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STATEMENT OF QUALIFICATIONS IN THE OIL AND GAS INDUSTRY

I. CORPORATE PROFILE

ACG is a national leader in valuation, economic analysis, and tax consulting. We have offices in California, Texas, and New Jersey, from which we serve an international clientele. Our organization is founded on the principles of:

  • Providing the highest quality independent analysis and support.
  • Utilizing a technical staff composed entirely of established, senior consultants.
  • Offering multidisciplinary solutions to complex problems.
  • Maintaining straightforward, responsive client relationships.

We maintain a staff of economists, engineers, CPA's, finance experts, and lawyers who work together to provide complete solutions to difficult and complex client problems. Our major practice areas are financial analysis: financial, economic, and tax analysis, including valuation of business enterprises, tangible and intangible assets, and financial instruments, and solvency and fairness opinions; transfer pricing for federal tax purposes; cost segregation analysis of construction for federal tax purposes; property tax representation, including analysis of economic and technological obsolescence; and minimization of sales and use taxes. Our clients are primarily multinational corporations, large U.S. corporations, law firms, financial institutions, and government agencies. We have the distinction of representing the Internal Revenue Service (the Service) on many issues regarding valuation, taxation, and transfer pricing, where we develop methodologies, conduct analyses, and provide litigation support.

II. INDUSTRY OVERVIEW

Approximately 85 percent of the energy we consume comes from three major sources: oil, which is #1 in terms of energy consumption; natural gas, #2; and coal, #3. The oil industry, composed of integrated oil companies and oil field equipment and services companies, as well as pipelines, refineries, and resellers, produces the crude oil that is converted to gasoline, heating fuel, jet fuels, and more.

Today's $850 billion integrated petroleum industry is commanded by the oil majors that not only explore for oil but refine and market it as well. These companies are restructuring and merging operations to compete in a tougher business environment. All told, there are just over 20 major oil producers and refiners that serve the U.S. and approximately 40 major worldwide petroleum companies, though hundreds of small, independent exploration and production firms account for about three-fourths of well completions.

Natural gas is used to fuel factories and electric utilities and heat homes and businesses, bringing in more than $46 billion in revenues to pipeline companies and utilities. Previously strictly regulated for prices, the industry is now learning to compete. Before 1978, producers sold natural gas to pipeline companies, which in turn sold it to gas utilities, known as local distribution companies (LDCs). Wholesale gas pricing was freed by the Natural Gas Policy Act of 1978, and pipelines were deregulated and "unbundled" in 1986 and 1992, respectively, by the Federal Energy Regulatory Commission. The LDC is now a monopoly, but states are looking here as well with an eye to customer choice. The result of deregulation is that the gas marketer has assumed great weight in the industry.

Coal makes about $19 billion in revenues, and although coal no longer heats many homes, it has almost made up the difference by fueling electricity-generating plants. The real opportunity now lies overseas, in developing countries that are just beginning the electrification process. With a billion tons in annual output, the U.S. coal industry is #1 in terms of energy production (followed by natural gas, then oil), and unlike the oil and gas industries, it exports more than it imports. Major U.S. coal companies are purchasing smaller companies to better to compete with global companies.

III. SERVICES TO THE OIL AND GAS INDUSTRY

ACG understands many of the complex issues and challenges presented to corporations in the face of expansion, rapidly advancing research and technology, and an increasingly competitive marketplace. We have an excellent and thorough knowledge of the oil and gas industry, including extensive experience in valuing their assets and businesses. We believe that we have analyzed and valued more oil and gas industry assets and equities over the past ten years than any other valuation company. Our range of services include:

  • Purchase price allocations and step-up in basis for federal tax and accounting purposes, as well as international withholding tax.
  • IRC §482 Intercompany Transfer Pricing.
  • Acquisition and divestiture pricing.
  • Determination of capital gains.
  • IRC §864(e) Interest Expense Attribution.
  • Fairness opinions, solvency opinions, and due diligence.
  • Quantification of economic and technological obsolescence for property valuation and property tax purposes.
  • Quantification and separation of intangible values from real property values for property valuation and property tax purposes.
  • Valuation of closely held corporations for owner buy-out or other reasons.
  • Cost segregation studies to maximize federal tax depreciation for both newly constructed, remodeled, and acquired facilities.
  • Review of sales, use and other excise tax payments, designed to discover overpayments and obtain refunds and credits for them.

