A state board agrees with Rio Blanco County that an energy company’s gas gathering and processing personal property assets in the county are worth far more than what the company paid Encana for them and other holdings in 2017.
The Colorado Board of Assessment Appeals has decided that the assets in question, owned by Utah Gas Corp., had an actual value for tax purposes of about $29.6 million for the 2019 tax year. That’s a downward adjustment from the $32.1 million value that the Rio Blanco County Assessor’s Office had put on the assets, but Utah Gas Corp. had argued they should have been valued at $6.5 million.
It based that argument in part on the fact that the assets were a subset of assets it bought from Encana for $4 million in 2017, when Utah Gas went by the name of SWEVCO-SABW, LLC. What Utah Gas calls the Dragon Trail gas gathering and processing system lies primarily in western Rio Blanco County, south of Rangely, but also extends into Garfield and Mesa counties, and eastern Utah. The system includes 579 gas wells, and a gathering system including about 489 miles of pipeline and a compressor station and gas processing plant that are both in Rio Blanco County.
The gas wells, which Utah Gas describes as being at or near the end of their economic life in terms of productivity and profitability, are not among the assets at issue in the personal property case, and neither are the wells’ production. Nor are any of the assets Utah Gas acquired from Encana outside Rio Blanco County in the 2017 deal.
According to the state board’s decision, an expert witness for the county didn’t believe the $4 million transaction in 2017 represented the market value of the assets at issue. The expert cited the difficulty of comparing the sale to other sales due to factors such as the uniqueness of the properties in question and the manner in which sale agreements affect the agreed-upon price.
The state board said in its decision that Utah Gas presented no information on “what liabilities and other factors were involved in the sale to make it comparable to what a likely buyer would pay for the subject assets.” It said that “transactions of property like the subject assets involve consideration of complex, price-impacting factors such as the negotiation of liabilities, reserves, waivers, escrow, and intangibles, and no evidence was presented to show that these factors were accounted for in a conclusion that $4 million is a value ceiling for the subject assets.”
The board noted that an expert witness for Utah Gas, when also evaluating the assets a second way — based on the cost of replacing them, minus depreciation — put their value at $9.7 million, which suggested to the board that the $4 million sale price doesn’t accurately reflect the assets’ value. The expert for Utah Gas reconciled the differing figures to reach an estimated $6.5 million value.
The county used a cost approach in reaching its estimated value, which the state board reduced due to some errors it said the county’s expert admitted to.
Rio Blanco County Assessor Renae Neilson said Friday the decision is “a big one for the western part of the county” when it comes to affected local tax jurisdictions. The personal property taxes Utah Gas will pay for the assets in question will be based on 29% of the assets’ actual value.
The company can appeal the decision in court. It didn’t respond Friday to a request for comment.
While Rio Blanco County officials celebrated the decision in a news release this week, County Commissioner Jeff Rector added in the release, “Rio Blanco County maintains our position and dedication to supporting energy extraction industries within the county and we want to continue the great relationships we have with our energy partners.”
Utah Gas has been on a buying spree recently. In late 2019, Summit Midstream sold Utah Gas more than 1,200 miles of pipeline in far-western Mesa, Garfield and Rio Blanco counties, and Utah, along with an associated gas processing plant. According to its website, Utah Gas last July acquired assets in the Uinta Basin in Utah from ExxonMobil’s XTO Energy. In announcing that purchase, it said it added 25 employees, and now operates more than 1,200 wells on some 400,000 acres of leases. It produces natural gas, propane, crude oil and other products from processing plants near Rangely, Mack, and in Grand County, Utah.
The company, now with 75 employees, this year announced the move of its headquarters to Grand Junction, according to its website.
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April 11, 2021 at 01:15PM
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