Opinion ID: 2829573
Heading Depth: 2
Heading Rank: 1

Heading: Donald Niemiec

Text: Donald Niemiec was one of Avinger’s witnesses. Before he retired, Niemiec worked in the mid-stream gas processing business for many years in several capacities for several companies, including managing multiple gas processing plants. He had been involved in valuing and selling mid-stream processing plants and was familiar with the factors affecting the value of such plants in the marketplace. After retiring, Niemiec continued working as a consultant in the industry and served on several industry committees related to the gas processing business. He testified that the property was special because of the infrastructure in place to support a gas processing plant, its location in a long-lasting and highly-productive gas field, and its established history of processing gas in that area. He characterized it as “unique” because of the lease provision requiring Enbridge to remove its plant after the lease terminated. He opined that many companies in the processing business would be interested in the property as it was on April 7, 2004 because of the cost savings inherent in the existing infrastructure and the opportunity for whoever owned it to capture the gas processing business in the area. Niemiec had examined records produced by Enbridge and testified (without contradiction by Enbridge) that a plant on the property would process approximately 80 million cubic feet of gas per day, produce projected earnings from the liquids portion of that processing before interest, taxes, depreciation, and amortization (EBITDA) of $16,500,000 per year, and have additional income from other fees a plant operator would typically charge its customers. Industry standards for valuing processing plants ranged from 10 to 14 times EBITDA, so $16,500,000 in annual EBITDA would 4 yield a value of $165 to $231 million for the property with a plant on it. Niemiec estimated the property, absent Enbridge’s plant, would be worth $18 to $22 million to a buyer who could build a new plant on it for $50 to $52 million, secure the projected $16,500,000 EBITDA, and own an asset valued at $165 to $231 million that was producing annual EBITDA of approximately 22% to 23% on invested capital. His valuation was based only on the property’s projected ability to produce an income stream: Q: What do you think you and a group of investors in 2004, if you had known the site was leased and that the lease was expiring, would have been willing to pay for the 23.79 acres involved in this lawsuit? A: Having worked with a number of investors like Warburg Pincus and JP Morgan and various things, they have pools of money looking for investments. And what I said in my report, knowing what I know about the site and the lease, that we would be willing to put up a minimum of $18 million for the site knowing that this lease is expiring and knowing, as a knowing buyer, what I know about would have to be done to move this plant per the lease. Q: And did you say earlier that the range you thought was reasonable, from looking at it from that point of view, was 18 to 22 million? A: Yes. Q: Okay. Let’s assume that you had to pay the highest price, 22 million for the land. And how much would it cost to build a new plant on this site that’s already permitted and everything, got all the stuff going on? A: Well, it would be less than the $50 million . . . it would be less than the $52 million than [sic] I had before, so . . . . Q: What number, 51 million? A: 50. Q: One-and-a-half. So you would have 72 million in it, right? 5 A: Yes. Q: If you bought it for the cheapest, 18 million, you’d have - 18 plus 50 would be 68 million, and have a new plant sitting on this site; is that right? A: Yes, 68 million. Q: Would that tend to be a valuable proposition for any buyer? A: Yes. It cost you - it’d cost you 68 million, and you’ve got a value in the plant of 165 to 231 [million]. So that would be a valued proposition that somebody would want to do . . . . Q: Okay. I’m told by my lawyer that I didn’t make it clear that the 18 to 22 million is for the land only. A: Yes. Q: Not talking about you buying the old plant. And so if you bought the land only and the old plant went away, so you built you a brand new plant, you would still have between 68 and $72 million total in the property, depending on the range you paid for the land, 18 to 22, right? A: Yes. Q: Explain to this jury - maybe you have, but one more time, why would it make economic sense for anybody in the gas processing business to pay between 18 and $22 million to buy this site if - let me back up. If a tornado came along on April 6th at 11 o’clock at night and wiped this plant out, what kind of money would you be willing to pay, UP Fuels, people in the industry, for this site, even if the plant is gone? A: The - I’d still pay the 18 to $22 million. Q: Why? A: The way I think about it - and we can use the tornado, but that’s a way to just kind of lift it up and take it out of there so that we have the land at that time vacant. But the pipeline is coming in; the pipeline is going out; the air permits; the electrical power that’s there; the customers are all still there. So I would simply put a plant in 6 there. I would have to spend the money to do that, the $50 million, but the earnings off of these plants is enough to justify that. Q: Did you explain all of this to David Bolton? A: I did. .... Q: Would anybody knowledgeable in this business, in the gas processing business, anybody understand that it’s a heck of a bargain to buy this tract in . . . Avinger, Texas . . . to capture this kind of value and this kind of annual income? Even if it is in Marion County? A: They would--they would understand that, and they would see the value in that. The above passage, among others, makes it clear that Niemiec based his opinion of value on the property without Enbridge’s plant on it, and that his opinion did not take into account any value for Enbridge’s plant, Enbridge’s cost to remove the plant, or the property’s special value to Enbridge.