'That's how the game is played'
July 29, 2022
Since 2016, Woods County has been in litigation with DCP Operating Company LP, and recently Targa Pipeline Mid-Con West OK has been added to the list of oil and gas companies protesting their tax valuations. Jerry Wisdom of TASC (Total Assessment Solutions Corp.), who is a consultant to Woods County, says it feels like “Ground Hog Day” – Year 7, referring to the movie by that name with the same sequence repeating over and over.
On Wednesday, July 20, the Woods County Equalization Board with members Joe Shirley, Chris Olson and Bob Seivert held a public hearing on tax protests by Targa, DCP and two Alva hotels. Also present for the public meeting were County Clerk Shelley Reed, County Assessor Renetta Benson, Cindy Tomberlin from the assessor’s office and Wisdom.
Property owners have a 30-day window in which to file an informal protest of the county assessor’s valuations. A meeting is scheduled with the assessor, and if they can’t come to an agreement, the property owner has 15 days to file a formal protest with a notarized affidavit.
Targa Protest Considered
First to be considered was Targa. Woods County’s initial notice of valuation was $308,178,037. Through a formal hearing, that value was revised to $246,118,324 based on additional information provided by Targa. No one from Targa attended the July 20 hearing, either in person or by phone.
Wisdom said Targa retains the services of KEA (KE Andrews and Company). According to KEA’s website, “We are not just a compliance firm. We go after every opportunity to return revenue to your bottom line. Our aggressive but fair approach has been a hallmark of our organization since inception.”
The KEA opinion of market value for Targa is $51,807,536 and their opinion of the income approach is $75 million. KEA does not feel an increased value is warranted for 2022, according to information provided to the board.
“Last year we (Woods County) were at $268 million, and this year we’re at $246 million,” said Wisdom. “That is an 8.21 percent decrease over values that were not settled in 2021.”
He told board members that Targa pared down their assets to $152 million across multiple counties including Alfalfa, Blaine, Dewey, Grant, Garfield, Kay, Kingfisher, Major, Woods and Woodward. He said they impair their values due mainly to utilization and income.
“So this year Targa West only generated $26 million, not just in one county,” said Wisdom. “If we were to do an income approach to value with a 12 percent cap rate (capitalization rate), that puts Targa at $220 million with Woods (County’s) portion at $75 million.”
However, Wisdom had several issues with Targa’s valuation as presented by KEA. One is that interest was included as an expense, but historically earnings should be based on EBITDA (earnings before interest, tax, depreciation and amortization).
He said the major players in the oil and gas industry have an average of 133 percent year to year or 133 percent more in income than they did the previous year. “Targa has 144.45 percent. It’s not the largest in the group, but that is the answer,” said Wisdom.
According to Wisdom, Targa’s opinion of market value from KEA was $163,996,680 in 2020 while “their opinion today is $27,021,912.” In 2021 they dropped their opinion of value to $17,115,128, and that year’s valuation is currently in litigation. Wisdom said, “In 2021 their opinion (of market value) went from $163,996,680 (in 2020) to $17,115,128.” He said this resulted in approximately $2.6 million in taxes being tied up in litigation in Woods County.
“They are tying up the tax dollars in escrow that should be going to the schools in their business practices,” Wisdom said. When taxes are protested, they are paid to the county but the protested amount goes into an interest-earning escrow fund until the protest is settled.
‘That is how the game is played’
“What have they determined is so much less?” asked Shirley.
Wisdom says KEA is following the lead of Scott Crisler who represents DCP. “In 2019 DCP hired Mark Andrews (current president of KEA) to do their court cases for DCP across the state. He got to see confidential information saying how DCP was protesting such a small value to tie up the litigation and settling for a little less, thus reducing the taxes,” he said. “In 2018 DCP and Major County settled a lawsuit. In Major County the lawsuit settlement was $58,750,000.”
“The board of equalization asked, ‘How does the fair market value drop 64.25 percent in 45 days?’” said Wisdom. He quoted Crisler as saying, “That is how the game is played.”
“This is a game. This is a business practice by now KE Andrews because he’s modeled his information from what DCP was doing,” Wisdom. He stressed again that tying up these cases in court is hurting the schools.
Returning to Targa’s income statement, Wisdom said depreciation and amortization are not allowable expenses to do the income approach to value so $23 million more should have been included. “Basically that would have doubled his value (from $26 million). If he doubled his value, now his value for the county on the income approach would be $150 million,” he said.
Wisdom also went online to look at Targa’s WestOK 10K filed with the SEC (Securities and Exchange Commission). He learned that their average fee rate in 2020 was 74 cents per mcf. In 2021 their average fee rate is $1.08. “That’s a tremendous increase in the margins year over year,” he said. “So while his margins went up, his value only increased a little bit from his other information.”
According to Wisdom, there are three approaches to value: cost approach, sales approach and income approach. “So we look at all three each year, but if we do not get the income and expense data, we can’t do that,” he said. “What we have been doing is extracting the revenues from their 10K, their SEC 10K, and trying to allocate that down.”
Wisdom went through more calculations from a written report he provided to the board. Comparing the situation to the recent Epic audit and investigation, he said, “I would ask this board to make a motion to turn this information over to the district attorney and ask for a grand jury investigation into the practices or the valuation and how they are submitting them under oath. They’re not supported.” He said Alfalfa, Beaver and Carter counties have already done this, and he expects more to follow.
Public Meeting, Confidential Information
“All of this information that we have is under confidentiality,” Wisdom stated. “We cannot get this out into the public information. While we have the newspaper here that can do that, we can’t give them this information,” he added.
“If this is a public meeting, how come our information that you’ve presented in this meeting that we have right here, how come that can’t be identified and used?” asked Olson.
“The statute says that anything given to the board will be held in confidence,” said Wisdom. “I think that certainly could be challenged.”
He said, “There’s a total of $12 million (in tax dollars) in these four counties up here (Alfalfa, Grant, Major and Woods) that’s being withheld from schools by, my opinion, how the game’s played. They need to be investigated. They need to be exposed for what they’re doing.”
If the protesting property owner does not agree with the equalization board’s decision, the matter will continue to district court.
Seivert made a motion to affirm the value determined by the county assessor, seconded by Olson. All three board members voted in favor.
Seivert then made a motion to submit the matter to the district attorney and possibly a grand jury. Again Olson seconded, and the motion carried 3-0.
Look for a story about the remainder of the tax protest hearing in Sunday’s edition of the Alva Review-Courier. A video of the entire meeting may be viewed at http://www.AlvaReviewCourier.com.