County ARB denies Kinder Morgan reappraisal request

The Scurry County Appraisal Review Board (ARB) denied a request from four county taxing entities to reappraise the mineral values for Kinder Morgan.
During a nearly three-hour hearing this morning, attorney D. Brent Lemon said the four taxing entities — Scurry County, Snyder ISD, Western Texas College and Scurry County Hospital District — wanted the values for Kinder Morgan reappraise because of an $84 million input error of valuations in 2016.
After hearing the testimony and reviewing evidence from Lemon and the Scurry County Appraisal District (SCAD), the board voted unanimously, and without discussion, not to order a reappraisal. Lemon said during the hearing that if the request was denied, the next step for the entities would be to file a lawsuit in district court.
“We are not asking for a complete reappraisal. We are wanting to focus on the real issue,” Lemon said. “It all started with an $84 million error. That is a lot of money. I don’t know of anyone in this city, county or state that would make an $84 million error and still be employed.”
Lemon asked Chief Appraiser Larry Crooks why he still had Thomas Y. Pickett and Company under contract after the mistake was discovered. Crooks said the SCAD’s board of directors makes that decision and when it was first brought up, it would be too late to bring another company in to conduct mineral appraisals.
Lemon said he wanted figures from Pickett that were used to determine Kinder Morgan’s mineral values from 2013-17 as well as this year. However, ARB attorney Roy Armstrong quoted from the state tax code, noting a board “cannot pick on a certain taxpayer,” but must consider the entire category, in this case oil and gas values.
Lemon said a review by his expert showed that among the top three oil producers in the county, only Kinder Morgan showed a wide variance in what was reported by Pickett and filings available publicly through the SEC and Railroad Commission of Texas.
“The taxing unit is entitled to see what the underlying documents say,” Lemon said. “We came up with certain numbers. What we don’t have and has been resisted aggressively is the underlying data to come up with those numbers.”
According to figures from Lemon, his expert, who was not in attendance, believed Kinder Morgan should have had mineral values totaling $17.4 billion over the five-year period, but only paid on valuations of $3.2 billion. Lemon said that resulted in Scurry County losing $283 million in mineral taxes that should have collected.
“I did not bring my expert to this hearing because we do not have the underlying documents. If we had those, we could do a comparison for you,” he said.
Lemon told the ARB that the burden of proof should be on the appraisal district to show there was no omission, but objected to them providing information. However, SCAD’s attorney Kirk Swinney was able to address the board and began asking Lemon questions. Lemon said he was not in attendance to be cross-examined, but did answer the questions.
Swinney focused his questions on the possibility of a fraud occurring in the Kinder Morgan office and Lemon continued to say if the numbers were provided he could confirm that happened. Swinney also asked Lemon what numbers not available in public filings were used by his expert.  Lemon said of the discount number used, he did not know its origin, but others came from public filings.
Swinney said he would not recommend SCAD providing the information requested because it had been deemed confidential by Kinder Morgan.
“It would be a criminal offense to reveal those documents,” he said. “We have produced what is public. What we have not heard is that Kinder Morgan or any other company has defrauded the appraisal district.”
Swinney then began questioning Steven Campbell, president of Thomas Y. Pickett, about the appraisal process. Campbell said the state Comptroller’s office does audits or appraisals each year and that is how the 2016 input error was discovered.
Campbell also told the board that the production price used is obtained from the Railroad Commission and the production cost is obtained from the Comptroller’s office. Expenses by a company begins in his office because of the years of experience he has setting values. That is only the starting point and he said he does use numbers provided by the company. However, some non-essential numbers may not be used, but he did not elaborate.
Campbell was also asked how several of his values compared to the Comptroller’s audit and most were below 5 percent of each other while at least two were 20 to 25 percent off.
“You can have appraisers have differing opinions,” Campbell said. 
He also was asked about two specific valuations in bordering counties. His company performed the appraisal in Lamb County for a lease that is in Abernathy ISD. His valuation was $83.5 million while Pritchard and Abbott performed the valuation for Hale County on the same lease and came back with a $73 million valuation.
The Denver Unit is in both Gaines and Yoakum counties. In Gaines County, Pickett valued the unit at $746 million while Capitol Appraisal Group valued the unit at $797 million.
Swinney directly asked Campbell if he owned any interest in an oil company.
“I don’t own any stock in any oil company,” he replied.
If he was aware of any fraud, Campbell said he “would notify the appraisal district immediately.”
Lemon was then allowed to question Campbell and asked why he thought his company was still contracted by SCAD.
“We have a long history of working with the Scurry County Appraisal District and of being professional,” he said.
Lemon then asked if Campbell and his team used the state-mandated formula in determining values. Campbell said the entire formula is used.
“Do you think there is a fudge factor” in the formula, Lemon asked.
“I do not fudge,” Campbell said. 
Lemon’s question was referring to an email Campbell wrote several years ago when he used the word “fudge” to describe a situation.
Lemon asked why Pickett does not use the Comptroller’s discount rate number in determining valuations.
“The Comptroller’s discount rate is available in September and we have to certify in July,” he said. “It is impossible to use the Comptroller’s discount rate.”
Lemon also questioned Campbell about “omitted properties” in Pecos County. Campbell said that was not true.