Has Reeves CAD sent out Tax Statements for 2019? I received the Appraisal Notice in April but not an actual 2019 statement for either Reeves CAD or Tax A/C. And when I look up Certified Payments online, which is how I paid last year, it says Reeves CAD is not accepting payments through them.
Does the Comptroller publish a user-friendly explanation of the valuation process? The only thing I find on the website Comptroller.Texas.Gov is Rule 9.4031 “Manual for Discounting Oil and Gas Income”, which would intimidate most MBA students. Does the Comptroller really expect appraisers to determine a unique discount rate for each well in the state? How are appraisers supposed to estimate future O&G prices?
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I have not seen a tax statement yet. Just the initial appraisal. Nothing since the CAGI representatives said he adjusted our valuation. The worksheet the appraiser provided me for the adjustments on the six wells was interesting. Not sure how they came up estimated energy costs out several years. Guessing projected output was formulaic based something other than our history. We had less than a year of production when they did our appraisal.
F-10, did they indicate future oil prices, and discount rate? Thx
Texas statute sets the process for appraisals of wells.
Appraisals are based on the 12-month average oil and gas price for the well. Price data is compiled from sales revenue reported to Texas Comptroller CONG for severance taxes. Anyone can access this information on the CONG website based on the RRC lease number, or the permit number if the well is producing before the lease number is assigned. If there are not sales every month, then the average oil or gas price for each missing month is based on the county-wide well sales.
Well life is based on averages and value is calculated by decline curves over the years based on similar horizontal or vertical wells in same formations. Operators can get prove that the estimated economic life of a well is shorter than the physical life. That is the number of years over which the company can profitably operate the well, where demonstrated expenses will exceed potential revenues. There is a factor for increasing oil and gas prices over time which is set by the federal government. Texas statute specifies that this factor is used.
If the economic life is reduced then the assessed value of the well will be reduced for both the operator and for the mineral owners. Mineral owners can ask for the underlying data for each well and see how value is determined. If royalty checks have costs deducted and that is not on the appraisal, then copies of the check with costs can be provided to the appraisal company (not the Reeves County tax office) and value may be reduced.
Or if the royalty decimal is too large, then the mineral owner can provide the division order or check to show the correct decimal. It is time-consuming to sort through all the data on the wells and you only have about one-month to protest. You should ask for the detailed appraisal reports immediately after getting the Notice of Appraised Value in the spring.
There are services that will protest for mineral owners and the charge is a percentage of the reduction of estimated taxes for each well. In 2018, prices were falling and the 2019 taxes were based on the average price, not the end-of -the-year price. The 2019 prices are still lower and so the 2020 tax valuations will be reduced based on the pricing factor.
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Thanks for confirming this.
Thanks for clarifying! So we can ask the valuation firm (Capitol Appraisal Group) for a copy of their assumptions or spreadsheet, to learn discount rate and other vital components. I would simultaneously ask appraiser whether the operator has challenged the valuation, since operator has the skills and hopefully the time available, or ask the working interests themselves.
Logical that TX would simply use a federal govt projection of future O&G prices. Comptroller’s website Rule 9.4031 (Manual for Discounting) gives impression they apply an annual inflation “escalation” factor for future prices.
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Does the valuation firm update your mineral rights tax assessment every year for ad valorem purposes, based on declining economic life, current oil prices, etc? Seems like it could be a dynamic valuation, not static like houses that might go years before update by county assessors.
Yes the appraisals are done annually and take into account the decline of the prior year.
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You file your challenge to the appraisal value with the Reeves County Appraisal District (or other county appraisal district), not with the appraiser. The appraisal company will not know which operators have filed challenges. In some counties, the hearings for mineral owners are on several days and separate from the dates for oil company challenges. However, someone representing the appraisal company will be at or around when the mineral hearings are held. You can ask the operator directly, but only expect an answer if you are a larger mineral owner to whom the company is responsive.
Thought-provoking comments in this & parallel threads about minerals valuation for property taxes … see also “Reeves County Appraisal District Valuation” (May 2019). Synopsis of threads:
Dismay when previously idle minerals begin producing, and valued/taxed for the first time.
Several suggest protesting almost automatically, to trigger review by the appraisal firm.
