To: LMOGA Members

June 24, 2015

To: LMOGA Members

From: Chris Cisneros

Greetings,

Below is a summary of the proposed changes for Chapter 25 to add the valuation of salt dome storage wells/caverns. These proposed rule are only for storage wells/caverns classified by the Louisiana Department of Natural Resources Office of Conservations under UIC Well Class Type as Class II Type 11-L and 11-N (see attached document 20150624_UIC WELL CLASS TYPE.pdf). These are LPG and natural gas storage wells/caverns respectively. A consensus among the affected taxpayers has not been reached on valuing brine solution mining wells, classified as Class III Type 12-B, so these well/caverns are not addressed at this time.

First, we propose using a 30 year service life with a 20% floor. Chapter 25 Table 2503.B, 2503.C, and 2503.D do not have 30 year life data. This data in the Chapter 25 tables appears to be sourced from Marshall & Swift. Using the same Marshall & Swift data (20150624_MS DEPRECIATION.pdf and 20150624_MS INDEX.pdf), I have created new tables incorporating a 30 year life. Please see the attached Excel spreadsheet titled 20150611_PROPOSED CH 25 TABLES.xlsx. The proposed tables are the green tabs.

Second, we need to add a suggested (mandatory) economic life of 30 years to Table 2503.A. I suggest we add to the table “Salt Dome Storage Wells and Caverns (LDNR Class II Type 11-L or 11-N) – 30”

Third, we need to add language to Chapter 25 to make alternative procedure 3 mandatory for the appraisal of storage wells/caverns. I suggest after the second sentence of 2501(H)(1) state “This procedure is to be used for Salt Dome Storage Wells/Caverns permitted as Class II Type 11-L or 11-N”.

Fourth, we need to incorporate in Chapter 25 language allowing the taxpayer to use reasonable estimate of acquisition cost if the actual acquisition cost is not available. Many of these wells are over 40 years old and the costs are unknown. In addition, some of the well/cavern costs are included with other assets. I suggest in 2501(A) we add a sentence stating “if acquisition cost is unknown, a reasonable replacement or reproduction cost shall be used” (I’ll let LMOGA decide on using shall, may or can)

I think this will be a good solution to the storage well/cavern issues we have been having in Louisiana. It will bring efficiency and predictability to estimating our tax burden.

If anyone has any questions or comments please let me know.

Chris

Office: 713-381-2895

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