Analysis of Oil and Gas Property Transactions and Sales in California, 1983-1985

Abstract

Summary This paper documents the collection of data and the evaluation of transfers and sales of oil- and gas-producing properties in California during the period 1983–85. The purpose of the study was to determine the fair market value of the oil- and gas-producing properties purchased during that period and to derive the oil and gas price projections, inflationary expectations, investment requirements, remaining reserves, payout, and the rate of return expected from the acquisition by purchasers. While originally used as a basis for property taxation analysis, the study has been expanded to include the trend of change in evaluation criteria over the 3-year time span during which oil and gas prices and corporate economic and investment policies have undergone significant changes. The time relation of specific evaluation criteria derived from actual sales and purchases by a cross section of independents and major operators gives a clear picture of the attempts by operators to make sound investment decisions in times of economic uncertainty. The data used for the study are actual evaluations of the properties used by the purchaser in making the acquisition decision in the form of engineering reports or other sources, including personal conversations. Introduction The subject of this paper is a study that was commissioned in 1986 by the Western Oil and Gas Assn. (WOGA) in cooperation with the California Independent Producers Assn. (CIPA) as a followup to previous similar studies done by Pacific Resources Management Inc. (PRMI) and others. The purpose of the annual study is to provide information for use by WOGA, CIPA, and their members. regarding the evaluation of ad valorem property taxes on oil and gas properties in California. The data regarding property sales are gathered and analyzed to definethe current value of oil and gas properties in California, andthe criteria used by knowledgeable buyers of producing properties to determine the value of these properties. This study is an empirical analysis of selected financial and economic criteria that represent the basis on which knowledgeable purchasers of oil and gas properties make the decision to offer and to pay a "fair market value" for a property. The study relies on the use of actual and comparable sales as the primary source of data. In all respects, the study provides a useful and interesting set of data that spans 3 years of activity in the California oil industry. Previous studies on this topic have been prepared annually by various WOGA consultants. Prior studies prepared by PRMI for 1984 and 1985 were used as the base for this study. In preparing this study, primary attention was focused on obtaining data and on evaluating property sales in 1986. At the same time, a renewed effort was made to obtain data on 1984 and 1985 transactions that had not been included in previous studies. Additional data were developed for 1984 and 1985 that modify, to some degree, the specific values or acquisition parameters previously calculated for those years. However, the conclusions of the study for those years remain unchanged.