005,039 $800,047,988 $120,007,198 $18,001,080$120,942,167 $90,706,625 $863,872,620 $129,580,893 $19,437,134$35,410,035 $26,557,526 $252,928,822 $37,939,323 $5,690,898$39,245,060 $29,433,795 $280,321,857 $42,048,278 $6,307,242$18,997,383 $14,248,037 $135,695,595 $20,354,339 $3,053,151$5,584,396 $4,188,297 $39,888,542 $5,983,281 $897,492$1,539,128 $1,154,346 $10,993,772 $1,649,066 $247,360$20,893,540 $15,670,155 $149,239,572 $22,385,936 $3,357,890$62,276,881 $46,707,660 $444,834,862 $66,725,229 $10,008,784$209,492,681 $157,119,511 $1,496,376,292 $224,456,444 $33,668,467
$0 $0 $0 $0 $0$3,251,733 $2,438,800 $23,226,664 $3,484,000 $522,600$12,386,079 $9,289,560 $88,471,995 $13,270,799 $1,990,620$308,749,829 $231,562,372 $2,205,355,921 $330,803,388 $49,620,508$5,715,339 $4,286,504 $40,823,847 $6,123,577 $918,537
$172,256,282 $129,192,212 $1,230,402,018 $184,560,303 $27,684,045$19,196,191 $14,397,143 $137,115,651 $20,567,348 $3,085,102
$144,274 $108,205 $1,030,525 $154,579 $23,187$70,131,376 $52,598,532 $500,938,402 $75,140,760 $11,271,114$15,849,117 $11,886,838 $113,207,978 $16,981,197 $2,547,179
$0 $0 $0 $0 $0$1,427,463 $1,070,597 $10,196,162 $1,529,424 $229,414$19,218,234 $14,413,676 $137,273,101 $20,590,965 $3,088,645
$5,358,911,985 $4,019,183,989 $38,277,942,749 $5,741,691,412 $861,253,712
Income Approach Spreadsheet O&G.Entire State.xlsx (07/10/2013) LAA Page 2 of 3
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676869
A
Parish
AcadiaAllenAscensionAssumptionAvoyellesBeauregardBienvilleBossierCaddoCalcasieuCaldwellCameronCatahoulaClaiborneConcordiaDesotoE Baton RougeE CarrollE FelicianaEvangelineFranklinGrantIberiaIbervilleJacksonJeffersonJefferson DavisLafayetteLafourcheLaSalleLincolnLivingstonMadisonMorehouseNatchitochesOrleansOuachitaPlaqueminesPointe CoupeeRapidesRed RiverRichlandSabineSt BernardSt. CharlesSt. HelenaSt. JamesSt. John the BaptistSt. LandrySt. MartinSt. MarySt. TammanyTangipahoaTensasTerrebonneUnionVermilionVernonWashingtonWebsterW Baton RougeW CarrollW FelicianaWinn
TOTALS:
S T U V W X
LTC Annual Report 2012 Well Assessed
Value
LTC Annual Report 2012 Surface
Equipment Assessed Value
TOTAL Assessed Value per 2012 Cost
Approach
Difference in Assessed Value, Income Approach vs Cost Approach
Avg Mills 2012
Tax Dollar Difference based on Average Millage
(T + U) (R ‐ V) (W x X)
$13,487,150 $38,271,640 $51,758,790 ($40,583,744) 73.3 ($2,974,788)$5,936,360 $536,530 $6,472,890 ($3,402,435) 150.9 ($513,427)$538,740 $512,150 $1,050,890 ($813,957) 107.1 ($87,175)
$5,839,740 $869,000 $6,708,740 ($3,177,350) 101.1 ($321,230)$4,545,000 $399,010 $4,944,010 ($3,521,366) 67.5 ($237,692)$34,468,396 $2,793,051 $37,261,447 ($15,914,605) 115.0 ($1,830,180)$80,821,360 $21,426,260 $102,247,620 ($86,563,457) 101.7 ($8,803,504)$89,131,710 $17,234,770 $106,366,480 ($83,182,603) 101.9 ($8,476,307)$19,302,410 $82,125,960 $101,428,370 ($61,428,989) 137.9 ($8,471,058)$16,586,120 $5,489,250 $22,075,370 ($4,913,369) 110.9 ($544,893)$1,798,090 $7,366,860 $9,164,950 ($9,018,135) 151.3 ($1,364,444)$43,569,372 $6,849,918 $50,419,290 ($10,601,931) 147.4 ($1,562,725)
