An Analysis of Oil and Gas Property Assessment Practices Used by County Assessors in California

Abstract

ABSTRACT This paper discusses the methodology used by California tax assessors to set a fair market value (FMV) on California oil and gas properties for ad valorem tax purposes. A 265 parcel data set from 70 California independent oil and gas producers was used to look at how the assessors projected price, production, and cost data, and the basis they used to set a discount rate (DCR) for their cashflow projections in determining FMV. The study concludes that for the 1993-94 tax year county assessors did not adequately handle oil price risk, production forecast risk, or cost forecast risk in their analyses. As a result, the counties overassessed many of the parcels in the data set. An analysis of the derived market value indicators (MVFs) (i.e., payout, dollars per barrel oil equivalent reserve ($/BOE) and dollars per daily barrel oil equivalent ($/DBOE)) tends to verify the overvaluation conclusion.