IV. INDUSTRY EXPERIENCE

ACG has been serving companies in the oil and gas industry for nearly thirty years. A small sampling of current and recent projects appears below. All engagements required expertise in the valuation of tangible and intangible assets.

  • Valuation consultation for one of the world's largest oil and gas companies. ACG has valued this company in its entirety, including all underlying worldwide tangible and intangible assets, for the past ten years.
  • Valuation for one of the world's largest oil and gas company's economic interests in concessions located in Latin America, Europe, and the Middle East.
  • Appraisal of a Texas-based electric utility's equity interests in Peru and Pakistan.
  • Valuation studies for a major petroleum company which operates in the U.S. and in 100 other countries involved valuation and updating the analysis relating to the company's research organization.
  • Valuation consulting for one of the country's largest propane companies to allocate the purchase price in their acquisition of assets from another propane gas company. The valuation included retail stores, a propane cylinder exchange business, underground propane storage facilities, and propane pipeline.
  • Analysis of a joint venture of two leading petrochemical companies, providing a valuation of We valued the underlying assets of this venture, which included exploration and production, transportation and distribution, refining, and marketing assets.
  • Valuation of the downstream operations for a major, privately-owned, energy company. We were retained at the request of the Justice Department to determine the value of the company's operations west of the Mississippi, including the refining, marketing, and pipeline assets, that were part of an acquisition.
  • Valuation consultation for a Fortune 500 oil & gas refining & marketing company based in Texas to allocate the purchase price in their acquisitions of underlying assets of a petroleum company and refinery assets from one of their main competitors. We provided optimal supportable values for federal tax, financial accounting, and ad valorem purposes.
  • Analysis of the global assets of one of the world's largest integrated oil companies before it was recently acquired. We derived values of all operations for management advisement in federal income tax-related matters.
  • Analysis of a major international oil & gas exploration & production company's geological and geophysical services, for federal tax purposes. Our study encompassed services from Texas to its international exploration sites.
  • Valuation consulting services for a leading US-based integrated oil company before it was recently acquired, relating to West Coast property for ad valorem tax purposes.
  • Valuation of more than 50 oil refineries of the approximately 170 domestic facilities, for property tax and purchase price allocation purposes.
  • Valuation of one of the largest independent refiners and retailers of petroleum products. The analysis was conducted for the sole purpose of providing an opinion as to the fair market value of the total capital.
  • Review and analysis of an appraisal report on behalf of a large diversified energy holding company for a major law firm.

Excise Tax Consulting (Extax®) Services. ACG's programs for controlling and recapturing sales and use tax overpayments have been highly beneficial for many clients. In addition, when our clients are confronting an audit situation, ACG can provide an Extax® Audit, an audit and refund support service that works in tandem with our standard Extax® review.

V. WHY ARTHUR CONSULTING GROUP?

In addition to our high quality and responsiveness, ARTHUR CONSULTING GROUP offers several unique advantages...

  • We are independent, and free of any perceived or actual conflict of interest which may occur when an accounting firm is placed in the awkward position of auditing its own consulting and valuation work.
  • We employ only seasoned professionals who are personally involved in analysis. We do not pyramid on large junior staffs who have neither the training nor the experience to address the complex and technical issues on which we focus.
  • Because of the great skill and experience of our senior people, we believe that we work much more effectively and efficiently than other firms, which keeps our prices reasonable and greatly reduces our time demands on our busy clients.
  • Our company is truly multidisciplinary. Because we target complex issues, it is essential that we have broad understanding of technology, industry and competitive dynamics, business practices, tax, and accounting, not just a narrow appraisal or accounting-oriented view. We do not merely have a variety of backgrounds, we actually bring them to bear on client issues by assigning multidisciplinary teams to projects, and by having open channels of communication within the firm. Because our top principals are actually doing the work, and not just managing, we believe that we have an exceptionally high level of intellectual interest and interchange on behalf of our clients.
  • We are a single corporation working under a single vision and quality oversight, not a series of semiautonomous partnerships, franchises, or affiliations who lack coordination and who vary widely in quality of work product.

For these reasons, we genuinely believe that we offer the highest quality, most client-responsive, and best valued work in the industry.

 

 

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