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Louisiana Oil & Gas Association presents a rebuttal to the proposal submitted by the Louisiana Assessors Association, highlighting areas of concern and the need for fair market value assessment. The presentation discusses the cost approach, income approach, and the importance of common sense in assessments.
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2017 Louisiana Tax Commission Rebuttal to the Proposal Submitted by the Louisiana Assessors Association Presented by LOGA / LMOGA August 10, 2016
Opening Comments The Louisiana Oil & Gas Association and the Louisiana Mid Continent Oil & Gas Association (LOGA/LMOGA) have reviewed the proposal submitted by the Louisiana Assessors Association (LAA). The significant areas of concern are detailed in this presentation. For ease of review by the Louisiana Tax Commission (LTC), the order of the rebuttal matches that of the LAA proposal. While considering the LAA proposal, the main point of focus was on whether or not the changes proposed did anything to move closer to fair market value for the wells and surface equipment. LOUISIANA OIL & GAS ASSOCIATION
Reasonable Expectations of Ad Valorem Taxes LOUISIANA OIL & GAS ASSOCIATION
Cost Approach • Assumes active participants in the market place equate fair market value to the cost of developing the asset. • The oil and gas market does not consider the cost to develop (drill an oil or gas well) to the fair market value. • Example -Estimated $3,000,000 Drilling Cost • Dry hole- • No market for this property. The operator would not introduce this property into the market and would plug and abandoned the well • Producing property • Value of the property if introduced into the market will be derived from the estimated future income stream from the production of the oil and gas reserves.
Income Approach • Oil and Gas properties are owned & developed for the future income stream derived from the sale of the produced oil and gas • Discounted Cash Flow- projection of future income from oil and gas property • Used by active participants in the oil and gas market to value their own assets as wells as prospective properties • Acquisitions and Divestitures • Internal investment decisions • Allows appraiser or investor the ability to adjust each parameter for a particular property. • Operating expenses • Production profiles • Lease agreements • Gathering and Transportation contracts
Fair Market Value and Common Sense Common Sense – Dictionary.com, defines common sense as sound practical judgment that is independent of specialized knowledge, training, or the like; normal native intelligence. While the concept of common sense is familiar to us, it sometimes gets lost in complicated discussions or debates. We should never lose sight that the end result of all the calculations and analysis of any assessment should make common sense, at the very least, to someone in the business or someone familiar with the business involved. LOUISIANA OIL & GAS ASSOCIATION
ProductionSource: LDNR Oil/Gas Production by District for a Year
Summary Let us restate something very important; LOGA/LMOGA, and the industry as a whole, fully appreciates the importance of the ad valorem tax dollars that fund the parishes and schools across Louisiana. Member companies have been historically and will continue to be good corporate citizens and support the local communities were they operate. The harsh reality at this point in time is that the basis of assessment is fair market value and those values have dropped significantly since 2015 and continue to fall. The LAA proposal for 2017 rules does nothing to move the assessments closer to fair market value. The proposal dramatically increases values in a time when there is absolutely no justification at all. LOUISIANA OIL & GAS ASSOCIATION
