Rules & Regulations of the State of Tennessee
Title 0600 - Board of Equalization
Chapter 0600-11 - Appraisal of Parcels with Mineral Reserves
Section 0600-11-.08 - VALUATION OF ACTIVE MINERAL RESERVES - OIL AND GAS WELLS

Universal Citation: TN Comp Rules and Regs 0600-11-.08

Current through April 3, 2024

(1) The Assessor shall value oil and gas wells by compiling the information necessary to complete the spreadsheet or a facsimile in Appendix B.

(2) In order to complete the spreadsheet in Appendix B, the Assessor shall utilize the following procedure to the extent practicable:

(a) In order to determine the appropriate integration of separately owned and leased parcels that are unitized into drilling and production units, the Assessor shall send operators an annual schedule or questionnaire to determine the identity, address and percentage of ownership of each parcel comprising the unit from which oil and/or gas is being recovered;

(b) Contact the Tennessee Board of Water Quality, Oil and Gas, or other appropriate entity, to obtain the previous year's production for each oil and gas well and the average cost per barrel;

(c) Estimate an appropriate discount rate and decline rate for each well by reviewing the best available market data and factors relevant to the individual well being appraised;

(d) Update the total production for each well;

(e) Prepare separate oil and gas appraisals for each well;

(f) Reduce the indicated value by the appraisal ratio for the tax year and jurisdiction under review; and

(g) Allocate the equalized values for each well between all parcel owners based upon their percentage of ownership.

(3) Where necessary, such as when market data is limited or unavailable, the Assessor shall utilize appraisal judgment so long as it is reasonably designed to arrive at the market value of the oil and gas wells being appraised.

(4) The Assessor's estimates shall be presumed indicative of the market absent evidence from the Taxpayer supporting different assumptions for the particular reserves being appraised. In order to rebut the presumption, the Taxpayer must provide the Assessor with either market data or information specific to the reserves being appraised. Mere criticism of the Assessor's methodology is not sufficient by itself to overcome the presumption of correctness.

(5) The following example illustrates how Assessors should value a parcel with active oil and gas reserves:

Assume that an oil well has an economic life of five years, a decline rate of 20%, an initial annual net income of $5,000, and a discount rate of 16%. The present net worth of the reserve would be calculated as follows:

Present Worth of 1

Year

Net Annual Income

Discount Factor

Di

scounted Value

1

$5,000

x

.862069

=

$4,310.34

2

$4,000

x

.743163

=

2,972.65

3

$3,200

x

.640658

=

2,050.11

4

$2,560

x

.552291

=

1,413.86

5

$2,048

x

.476113

=

975.08

Present Worth

=

$11,722.04

Authority: T.C.A. §§ 67-1-305, 67-5-502(d) and 67-5-801.

Disclaimer: These regulations may not be the most recent version. Tennessee may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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