1. Ad Valorem Tax Appraisal Symposium Friday, May 15, 2015 Cotulla, Texas

2. 2 Who is Pritchard & Abbott? Professional appraisal and information services consulting firm Founded in 1926 to serve a public need Engineers, geologists, accountants, computer programmers and other professionally degreed personnel Over 100 Texas County Appraisal District clients Thousands of Texas taxing entities (counties, schools, etc.) Numerous out-of-state clients 100% employee-owned company Fully integrated firm able to satisfy ALL your property tax needs

3. Appraisal Services Specialize in Complex “MIUP” Properties –Minerals –Industrial –Utility –Personal Property Real Estate –Local residential –Business commercial –Agricultural 3

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5. 5 E A G L E F O R D S H A L E

6. COUNTYCRUDE OIL (BBLS)COUNTYTOTAL GAS (MCF) 1. KARNES6,312,2421. TARRANT47,456,769 2. LA SALLE4,062,8642. WEBB47,195,061 3. DEWITT3,174,8173. PANOLA25,830,804 4. MCMULLEN2,811,0714. DIMMIT21,321,380 5. ANDREWS2,749,5225. JOHNSON20,999,335 6. GONZALES2,736,3506. WISE17,396,196 7. MIDLAND2,666,9417. KARNES16,817,865 8. MARTIN2,587,7418. DEWITT15,999,531 9. UPTON2,575,9849. DENTON14,475,541 10. ECTOR2,087,00910. LA SALLE12,530,817 TOP TEN OIL AND GAS PRODUCING COUNTIES - RANKED BY FEBRUARY 2015 PRELIMINARY PRODUCTION* 6 *Source: Texas RRC website, Texas Monthly Oil and Gas Statistics

7. THE TEXAS CONSTITUTION ARTICLE 8. TAXATION AND REVENUE Sec. 1. EQUALITY AND UNIFORMITY; TAX IN PROPORTION TO VALUE; INCOME TAX; EXEMPTION OF CERTAIN TANGIBLE PERSONAL PROPERTY FROM AD VALOREM TAXATION. (a) Taxation shall be equal and uniform. (b) All real property and tangible personal property in this State, unless exempt as required or permitted by this Constitution, whether owned by natural persons or corporations, other than municipal, shall be taxed in proportion to its value, which shall be ascertained as may be provided by law.

8. Property Tax Code, Appraisal Methods Sec. 23.01. Appraisals Generally. (a) Except as otherwise provided by this chapter, all taxable property is appraised at its market value as of January 1. (b) The market value of property shall be determined by the application of generally accepted appraisal methods and techniques. If the appraisal district determines the appraised value of a property using mass appraisal standards, the mass appraisal standards must comply with the Uniform Standards of Professional Appraisal Practice. The same or similar appraisal methods and techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon the individual characteristics that affect the property’s market value, and all available evidence that is specific to the value of the property shall be taken into account in determining the property’s market value.

9. Property Tax Code, Definitions Sec. 1.04. Definitions. In this title: (1) ‘‘Property’’ means any matter or thing capable of private ownership. (2) ‘‘Real property’’ means: (A) land; (B) an improvement; (C) a mine or quarry; (D) a mineral in place; (E) standing timber; or (F) an estate or interest...... in a property enumerated in Paragraphs (A) through (E) of this subdivision.

10. Property Tax Code, Appraisal Methods Sec. 23.0101. Consideration of Alternate Appraisal Methods. In determining the market value of property, the chief appraiser shall consider the cost, income, and market data comparison methods of appraisal and use the most appropriate method. (Enacted by Acts 1997, 75th Leg., ch. 1039 (S.B. 841), § 22, effective January 1, 1998; am. Acts 1999, 76th Leg., ch. 1295 (S.B. 1641), § 1, effective January 1, 2000.) Limited to just one?

11. Income Approach Used for all types of income-producing properties (office buildings, retail, multi-family structures, hotels, mineral interests, commercial salt water disposal wells, refineries, gas distribution, regulated pipelines, railroads, telecom, electrical generating (including wind farms) and chemical/industrial plants, etc.) Income being analyzed is all about the FUTURE! Past income can be useful as a guide. However, “past performance is no guarantee of future results.” (Oil price in 2015 vs. 2014, for example) Two basic techniques: Direct capitalization (V = I / R) (Income must be stable.) Discounted Cash Flow (DCF) (allows for variable future income) Gross Rent Multiplier or Payout is simple “back of the envelope” indicator of value.

12. 12 Appraisal of Mineral Interests Real Property per Property Tax Code Sec. 1.04(2) (Definitions) Real Property per Property Tax Code Sec. 1.04(2) (Definitions) Income Approach to Value Income Approach to Value –Discounted cash flow (DCF) –All projected future net income discounted (reduced) to present worth (FMV) –Four main parameters: Production Production Price Price Expense Expense Discount Discount = Gross Revenuetimes = Net Revenue = Fair Market Value! less

13. Simplified DCF Appraisal (RI) 13

14. 14 LA SALLE COUNTY, TX Projected future production by La Salle CAD (first six years only).

15. 15 First month avg: 635 boe per day First year decline ~ 65% ~610 mboe reserves (30+ years)

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18. 18 Loss of income and value

19. DISCOVERY: Publications / Vendors 19

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21. 21 Thank You for choosing P RITCHARD & A BBOTT, INC. for all your property tax needs! www.pandai.com VALUATION CONSULTANTS