Assessor’s Discretion in Valuation: Balancing Purchase Price, Trending, and Depreciation in Complex Oil and Gas Property Assessments

Introduction

The case of Contango Resources, LLC v. Fremont County, Wyoming (2025 WY 29) presents a crucial decision on the methodology employed in determining the taxable value of oil and gas production and processing facilities. At issue was the manner in which the Fremont County Assessor, supported by an expert appraiser, determined the property’s fair market value rather than relying solely on the actual purchase price provided in a Purchase and Sale Agreement (PSA). Contango Resources, the appellant, challenged the assessment on two primary counts: first, that the assessor improperly rejected the PSA purchase price as the starting point for valuation; and second, that the trending and depreciation factors used were inconsistent with state-prescribed standards. Fremont County, as the appellee, defended its assessment methods, and the Supreme Court of Wyoming ultimately found substantial evidence supporting the county’s approach.

The background involves a multi-faceted property acquired in a closed bidding process, representing both complex and less complex portions of oil and gas-related assets. The PSA, which allocated a purchase price of $67 million among various assets without granular detail, became the crux of the dispute when Contango argued that the assessor’s reliance on independent renditions and alternative valuation methodologies led to an inflated assessed value of approximately $190 million as compared to Contango’s claim of $214 million.

Summary of the Judgment

The Supreme Court of Wyoming affirmed the decisions of the Fremont County Board of Equalization, the State Board of Equalization, and the district court. The court held that the County Assessor’s method of valuing the property, which involved:

Using detailed, itemized renditions provided by Contango, establishing historical cost as a valid starting point;
Exercising discretion in rejecting the PSA purchase price as the sole basis for valuation in a non–open market transaction resulting from a closed bid;
Applying credible trending and depreciation factors, even though they differed from the Department of Revenue recommended tables;

was supported by substantial evidence and in accordance with the law. The Court specifically noted that the presumption in favor of the assessor’s valuation was not defeated by mere differences in opinion regarding value, especially in light of the ambiguity presented by the Allocated Value Schedule and the lack of further explanation from Contango.

Analysis

Precedents Cited

The judgment cites several key precedents that illuminate and support the Court’s decision:

THUNDER BASIN COAL CO. v. CAMPBELL COUNTY – This case emphasized that the County Assessor must adopt a rational appraisal method that is equally applied and results in essential fairness, a principle relied upon in affirming the current valuation method.
Mountain Vista Ret. Residence v. Fremont County Assessor – Reinforced the presumption in favor of the assessor’s values, thus placing the initial burden on the appellant to overcome this presumption with credible evidence.
Union Pacific R.R. v. Wyo. State Bd. of Equalization – Provided guidance on circumstances in which a closed bid process does not necessarily reveal fair market value, justifying the assessor’s dismissal of the PSA sale price as the sole determinative factor.
Helmut J. Mueller Ltd. Partnership v. Treanor – Addressed the shifting burdens in proof necessary to overcome the presumption favoring an assessor’s valuation.

These precedents influenced the appellate court’s approach regarding the use and interpretation of the cost approach and the legitimacy of relying on historical data supplied by the taxpayer.

Legal Reasoning

The court’s legal reasoning revolved around two central issues: whether the assessor’s rejection of the PSA purchase price as a starting point for valuation was supported by substantial evidence, and whether the application of trending and depreciation factors, drawn from credible external sources rather than those prescribed by the Department of Revenue, was lawful.

In addressing the first issue, the Court explained that the Property Manual anticipates a range of acceptable starting points in the cost approach – including historical cost, which was used by the assessor. The fact that the property was acquired through a closed bidding process further diminished the persuasive value of the PSA purchase price as an indicator of fair market value. Instead, the record showed that the assessor relied on detailed, itemized renditions that were consistent with generally accepted appraisal practices.

On the second issue, the Court upheld the county board’s decision by noting that the Department of Revenue’s guidelines allow for the use of other credible sources when establishing trending and depreciation factors. The expert’s choice to rely on data from sources such as Marshall & Swift and industry-specific studies was not considered arbitrary, as long as the sources were credible and the factors applied led to a rational valuation outcome.

Impact

This Judgment has significant implications for future property tax assessments, particularly in the oil and gas sector. It reinforces that:

The assessor’s discretion in selecting a starting point – be it historical or acquisition cost – is permissible when the taxpayer’s submitted data does not integrate seamlessly with market evidence, especially in closed bid transactions.
Divergence from department-recommended tables is allowable provided the appraiser relies on sound, credible evidence and expert judgment. This may encourage more flexibility in valuation methods and may prompt further guidance on what constitutes “credible sources” in trending and depreciation analyses.
Taxpayers challenging valuations bear the burden to supply alternative appraisal data that meaningfully contradicts the assessor’s approach. Mere differences of opinion on value are insufficient to overturn assessments.

Overall, the decision underscores the importance of a balanced, evidence-based approach in property valuations for tax purposes, and it may serve as a precedent in disputes involving complex asset valuations.

Complex Concepts Simplified

A number of technical and complex legal and appraisal concepts are at play here. The following explanations are intended to clarify these issues:

Cost Approach: This appraisal method estimates the value by summing the underlying land value with the depreciated cost of replacing the improvements on that land. It is founded on the principle that no rational buyer would pay more for a property than the cost to replace it.
Trending Factor: This is a multiplier used to adjust the historical cost of an asset to reflect changes in value over time. It measures the difference in the value of a dollar at the time of the original cost versus the current time.
Depreciation and Economic Obsolescence: Depreciation accounts for the reduction in value due to wear and tear, while economic obsolescence relates to external factors (such as market conditions or technological changes) that diminish the property's ability to generate revenue.
Purchase and Sale Agreement (PSA) and Allocated Value Schedule: The PSA details the terms and conditions of the transaction, while the Allocated Value Schedule divides the purchase price among different categories of assets. In this case, the lack of detailed allocation and the closed bid process meant that the PSA was not viewed as a reliable indicator of market value.

Conclusion

In summary, the Supreme Court of Wyoming’s decision in Contango Resources, LLC v. Fremont County reaffirms the assessor’s discretion in property valuation. The Court held that when faced with ambiguous data—such as an unexplained Allocated Value Schedule and a closed bid acquisition—the assessor may legitimately rely on historical cost data and credible trending and depreciation factors to arrive at a fair market value. This decision underscores that mere differences of opinion regarding market values or the gap between assessed valuations and purchase prices are not sufficient to overturn expert judgment grounded in established appraisal methodologies.

The ruling is significant for future cases involving complex asset valuations and serves to guide both assessors and taxpayers on the limits of contesting valuation methods when the evidence strongly supports the assessor’s evidence-based approach. It ultimately contributes to a more predictable and fair framework for property tax assessments in the oil and gas industry.