2000 ANNUAL REPORT
TAX/LEGAL

Property Tax Committee Creates Inroads on Key Issues

The WSPA Property Tax Committee had a busy and successful year. Specifically, the committee, its subcommittees and member companies made inroads on two important issues in the property tax arena:

Memorandum of Understanding ("MOU") for the Determination of the Valuation of Oil Producing Properties in California – Through extensive negotiations, WSPA was able to reach an agreement with the assessors of the major oil producing counties in California (most notably Kern County) regarding the methodology used to derive an oil price forecast for property tax purposes for producing properties in California. The proposed price selection methodology is felt to be of major importance to industry, because it is an objective, verifiable formula that is mathematically determined, thus eliminating the subjectivity embodied in the Assessors' past oil price projections. The method will likely reduce the volatility of the Assessors' oil price projections.

The Illegal Assessment of Probable Reserves – The industry successfully defended its position that assessing probable and possible reserves for property tax assessment purposes is illegal. The purchase of the Elk Hills oilfield by Occidental in February 1998 thrust this assessment issue into the limelight. California assessment practices have long supported the industry’s position that the proper way to value oil and gas producing properties for property tax purposes is to determine the net present value of the income stream derived from the known quantity of proved reserves. However, the Kern County Assessor’s Office enrolled an assessment for the Elk Hills properties that included unproved reserves. Occidental appealed the assessment before the Kern County Assessment Appeals Board (AAB) and won. In November 2000, the Kern County AAB issued their Findings of Fact in support of the opinion of value, which was based on proved reserves. The County has appealed to Superior Court. If Occidental prevails, the County will have to decide if they want to take their case to the appellate court level.

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