N.Y. Real Property Tax Law § 592: Determination of unit of production values

§ 592. Determination of unit of production values. 1. (a) The

commissioner shall annually develop one or more economic profiles for

gas and one or more economic profiles for oil for use in the

determination of unit of production values. The establishment of more

than one economic profile for either gas or oil shall be based upon

common factors such as geologic formation, geographic region, economic

and cost characteristics of such profiles and such other criteria as the

commissioner may deem appropriate.

(b) At least forty-five days prior to the tentative roll date each

year, the commissioner shall establish a tentative unit of production

value for each economic profile and shall provide to appropriate local

officials and industry representatives notice of the tentative unit of

production values. The commissioner shall conduct at least one public

hearing to receive comments on the tentative unit of production values.

At least fifteen days prior to the tentative roll date, the commissioner

shall certify to each assessor appropriate unit of production values for

use in the assessment of oil and gas economic units.

(c) Unit of production values shall be based upon the average of

typical income, expense and operating data for five consecutive calendar

years beginning with the sixth calendar year preceding the year in which

the unit of production values are to be certified. In determining unit

of production values, the commissioner shall use a discounted net cash

flow approach in which gross income shall be reduced by the following:

operating expenses; landowner royalty payments, which the commissioner

shall deem to be the value of one-eighth of the economic unit's

production; and other costs, if any, such as overriding royalty

interests not retained by the owners of the working interest, additional

capital investment required, depletion and depreciation. In determining

the unit of production values, the minimum discount rate or rates

applied by the commissioner shall be the sum of (1) the average of the

discount rates established by the United States federal reserve board on

the first business day of each month for each of the five calendar years

upon which the economic profiles are based and that precede the year in

which the unit of production values are to be certified, plus (2) a

seventeen and one-half percent factor to account for risk, nonliquidity,

management, real property taxes, intangible drilling costs and income

taxes.

2. For the purpose of developing economic profiles and determining

discounted net cash flow, the commissioner may require producers to

submit statements of income and expenses related to the economic units

for five consecutive calendar years beginning with the sixth calendar

year preceding the year in which the unit of production values are to be

certified. Such statements of income and expenses shall consist of

information usually kept in the ordinary course of business. This

subdivision is not applicable to producers of one thousand barrels of

oil or two hundred million cubic feet of gas per year or less.

3. The commissioner shall promulgate rules establishing the

methodology for determining unit of production values pursuant to

subdivision one of this section. Such rules shall include a description

of the economic data to be compiled, the method for their compilation

and a delineation of the process to be followed in applying the

discounted net cash flow methodology. Such rules shall provide that,

subject to the availability of suitable economic data, the establishment

of unit of production values shall take into account and reflect varying

economic and operating conditions and characteristics.