Attorney Wade Caldwell opined mineral protests are “pretty hard”, and the main things to protest are the wrong royalty interest, or wells that started up recently and suffered sharp decline in the first year (appraiser overestimates economic life).
Few small royalty owners possess expertise to debate arcane valuation assumptions with professional appraisers.
Several suggest contacting your operator … operator possesses clout and skill to appeal.
One said his operator divulged that operator protested successfully and achieved 30% reduction in assessment.
Helpful operators? Are most operators this cooperative with small royalty owners?
One commenter opined operators routinely appeal tax valuations of new wells. Really?
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During my visit with the appraiser (Trent from CAGI), he indicated nothing more would need to be done since this was done during the regular/routine appraisal routine. It was the Reeves County Appraisal District that instructed me to contact CAGI back in May or June (I believe) after receiving our initial appraisal district appraisal notice and right to appeal. I have reached out to Reeves CAD to determine if anything else was needed on our part. I also contacted Trend at CAGI to see if more was needed and to determine if the changes in our valuation will impact others associated with these wells.
Follow the $numbers! Hire a Landsman to check out your property!! “Not asking” is “Failure” and please document all issues between the property. ABSOLUTLY do not agree to any Lease Agreement without a Significant Lease Bonus for damages, and a 25% Royalty (or more)!
The appraisal district did verify, I had nothing more to do to benefit from the adjustment in our appraisal. He did not address as to whether the adjustment would apply to other lease holders for the Birch and Ash wells. Stephen, we are pretty far along with our lease. Been in affect for three years or more. Not sure what we could do now if deficiencies were found. We have been paid for some damages - lord knows the pipeline cutting across it was impressive. Wished they had opted to replace all of the fencing, but guessing our adjoining land-owner enjoys the extra section of grazing he has access to.
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Pipeline companies routinely replace fencing and you should contact the company and ask for the fence to be repaired. In the future, specify the repair of fences and reseeding of the surface in any pipeline agreement.
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There are two very relevant (in my opinion) issues regarding valuation I have not seen discussed and an issue of ownership. As to ownership - Very technically, if you own relinquishment act land, which is common in Reeves County, my understanding is that you do not own the minerals. The State owns 100% of the minerals and shares the royalties with the landowner as its leasing agent. Does any one know differently? And in that event, I am having trouble not seeing this as an income tax, as suggested earlier in the email string.As to the two earlier described valuation issues it seems manifestly unfair that the County valued the stream of income when, because mostly the lack of takeaway capacity, gas dove to negative numbers and some wells were shut in. Essentially when Reeves County were coming up with their 2019 numbers they did not (nor could they) take into account wells being shut in and gas going below zero. It seems like they will need to do so for 2020 if they are to be fair. Comments?
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Weldon, you are correct the 2020 valuations should reflect 2019 market conditions.
As to the income tax argument, yes, the surface owner is technically the agent of the state and gets 50% of the royalties. This was a compromise reached nearly 100 years ago, and I would be concerned that if surface owners were successful in shirking paying 1/2 the mineral property taxes, when they are getting 1/2 the royalties, wouldn’t the state react by revoking the deal and taking all the royalties?
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We have a minerals classified property in Reeves County. Paid taxes only for the surface not for the producing well. The well started producing in late 2018 and was not included in the tax notice we paid for 2019. Does this mean we will never be billed for the well?.
No. Your royalty interest in the well will be taxed once Reeves County becomes aware of the well, most likely from the appraiser. You can receive a notice for 2019 at any time, but will first get a notice about the assessed value. It is possible that you will not be taxed until 2020.
Wade, thank you for your input. I really don’t know the answer to the following question, does the state pay its half? My comment wasn’t so much to the equity of the situation, or worse, seeking to re-trade my deal with the state, so much as agreeing with another person’s statement that it sure smells a lot like an income tax when you are paying property tax on property that you don’t own. Very technically you are receiving money for your services as an agent. I believe there are even legal cases where a surface owner got in trouble for violating his duties as the State’s agent. It would appear that everyone just holds their nose and agrees that there may be a legal problem with what the ad valorem taxing authorities are doing but don’t have a better solution. Or are they on more sound footing than I perceive?