A glimpse into property tax 'discussions'

[c1ue]

No idea what the 'fair' value ought to be, but this is an excellent example of the give and take between local governments and industry.

On the one hand, it is safe to say that this refinery has long since been paid off (?), on the other hand unclear how profitable it is or is not.

http://www.sfgate.com/cgi-bin/articl...#ixzz1qzcVJRGz

Chevron Corp. faces a higher property tax bill for its Richmond oil refinery after an appeals panel on Monday decided that the plant is worth more than either the company or Contra Costa County claimed.

The decision was an unexpected twist in a long-running argument between the county and the oil company over the refinery's taxes, a dispute that has badly strained their relationship.

Chevron has argued repeatedly that the county overestimates the value of the 110-year-old refinery, which has become the county's largest source of property taxes. On several occasions, Chevron has appealed the county's assessment. At one point, the company even won an $18 million refund, covering the years 2004 through 2006. Chevron appealed the decision, claiming the refund was too low.

On Monday, the county's Assessment Appeals Board decided that both Chevron and the county assessor underestimated the refinery's worth for the years 2007 through 2009. According to the board, the refinery in 2009 was worth $3.79 billion. The county had argued for $3.11 billion, while Chevron claimed the facility was worth $1.15 billion that year.

"The evidence presented at the hearing has led the Board to conclude that both the Assessor and Chevron USA have failed to substantiate a fair market value for Chevron's Richmond refinery," the three-member panel wrote in its decision. "It is accordingly incumbent on this Board to make its own determinations of the fair market value of Chevron's Richmond refinery, based on the evidence admitted at the hearing."

The board did not include an estimate of how much Chevron's taxes would rise as a result, and the company didn't provide an estimate of its own.

Contra Costa officials greeted the decision with surprise and satisfaction. Had the panel sided with Chevron and ordered another refund, the money would have come from city budgets already stretched thin.

"Public safety, libraries, fire, health and social services - all those would have been impacted," said county Supervisor John Gioia. "Clearly, it's a relief for local governments in Contra Costa."

Chevron spokesman Sean Comey said the company still wants to reach an agreement with county officials on a methodology for assessing the property's worth in coming years. Chevron, based in nearby San Ramon, has already appealed its property taxes for 2010 and 2011.

"We're disappointed in the decision, and we're assessing our options," Comey said. "We're committed to paying our fair share in taxes, but we need a fair and transparent process going forward."

The tax dispute has strained relations between Chevron and Contra Costa officials and residents, with many accusing the country's second-largest oil company of trying to skimp on its tax bill. Chevron made $26.9 billion in profits last year, a record for the company.

Chevron, for its part, accused County Assessor Gus Kramer of making up property values for the refinery without proper justification. According to the appeals board's written decision, one of the assessor's employees testified that Kramer dictated the values to him.

"The assessor personally offered no evidence to support the roll values he dictated," the board wrote.

After deciding that neither side had proved its case, the board devised its own property estimates, working with methodology from a consulting firm. The decision weighs such factors as the refinery's ability to process a wide range of crude oils and the potential impact of California's climate change laws on the oil industry.

[GRG55]

Re: A glimpse into property tax 'discussions'

No idea what the 'fair' value ought to be, but this is an excellent example of the give and take between local governments and industry.

On the one hand, it is safe to say that this refinery has long since been paid off (?), on the other hand unclear how profitable it is or is not.

http://www.sfgate.com/cgi-bin/articl...#ixzz1qzcVJRGz

First, like any complex petroleum facility, a refinery is never "paid off". Every year you have to rebuild large chunks of it.

Second, like any commercial asset the value has absolutely nothing to do with the cost...and everything to do with the value of the business. And the business of refining in the USA, and much of the developed world is extraordinarily difficult.

Although the sunk cost of this refinery is no doubt many $ Billions, the "market value" is nowhere near that.

To give an idea of what sort of valuations at which refinery businesses in the developed economies actually exchange hands; from an IHS year-end report:

"...Valero also acquired two refineries in 2011 — Chevron’s Pembroke refinery and other downstream assets in the U.K. for $730 million, and Murphy’s Meraux refinery on the U.S. Gulf Coast, for $325 million..."

At some point Contra Costa County will lose its "largest source of tax revenue" as Chevron's executives get over the emotional roadblock of shutting down or selling off a historic facility near its global headquarters.

Again, from IHS:

Murphy Oil, Sunoco, ConocoPhillips and Marathon announced exit from challenging refining business

...U.S.-based companies, including Murphy Oil, and independent refiner Sunoco, announced their planned exits from the refining sector in 2011, while ConocoPhillips and Marathon Oil elected to de-integrate their respective downstream operations“ said Cynthia Pross, senior analyst for M&A research at IHS and author of the report. “Faced with the prospect of continued low margins, decreasing fuel demand in the U.S., overcapacity, aging, inflexible facilities, and increasing environmental regulation, integrated oil companies have had to reevaluate their downstream business strategies. For some, the refining business no longer makes economic sense, so they are focusing on their more lucrative upstream operations, which have much better margins due to higher oil prices...

