Pritchard & Abbott, Inc., was instrumental in pioneering the mass appraisal of oil and gas mineral interests for ad  valorem tax purposes.  The appraisal of minerals is a challenging task often requiring the expertise and judgement  of engineers, geologists, and others who have had oilfield industry experience.  The preferred method to evaluating mineral interests involves forecasting the future net income attributable to the future sale of oil and gas reserves, and then discounting this future net income by the appropriate risk and financial considerations back to present value.  This Income Approach method is the predominant evaluation technique used by actual buyers and sellers in the marketplace, and for tax assessment purposes is also promulgated by Section 23 of the Texas Property Tax Code.

Obviously, any conclusions of value derived with projections of future events are inherently subjective opinions that must be documented and supported by personnel who understand the various operating characteristics and cyclical nature of the petroleum industry.  P&A maintains a respected staff of Petroleum Engineers and Geologists in all our district offices to ensure these mineral interest values are derived competently, professionally, and with fairness to the taxpayer.

The past being the key to the future, historical production and price data is updated monthly for all producing oil and gas leases.  This production database is linked to proprietary P&A year-by-year discounted cashflow appraisal software that allows mass appraisal techniques to be utilized for maximum efficiency, while still allowing for individual lease characteristics to be analyzed and incorporated as needed.

Because oil and gas reserves are depleting assets, P&A appraisers are responsible for determining the profitability and projected economic life of each producing (or capable of producing) lease as of January 1 each year.  Forecasting of future production is accomplished through use of ARIES decline curve analysis software.  Operating expense forecasts are made using extensive data files of actual field expenses, correlated to typical and historical norms.  Other parameters and various value indicators that P&A appraisers analyze for each lease are:

• Severance Tax Incentives / Abatements
• Contract vs. Spot Gas Pricing
• Bonus Payments Above Posted Price for Oil
• Gravity and Quality Adjustments to Oil Price
• Field-Wide Compression vs. Well-Site
• Natural Gas Liquids Being Extracted at Downstream Plant
• Behind-Pipe Reserves for Future Development
• Capital Expenditures for Anticipated Workovers
• Projected Salvage Value of Equipment at Abandonment
• Dollars of Value Per Barrel of Reserves
• Dollars of Value Per Daily Average Barrel Produced
• Dollars of Expense Per Daily Average Barrel Produced
• Years payout of Purchase Price (Fair Market Value)

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