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Assessors propose flexibility in oil‑and‑gas cash‑flow expense forecasts; industry broadly agrees
Summary
Assessors and oil‑and‑gas representatives discussed adding limited flexibility to the DCF model used to value wells so operating‑expense forecasts may depart from the default one‑third‑of‑price rule when ‘‘circumstances clearly dictate’’ such an adjustment.
The Louisiana Assessors Association and industry stakeholders discussed refinements to the discounted cash‑flow (DCF) approach used for oil and gas well appraisals at the Tax Commission’s July 16 rules hearing, focusing on how to project operating expenses over the first five years of a cash flow.
Rodney Courrette, representing the Assessors Association, summarized a long technical process to move well appraisals from a cost approach to an income approach using a DCF model. He said assessors and a stakeholder committee agreed on production and price forecasting but had difficulty fixing an appropriate escalation for operating expenses because operators maintain much of the expense data.
The current guideline in chapter 9 uses a default rule: operating expenses should escalate or de‑escalate at one‑third of the percentage change used in the oil and gas price forecast over the first five years. Courrette and assessors proposed adding a clarifying sentence allowing assessors to depart from that one‑third rule “when circumstances clearly dictate a departure from this protocol described above to achieve a more accurate forecast” — for example, the known, steep decline in flow‑back water and related expenses on newly drilled shale wells.
Commissioner Romick asked who bears the burden to demonstrate those ‘‘circumstances’’; Courrette said the language is necessarily case‑specific and expects assessors and operators to discuss expense forecasts and supporting data when departures are proposed. Darren Frederickson, representing the Louisiana Oil and Gas Association, said he had no objection to language that permits departures so long as it works both directions (meaning expenses can rise or fall) and does not deny an operator the opportunity to submit evidence.
Courrette also proposed routine housekeeping updates: rolling forward percent‑good depreciation tables for surface equipment and updating cost indices (using a Marshall & Swift Petroleum Industry Index mix) for tax year 2026. He said many surface equipment items have been absorbed into DCF values but some surface equipment still appears on the rolls and needs updated cost‑new figures.
There were no formal votes; the Commission took the proposed language under advisement and placed it in the rulemaking record for the Aug. 20 rebuttal hearing.
