What Is The Value Of Your Pipeline?

By David Howell, Senior Right-Of-Way Agent, Houston, TX | May 2010 Vol. 237 No. 5

Multiple pipelines in a right-of-way corridor.

Placing a value on a pipeline is a specialized process. The combination of methods used to determine the value or a pipeline or gathering system is unlike any other type of appraisal. Furthermore, no two pipelines are precisely the same. The unique methods described here are based on several years of observing the way a pipeline owner looks at a pipeline and the right-of-way in which it rests.

When placing a value on a proposed or existing pipeline system, several factors are considered by the author beyond the “across-the-fence” (ATF) method. The ATF method - used by many to assign a value to a pipeline right-of-way (ROW) - assumes that the ROW is worth whatever the surrounding land is worth. The ROW is the real estate where the pipeline lays. It is one of the factors in appraisal of the entire system.

The author saw the need to find or devise appraisal methods that are suited specifically to the pipeline industry when he was asked to put a value on pipeline salvage jobs. Among owners, the need for a fair pipeline appraisal methodology arose when it was discovered that pipelines were being overvalued by local taxing authorities and were being overvalued or undervalued during mergers, acquisitions and estate settlements. A valuation report concerning an active or inactive oil, gas, or product pipeline may be needed for one or more of the following reasons:

  • Preparing for a sale or divestiture.
  • Readjusting state, local, ad-valorem taxes/tax assessments.
  • Estate settlement.
  • Partnership termination.
  • Preparing for a purchase or acquisition.
  • Determining salvage value.
  • Preparing for pipeline use conversion.
  • Establishing value for accurate accounting.

Appraisal Methods
The author’s company uses a combination of methods to determine the value of a pipeline. We have found that value is a quantification of the interaction of demand for the property, utility of the property, the scarcity or supply of the property and the ease of transferability of ownership rights to the property.