From Bloomberg:

ConocoPhillips Halts Refining Binge 10 Years Later

ConocoPhillips plans to spin off its refining business by the end of June to focus on so-called upstream projects such as drilling for crude and natural gas in Texas, Norway, China and the U.K., Mulva said yesterday... Analysts including Oppenheimer & Co.’s Fadel Gheit, who panned Mulva in 2001 at the start of his bid to amass a refining empire, now are praising him for admitting it hasn’t worked.

Mulva will retire when the spinoff is complete.

ConocoPhillips follows Marathon Oil Corp. (MRO), Chevron Corp. (CVX) and Exxon Mobil Corp. (XOM) in seeking to shrink or exit refining businesses. With 97 percent of its crude-processing capacity located in the U.S. and Europe, Houston-based ConocoPhillips’s refineries will face acute competition from new plants in emerging markets such as India that are closer to faster-growing markets such as China...

...For Marathon investors, the Houston-based company’s June 30 spinoff of its refining unit, Marathon Petroleum Corp., has been an unqualified win. In the six months since the separation was announced, shareholders have reaped a 28 percent return...

[c1ue]

Re: A glimpse into property tax 'discussions'

First, like any complex petroleum facility, a refinery is never "paid off". Every year you have to rebuild large chunks of it.

Second, like any commercial asset the value has absolutely nothing to do with the cost...and everything to do with the value of the business. And the business of refining in the USA, and much of the developed world is extraordinarily difficult.

Although the sunk cost of this refinery is no doubt many $ Billions, the "market value" is nowhere near that.

Thank you for the clarification. I had put in the question mark specifically because I did not know.

Can you elaborate on why the refinery business in developed nations is so difficult?

Is it due to regulatory issues? Profile of energy consumption by developed nation consumers? Cost of business? Oversupply/competition?

[think365]

Re: A glimpse into property tax 'discussions'

There are many measures of "value". One example is "market value", which may or may not be the same as "fair market value". Other measures of value include "strategic value", "hedonic value", "investment value", "property tax value", "future value", "present value", and so on, all of which may result in a wide variation of value determination for the same asset.

In this case, the market value of a fuel refinery amongst oil companies may be quite different (lower) than the strategic value of the same refinery to an airline company (higher).

In the case of Delta Airlines, seeking out an finding a mis-match in values between industries (essentially a timing difference during a structural shift) could turn out to be quite prescient, not to mention extremely profitable.

Delta Air Lines looking to acquire a Pennsylvania ConocoPhillips refinery for more than $100 million.
By msnbc.com staff report -April 4, 2012

Delta Air Lines is seriously considering the purchase of an oil refinery, CNBC's Kate Kelly reported on Wednesday.

This would be a first for a major airline. According to the report, the deal Atlanta-based Delta would pay between $100 million and $150 million for the refinery.

The refinery in question is in Trainer, Penn., and is owned by ConocoPhillips.

Airlines are struggling as jet fuel prices continue to skyrocket.

The deal is still under consideration by the Delta board of directors, according to the report.


Click below for Video Clip, approx. 3 min.

http://marketday.msnbc.msn.com/_news...-refinery?lite

[GRG55]

Re: A glimpse into property tax 'discussions'

There are many measures of "value". One example is "market value", which may or may not be the same as "fair market value". Other measures of value include "strategic value", "hedonic value", "investment value", "property tax value", "future value", "present value", and so on, all of which may result in a wide variation of value determination for the same asset.

In this case, the market value of a fuel refinery amongst oil companies may be quite different (lower) than the strategic value of the same refinery to an airline company (higher).

In the case of Delta Airlines, seeking out an finding a mis-match in values between industries (essentially a timing difference during a structural shift) could turn out to be quite prescient, not to mention extremely profitable.

Executives (and the idiot management consultants and investment bankers they hire at great expense to justify their crap decisions) always trot out the "strategic value" Powerpoint slide when they don't have a rational, fact-based argument to support their case.

The airline business is tough enough as it is. An airline company executive team that thinks it can improve its business prospects by purchasing another tough business, refining, ranks right up there with grouping sub-prime mortgages in the hopes of achieving a triple-A result.

If a petroleum company thinks the ROCE of the refining industry is unacceptably low, how on earth does an airline company management team think they can run that business any better?

Frankly, Delta would be better off buying an oilfield with long life reserves in the ground if they want a hedge. But the way to do that would be when fuel prices are low (and oilfield assets selling at severe discounts) and airline profits are high. But there are very few executive teams that have the ability to make a counter-cyclical decision.