$778,860 $459,730 $1,238,590 $582,627 94.4 $55,000$27,500,119 $6,666,264 $34,166,383 ($20,858,101) 75.2 ($1,568,529)$1,590,490 $681,520 $2,272,010 $1,974,644 102.2 $201,809
$241,445,555 $66,005,306 $307,450,861 ($207,774,037) 116.7 ($24,247,230)$1,967,550 $438,350 $2,405,900 $3,179,222 113.3 $360,206
$0 $0 $0 $0 125.0 $0$2,121,160 $553,430 $2,674,590 ($1,468,700) 50.3 ($73,876)$18,409,480 $2,551,890 $20,961,370 ($2,942,562) 72.5 ($213,336)
$355,566 $1,830,986 $2,186,552 ($1,906,180) 91.4 ($174,225)$256,782 $68,544 $325,326 $1,128,630 171.4 $193,447
$26,034,451 $12,473,201 $38,507,652 ($13,295,721) 69.6 ($925,382)$6,891,950 $1,613,320 $8,505,270 ($2,869,247) 104.5 ($299,836)$76,836,430 $4,662,640 $81,499,070 ($78,570,629) 99.4 ($7,809,921)$15,559,983 $2,240,513 $17,800,496 ($4,650,874) 102.7 ($477,645)$12,245,312 $4,088,360 $16,333,672 ($9,420,992) 104.5 ($984,494)$7,695,641 $974,297 $8,669,938 ($5,518,707) 84.9 ($468,538)$62,492,980 $34,273,840 $96,766,820 ($40,220,695) 125.8 ($5,059,763)$5,411,200 $3,301,540 $8,712,740 $12,995,565 159.4 $2,071,493$35,855,570 $8,874,290 $44,729,860 ($36,609,063) 87.9 ($3,217,937)$3,198,300 $81,810 $3,280,110 $3,827,408 110.9 $424,460
$0 $0 $0 $3,095 104.5 $323$1,880,960 $298,860 $2,179,820 ($2,127,172) 90.6 ($192,722)$1,888,170 $1,118,290 $3,006,460 ($1,950,184) 90.7 ($176,882)
$0 $0 $0 $2,167 148.3 $321$4,344,810 $1,052,325 $5,397,135 ($4,678,557) 92.6 ($433,234)
$131,485,513 $82,279,554 $213,765,067 ($67,886,870) 62.5 ($4,242,929)$38,860,820 $1,417,170 $40,277,990 ($33,723,364) 54.8 ($1,848,040)$6,734,042 $651,104 $7,385,146 ($5,459,493) 112.2 ($612,555)$69,443,730 $5,050,010 $74,493,740 ($43,928,421) 93.3 ($4,098,522)
$371,740 $3,241,990 $3,613,730 $14,387,350 75.2 $1,081,929$29,742,870 $14,820,120 $44,562,990 ($25,125,856) 89.3 ($2,243,739)$5,107,452 $1,183,438 $6,290,890 ($599,992) 110.1 ($66,059)$5,973,702 $7,566,167 $13,539,869 ($7,232,627) 113.6 ($821,626)$5,215,420 $46,670 $5,262,090 ($2,208,939) 121.5 ($268,386)$1,152,716 $5,146,969 $6,299,685 ($5,402,193) 108.7 ($587,218)$237,758 $16,149 $253,907 ($6,547) 117.5 ($769)
$9,110,880 $1,164,380 $10,275,260 ($6,917,370) 58.6 ($405,358)$9,520,171 $5,820,561 $15,340,732 ($5,331,948) 100.8 ($537,460)$51,561,570 $15,545,683 $67,107,253 ($33,438,786) 93.4 ($3,123,183)
$0 $0 $0 $0 151.0 $0$1,875 $1,473 $3,348 $519,252 85.8 $44,552
$1,238,734 $499,058 $1,737,792 $252,828 103.0 $26,041$77,490,695 $28,173,045 $105,663,740 ($56,043,232) 96.2 ($5,391,359)$12,271,390 $3,585,720 $15,857,110 ($14,938,573) 71.5 ($1,068,108)$42,299,790 $6,130,650 $48,430,440 ($20,746,395) 97.3 ($2,018,624)$11,538,880 $1,640,460 $13,179,340 ($10,094,238) 124.8 ($1,259,761)
