The Value of a Pipeline
Every right of way appraiser in the country appraises the value of a right of way based on acquisition or relocation methods... very few, appraise the value of a pipeline within that right of way.
Pipeline Equities saw the need to find a method of appraisal to value pipelines that may have been overvalued after time for tax purposes or undervalued in terms of a merger, acquisition or estate settlement.
These are the basic reasons for a valuation report on an active or inactive pipeline:
- Preparing for a sale or divestiture
- Readjusting state, local, ad-valorem taxes/tax assessments
- To settle an estate
- To settle a partnership
- To determine value of an asset in any entity
- To determine salvage value
- Preparing for a purchase or acquisition
Methods of Appraisal
To come to a value, Pipeline Equities uses the methods of market analysis, income approach and asset based. Each can be employed if the occasion calls or a combination of all can be used. We have found that value occurs with the interaction of demand for product, utility of product, scarcity or supply, and transferability of ownership rights.
Factors for Determining Values
Going deeper, we use as many as forty different factors to make our determinations. These factors are the more technical aspects pertaining to those broader areas of demand, utility, scarcity, and transferability.
- Throughput value transportation (income)
- Depth of coverage of pipe
- Right of Way agreements
- Replacement Value (asset)
- Salvage Value
- Supply (other pipelines in area/scarcity)
- Demand (potential buyers?)
- Surface Inventory (including appurtances)
- Sales Contracts / Length
- Potential for replacement volume (new wells, tie ins)
- Type of System, oil & gas, product, etc.
- Size of pipe
- Specification of pipe
- Management (front office)
- Date of Installation
- Cathodic protection
- Pipe coatings (vintage)
- Environmental concerns
- Reservoir studies
- Market price of commodity
- Type of system: trunk, gathering, etc.
- Chemical content of transported product (H2S, CO2)
- Market diversity
- Proximity to markets
- Geography / terrain
- Diversity of suppliers
Other factors depending on whether product is purchased at the wellhead and resold, whether and to what extent product is compressed, enhanced, treated, cleaned or processed and in what way.
Over the years, Pipeline Equities has had a diverse list of clients who sought pipeline valuations for reasons such as:
- Settle a family estate or as in a closely held corporation.
- Reestablish value for county, school, and other local taxing authorities for a gathering system which had lesser throughput than when taxes had been originally assessed.
- Value of a pipeline for purpose of establishing value for accounting purposes (client sought to expand the line with loan and bank sought appraisal.)
- A city seeking a valuation of an abandoned line to convert it to waste water transport (city charter requires an appraisal.)
- Still another requires appraisal of an existing line in order to grant a new loan for expansion.
The appraisal of pipeline is a niche industry - overshadowed by those who are appraisers of right of way for the purpose of paying damages to landowner or acquiring new right of way. The methods are different. One is the way a land appraiser looks at land the other is the way a pipeliner looks at a pipeline and the right of way it rests in.
Pipeline Equities uses a combination of appraisal methods, but centers on those that particularly lend themselves most readily to the oil and gas pipeline industry. We always take into account the perspective of the pipeline operator, whether trunk, transmission or gatherer.