Pipleline Valuation
Purpose of Valuation
- Oil & Gas Related Company: Merger & Acquisitions, Financial Modelling, Asset Project Valuation, Feasibility Study
- Financial Institutions & Investment Firms: FASB Financial Reporting, Financing, Value of an asset in any entity
- Legal & Tax: Economic Damages, Bankruptcy & Restructuring, Litigation Support, IRS Compliance Tax Reporting for Donation, Estate, Gift
- Government: Eminent Domain, Federal & State Land, Easement or Right of Way Appraisal
- Property Owner: Royalty Rate, Estate, Gift, Trust Planning
Valuation Methodologies:
Market Approach, income approach, and asset cost approach.
Each can be employed if the occasion calls or a combination of all can be used. We have found that value occurs with the interaction of demand for product, utility of product, scarcity or supply, and transferability of ownership rights.
Business Enterprise Valuation for Distriubtion - Income Approach Methodology:
This method is a popular means of establishing value for pipelines if they are generating or will generate a predictable cash flow. This method takes into account forecast income based on throughput volumes and transportation rates of the commodity transported. Expenses based on the historical or projected income stream are discounted. Another variation of this method uses multiples of current cash flow where the average annual cash flow is multiplied by a factor of five to twelve.
This can be done on annual or monthly basis much like values of oil and gas royalties are determined. Many like to correlate pipeline values to oil and gas mineral interests regarding value. Both can have an indefinite life and both can be reborn as new drilling or new discoveries are made in an area served by the line. These additional income streams can be discounted to find a present day value or in some cases when using future multiples of income.
Value Evaluation Criteria:
In addition to the appraisal methods, several factors must be considered when assigning value to a pipeline. These criteria cover the more technical aspects of business, physical, property and commodity value.
Some of these might include:
• Business Value – (1) throughput value transportation (income), (2) supply (other pipeline availability in area/scarcity), (3) demand (potential buyers and users), (4) potential for additional uses or more customers for product transported, (5) sales contracts or purchase guarantees (terms and length), and (6) management (front office and field).
• Physical Pipeline Attributes – (1) date of installation (vintage), (2) type of installation, (3) appearance of pipe, (4) method of construction, (5) salvage value after termination of usage, (6) type of system (oil, gas product, jet fuel), (7) size of pipe in pipeline (specifications), (8) interconnects (with other pipelines or supply sources), (9) amount of cover on pipeline, (10) pipe protection (coatings), (11) cathodic protection,
(12) type of system (trunk, gathering), and (13) records availability (alignment sheets, maintenance records).
• Tangible Property Value – (1)right-of way-agreements (basic contracts), (2) geography/terrain, (3) maintenance records, (4) appearance, (5) surface inventory (including appurtenances), (6) condition of equipment (scrubbers, compressors), and (7) congestion (urban or rural locale).
• Oil & Gas Commodity Value – (1) market price of commodity transported, (2) product source (well depths, reservoirs), (3) chemical content of product transported (gas liquids, corrosives), (4) proximity to markets, (5) diversity of suppliers, and (6) diversity of markets.
• Other Criteria - Size of pipe, Competenant Management, Interconnects, Environmental Concerns, Market Diversity, Proximity to Markets, Geography Terrain, Diversity of Suppliers
Interstate, intrastate, metering stations, compressor stations, separators, storage tanks, and right of ways all have to be considered in the valuation process. EPA regulations and pollution control exemptions also complicate matters. Our seasoned valuation advisors take deliberate steps to account for every variable and provide you with the most accurate valuation.
Whether regulated or non-regulated, oil, gas, or NGL's, our valuation advisors have an intimate knowledge of pipeline appraisal and use our extensive GIS database to accurately pinpoint pipeline mileage and locations.
New pipeline construction in North America ranges in the billions of dollars. While today's demand for energy makes shale and other deposits economically viable, they are not often located in areas where infrastructure exists or is necessarily adequate. The result is an increase in new pipeline construction.