$118,620 $30,800 $149,420 ($126,233) 120.5 ($15,211)$35,556,290 $7,973,920 $43,530,210 ($32,259,096) 104.0 ($3,354,946)$8,077,460 $334,660 $8,412,120 ($5,864,941) 84.5 ($495,587)
$0 $0 $0 $0 68.8 $0$161,684 $5,765 $167,449 $61,965 79.6 $4,932$784,511 $412,413 $1,196,924 $1,891,721 108.8 $205,819
$1,424,844,080 $530,921,634 $1,955,765,714 ($1,094,512,002) $99.862 ($109,300,081)
Income Approach Spreadsheet O&G.Entire State.xlsx (07/10/2013) LAA Page 3 of 3
EXHIBIT 4:
Volatility of Income Approach
*Statewide taxable school district value per Texas Comptroller Annual Property Value Study (PVS). Value is comprised of mineral interests and additional discounted salvage equipment value. The contributory value of minerals other than oil and gas (such as uranium, sulfur, and other ores) is negligible.
$0
$20
$40
$60
$80
$100
$120
$140
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
VA
LUE
-B
ILLI
ON
$
$/B
BL
or $
/MC
F x
10
TAX YEAR
Historical WTI Oil Price and Statewide Gas Pricevs. Statewide Category G Value*
FMV (billions) WTI ($/bbl) Gas Price ($/mcf x 10)
WTI vs. Cat. G.xlsx - 07/09/2013 PRITCHARD & ABBOTT, INC. Page 1 of 1
EXHIBIT 5:
Technical Flaws in LOGA’s Proposed Income Approach Methodology
EXHIBIT 6:
Depreciation Considerations for “Other” Pipelines (Chapter 13)
25
Excerpts from 12/31/2009 FERC Form 2 Annual Report (Notes to Financial Statements, page 122.6)
26
Age of Non-Regulated Segments in Texas
Average age of almost 49,000 segments of non-regulated pipe in Texas (P&A clients) is 32.2 years.
27
Marshall & Swift Life Estimates
Marshall & Swift asset range life (in years) indicates pipelines have more than 50% longer life than petroleum production equipment.
(23 yrs x 1.5 = 34.5 yrs)
28
Summary of Depreciable Life Estimates
Indicator Life (yrs)
Recent Accounting 35.0
P&A Clients (Tx) 32.2
Marshall & Swift 34.5
Average 33.9
40
Definition of “Effective Age” per LTC Rules and Regulations*
“Its age compared with other properties performing like functions. It is the actual age less the age which has been taken off by face-lifting, structural reconstruction, removal of functional inadequacies, modernization of equipment, etc. It is an age which reflects a a true remaining life for the property, taking into account the typical life expectancy of buildings or equipment of its class and usage. It is a matter of judgment, taking all factors into consideration.”
*Page DE-1 (2006)
30
Floor Depreciation Rate
Floor depreciation rate should be raised from 20% to 30% to account for the effect of major capital expenditures or segment repair/replacements (of which the assessor is generally not made aware) which lowers effective age and/or extends service life.