Tax Monitor

Tax Commissioner publishes tentative 2017 Natural Resource Valuation Variables for Public Comment

July 13, 2016

On June 30, 2016, the State Tax Commissioner published the 2017 tentative natural resource property valuation variables developed by the State Tax Department for appraising natural gas, oil, coal, managed timberland and other natural resources for ad valorem tax purposes. The Tax Department will accept written public comments on the valuation variables until August 1, 2016.  Final valuation variables for 2017 will be filed in the State Register on or before September, 1, 2016.

Natural Gas and Oil. – The 2017 tentative valuation variables increased the Natural Gas and Oil Capitalization Rate from the 15.3% used in 2016, to 16.0% for next year, which if other factors remain the same should reduce working interest and royalty interest values of active wells by approximately 4.5%.  Also some changes were made to per acre oil and gas reserve rates for 2017.  These changes typically increase the per acre value of non-producing reserves in areas where recent drilling has taken place. In some recently active production areas, the values assigned to non-producing reserves were quadrupled from $25 to $100 per acre.

Coal. – The 2017 tentative valuation variables increased the Coal Capitalization Rate from 13.9% used in 2016 to 15.0% for next year, which if other factors remain the same should reduce active and reserve coal values by approximately 8.0%. In addition, metallurgical coal prices decreased from $103.35, in 2016, to $87.65 next year and steam coal prices decreased from $60.35, in 2016 to $58.86.  Finally, per ton metallurgical royalty rates decreased by almost a dollar, with the surface mining rate falling from $6.71 per ton in 2016 to $5.79 per ton in 2017 and deep mining royalty rate falling from $5.99 per ton in 2016 to $4.98 per ton in 2017. Per ton steam coal royalty rates also fell marginally between 2016 and 2017.

Managed Timberland. – Minor changes were made in managed timberland appraisal rates for 2017 which are not anticipated to significantly affect the appraised values of most managed timberland properties.

Other Mined Minerals. - The 2017 tentative valuation variables increased the Other Mined Minerals Capitalization Rate from the 12.8% used last year, to 13.1%, which if other factors remain the same should reduce the working interest and royalty interest values of active properties by approximately 2.3%.

If you are interested in discussing the tentative 2017 natural resource valuation variables or in filing a public comment, on or before August 1, 2016, please contact John Mairs.