California Code of Regulations › Title 18 - Public Revenues › Division 1 - State Board of Equalization-Property Tax (California Department of Tax and Fee Administration - Timber Yield Tax, See Chapter 11) › Chapter 4 - Equalization by State Board › Article 4 - Change in Ownership and New Construction › Section 468 - Oil and Gas Producing Properties

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) The right to remove petroleum and natural
				  gas from the earth is a taxable real property interest. Increases in
				  recoverable amounts of minerals caused by changed physical or economic
				  conditions constitute additions to such a property interest. Reduction in
				  recoverable amounts of minerals caused by production or changes in the
				  expectation of future production capabilities constitute a reduction in the
				  interest. Whether or not physical changes to the system employed in recovering
				  such minerals qualify as new construction shall be determined by reference to
				  Section 463(a).
(b) The market value of an oil and gas
				  mineral property interest is determined by estimating the value of the volumes
				  of proved reserves. Proved reserves are those reserves which geological and
				  engineering information indicate with reasonable certainty to be recoverable in
				  the future, taking into account reasonably projected physical and economic
				  operating conditions. Present and projected economic conditions shall be
				  determined by reference to all economic factors considered by knowledgeable and
				  informed persons engaged in the operation and buying or selling of such
				  properties, e.g., capitalization rates, product prices and operation
				  expenses.
(c) The unique nature of
				  oil and gas property interests requires the application of specialized
				  appraisal techniques designed to satisfy the requirements of Article XIII,
				  Section 1, and Article XIII A, Section
				  2, of the California Constitution.
				  To this end, the valuation of such properties and other real property
				  associated therewith shall be pursuant to the following principles and
				  procedures:
(1) A base year value (market
				  value) of the property shall be estimated as of lien date 1975 or as of the
				  date a change in ownership occurs subsequent to lien date 1975. Newly
				  constructed improvements and additions in reserves shall be valued as of the
				  lien date of the year for which the roll is being prepared. Improvements
				  removed from the site shall be deducted from taxable value. Base year values
				  shall be determined using factual market data such as prices and expenses
				  ordinarily considered by knowledgeable and informed persons engaged in the
				  operation, buying and selling of oil, gas and other mineral-producing
				  properties and the production therefrom. Once determined, a base year value may
				  be increased no more than two percent per year.
(2) Base year reserve values must be adjusted
				  annually for the value of depleted reserves caused by production or changes in
				  the expectation of future production.
(3) Additions to reserves established in a
				  given year by discovery, construction of improvements, or changes in economic
				  conditions shall be quantified and appraised at market value.
(4) The current year's lien date taxable
				  value of mineral reserves shall be calculated as follows:
(A) The total unit market value and the
				  volume of reserves using current market data shall be estimated.
(B) The current value of taxable reserves is
				  determined by segregating the value of wells, casings, and parts thereof, land
				  (other than mineral rights) and improvements from the property unit value by an
				  allocation based on the value of such properties.
(C) The volume of new reserves shall be
				  determined by subtracting the prior year's reserves, less depletions, from the
				  estimated current total reserves.
(D) The value of removed reserves shall be
				  calculated by multiplying the volume of the reserves removed in the prior year
				  by the weighted average value, for reserves only, per unit of minerals for all
				  prior base years. The prior year's taxable value of the reserves remaining from
				  prior years shall be found by subtracting the value of removed reserves from
				  the prior year's taxable value.
(E)
				  The new reserves are valued by multiplying the new volume by the current market
				  value per unit of the total reserves.
(F) The current taxable value for reserves
				  only is the sum of the value of the prior year's reserves, net of depletions as
				  calculated in (D) above, factored by the appropriate percentage change in the
				  Consumer Price Index (CPI) added to the value of the new reserves, as
				  calculated in (E) above.
(5) Valuation of land (other than mineral
				  reserves) and improvements.
(A) A base year
				  value (market value) of land (including wells, casings and parts thereof) and
				  improvements shall be estimated as of lien date 1975, the date of new
				  construction after 1975, or the date a change of ownership occurs subsequent to
				  lien date 1975.
(B) The value of
				  land (wells, casings and parts thereof) and improvements shall remain at their
				  factored base year value except as provided in (6) below.
(6) Value declines shall be recognized when
				  the market value of the appraisal unit, i.e., land, improvements and reserves,
				  is less than the current taxable value base of the same
				  unit.