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Высокие технологии Treas. Regs. Section 1.611
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Entities Holding Properties

In most cases, valuation of the oil and gas properties is the first step in entity valuation. You may also need to value other assets, such as hedges, midstream assets, and leasehold acreage not previously considered. Using these values, the balance sheet is marked to market, and a net asset value is calculated once liabilities are subjected. I also consider the potential impact of the entity’s general and administrative cost and tax structures on valuation. Discounts for lack of control/minority interest and lack of marketability are also considered in an entity level valuation. Publicly traded guideline companies can also assist in the valuation if sufficiently comparable to the subject entity.

While not specifically addressing estate and gift tax purposes, Treasury Regulations Section 1.611 provides some guidance with respect to determining the FMV of oil and gas properties. Treas. Regs. Section 1.611-1(d)(2) provides that “the fair market value of an [oil and gas] property is the amount which would induce a willing seller to sell and a willing buyer to purchase.” This language is consistent with the definition used for estate tax valuation (Treas. Regs. Section 20.2031-1(b)).

Section 1.611-2(d)(1) provides that “the value should be determined in light of conditions and circumstances known at the valuation date, regardless of later discoveries or developments.” This language is consistent with the general framework for estate and gift tax valuation precluding post-valuation date information.

Section 1.611-2(d)(2) says “the market approach (comparable transactions) is preferred to the income approach (discounted projected cash flows).” This provision isn’t consistent with current industry practice, which favors the income approach based on a reserve report as discussed previously. Treas. Regs. Section 1.611-2(g) lists information to be submitted in an FMV analysis.

The IRS’ Oil and Gas Handbook (Section doesn’t add any new guidance on oil and gas property valuation, but rather refers back to Treas. Regs. Section 1.611.


1 Shale is a type of sedimentary rock composed of silt and clay. New technology has allowed extraction of many shale deposits, which were once thought to be uneconomical. 2 Except for cases in which an oil company owns the fee mineral interest, it’s very rare for a fee mineral interest owner to have the expertise or capital to drill a well and explore his own mineral base; therefore, for the purpose of this article, unleased mineral interests are essentially considered non-producing mineral interests. 3 EnergyNet, Inc.’s database isn’t publicly available, but it will assist clients with the sale of their oil and gas properties and will make valuation metrics available to such clients. EnergyNet, Inc. is unique in that it markets not only traditional oil and gas properties, such as working and royalty interests, but also numerous fee mineral properties, including non-producing fee minerals. 4 I combine working and royalty interests for this discussion. Market evidence described later in this article shows that cash-flow multiples for royalty interests are higher than working interests. This implies that a distinction should be made in the valuation of the two property types, although such distinction is rarely made. 5 That is, PV-7 instead of the PV-10 shown in the reserve report. The projected cash flows in the reserve report would be discounted at 7 percent instead of 10 percent. 6 Survey of Parameters Used in Property Evaluation. 7 The (pre-tax) weighted average cost of capital is used.


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