P&A has finalized the Section 23.175 calculation required to derive the oil and gas price escalation scenarios for the 2023 tax year.
The EIA’s price projections which form the basis of our Price Adjustment Factor calculations can be found at either https://www.eia.gov/outlooks/aeo/ or https://www.eia.gov/outlooks/steo/ depending on whether the AEO (Annual Energy Outlook) or STEO (Short-Term Energy Outlook) is applicable for the current tax year.
For 2023, the January STEO is the applicable EIA report.
The price escalatory factors for years 2-6 in our discounted cashflow appraisals are calculated with reference to Producer Price Index (PPI) Commodity Data information which can be found at https://data.bls.gov/cgi-bin/srgate Please search for series ID WPU0561 (for oil) or WPU0531 (for natural gas).
In addition, see how these factors produce P&A's reference price forecasts for oil and gas, with a comparison to the previous tax year's oil and gas price forecasts.
Please note, the oil and gas price forecasts for the current tax year may or may not be similar to those used for the previous tax year, for both oil and gas. However, it should be noted that the valuation of mineral interests depends on more than price alone. Forecasts of oil and gas production and expense levels as of January 1 also figure prominently into the calculations. Expense levels tend to follow price movement in a lagging (less volatile) fashion, while production tends to decline over time as a natural result of changing reservoir conditions (pressure loss, recovery percentage, etc.). Therefore, a price difference by itself does not fully indicate how current valuations will compare with valuations performed for any previous tax year.
As always, we welcome any thoughts or suggestions you have regarding our appraisal work, etc. We are here to serve the taxpayers in the most efficient, timely and fair manner possible.