Asbestos and Old Pipelines

The Perceived Asbestos Threat in Abandoned Pipelines
Over the past twenty five years that I have been involved in the pipeline salvage or recovery business, I have had occasion to examine and test pipeline coating for asbestos content and other so called hazardous materials on hundreds of occasions.

Pre-excavation Due Diligence
Whenever my company is looking to buy, trade, or otherwise obtain a pipeline that we might excavate for recycling purposes; the first move we make after determining size, weight, grade, and lengths is to look at the condition of the pipe. Oftentimes, this can only be accomplished by stripping out a segment of the pipeline to examine the existence or repair of the coating and to remove a portion to examine the pipe underneath and to verify by sound measurement instruments the wall thickness of the pipe and thus the weight per foot of the pipe. At the same time we are able to check the exterior condition of the steel by examining the exposed surface.

If possible, we cut a coupon or from the pipe and verify the condition of the interior. The coupon might be 2-3 inches in diameter. This would be big enough to shine a mirror into the interior to further examine the pipe condition to determine if there is residue or corrosion of any consequence.

We might also cut a one foot long cylinder section of the pipe to take to a non destructive testing laboratory to check for yield and tensile strength of the steel in the pipe. The yield will be measured in pounds per square inch and the tensile is a hardness test of the metal. These tests determine what we can report to structural customers and also ascertain for what applications the steel can be used.

In another laboratory, we will always take a coating sample from the exterior of the pipe to check for asbestos content that might be embedded in the coating wrap covering the pipe. Asbestos is a highly effective anti corrosive and was used extensively to coat pipeline until the late nineteen eighties when it was outlawed. We check for other materials that might be hazardous as well, but generally the tests are for asbestos content and to what percentage extent. These tests tell us how we are to treat the coating. Can we remove the coating in the field, over the ditch during excavation, or in a cleaning yard or not at all? Is the material friable (free flying)? Can it be transported? What precautions should be taken in transport? Should we wrap the ends with tarps? Do we need asbestos certified personnel on site?

If all is well, we make a decision to obtain and remove the pipeline for salvage purposes or we don't for one reason or another. The reasons for either might be environmental, economic, or regulatory. More often than not it is an economic reason if we determine not to go through with an excavation job.

Pipe Coating Removal Expense
The process for removing a pipeline with a 10% to 25% asbestos content in the coating can be expensive and challenging.

The cleaning expense can be up to $1.00 per foot or more depending on pipe size. This is cleaning only after the pipe is trucked to a certified pipe cleaning facility.

A certified and asbestos pipe cleaning facility has trained and schooled personnel licensed or trained to work with asbestos in friable or free flying conditions as well as non friable environments. They are trained and knowledgeable in knowing the difference. They are versed in properly removing, sacking, labeling, and disposing of possible hazardous waste materials. These facilities have information regarding the transport to land fills prepared to handle this material.

Additional expense can be trucking of the pipe. The coating can add as much as 10-12% to the weight of the pipe. In these days of $98 oil and $3 to $4 per gallon diesel fuel, the coating is a penalty and creates a cost disadvantage in the hauling. Hauling pipe with coating increases the transportation costs a minimum of 10-12%. Under these circumstances, it is better for the salvage operator if we can clean the coating on site or nearby.

Pipeline Abandonment
Most pipelines are idled or abandoned due to problems on the pipeline such as corrosion or other integrity issues or for the lack of economic use for the system. Viable economic pipelines that have remaining economic life are generally not sold to salvage or pipeline recovery companies such as Pipeline Equities. In almost all cases, when a pipeline has reached the end of its life it is abandoned in place or left to rot and return to earth. This is generally the decision made by virtually all of the former major pipeline operators and owners such as the major oil companies. Often the pipelines were not considered profit centers, but only an in house transportation system.

I have heard one CEO of a pipeline company state that a pipeline with no product going through it has no value. I disagree, but that is the attitude of many in the industry. We have found that a little creativity in a business development unit can find a large number of uses and turn these idle liabilities into active assets. (See "The Search for Abandoned Pipelines" by David Howell, September/October, 2007 issue of International Right of Way Magazine by)

Ownership
In many right of way agreements the terms of the contract dictate the ownership. Sometimes there might be a term of ten or twenty years renewable or it might be in perpetuity as many old Humble Oil and Refining Company pipelines were contracted. More often that not, the line reverts to the landowner whenever the pipeline is abandoned or the intent to abandon is present. Intent to abandon may include factors such as lack of maintenance, non payment of taxes, declaration of abandonment, non- use, or disconnection from a source or supply point. Sometimes when an operator abandons a pipeline the landowners are notified and the ownership of the pipe is transferred to the landowner. Sometimes legal notice is filed as to this transfer and sometimes not.

As landowners become more sophisticated regarding easements and rights of ways crossing their properties the question of ownership and terms of ownership will continue to be asked. At one time after the agreement was filed and the checks for bonuses were deposited the questions were over. The pipe was buried and out of sight and out of mind. Many of those old fields are depleted now and these lines are out of service. They are not viable as they were intended for crude transport and many have become problems.

Pipelines sometimes migrate or otherwise moves around. Sometimes through erosion a pipeline comes to the surface and a plow or excavator or backhoe hits the pipe. We read about these incidents from time to time.

The dilemma is that many pipeline owners are becoming more sensitive about environmental issues.

When the pipeline were laid in the twenties through the seventies, asbestosis, NORM, (Naturally Occurring Radioactive Material), crude residue or product residue in a pipeline was not an issue as no one ever thought the pipeline would see daylight again except for repair or maintenance work. It was buried forever, so they surmised.

The result is that these pipeline owners are now aware of the problems and don't want to deal with them. The best policy dictated by environmental and legal departments is to leave it alone. Don't disturb and no one will know and no one will have to deal with the perceived problems.

So the pipeline owners have shed this potential problem for themselves by abandoning these old pipelines in place. They will not sell to a recycler such as pipeline equities for fear that we might uncover something that is best laid buried. They often sell some of these assets or liabilities in movie distribution "A movie B movie" style. In other words they might sell a good functioning pipeline that is in demand, but include three out of service, abandoned, or idled lines with it as terms of the agreement. The majors want to deal with other billion dollar players in this regard and there just aren't that many left. The idea is that the smaller guys might go broke when the boom is over. This bundling process has about run its course and the only buyers left are newer and smaller companies that have come into being with the advent of ninety dollar oil and eight dollar gas. The result is that the pipeline ownership continues to move around and more and more pipelines are abandoned in place and left to deteriorate.

The pipeline operators and owners have found a way to deal with the problem, but that leaves the ultimate ownership of these assets or liabilities on the shoulders of the landowners.

Today, almost any caring landowner is only a Google away from being an expert on abandoned pipelines, Asbestos coating and asbestosis, or a right of way expert. These are not the farmers of your grandfather's time. These sophisticated and knowledgeable landowners are able to go to the local courthouse and read for themselves the terms and conditions of the easement agreement that was contracted by a prior owner fifty years before. At the very least, the landowner can hire the work done by the many services that are available or hire a one of many lawyers seeking new business and a new notch or two at the expense of a pipeline company.

It appears to me that a better method could be found to dispose of these idled and abandoned pipelines that cross thousands and thousands of miles of farms and ranches, cities and suburbs in America.

In this age of declining resources it seems to make sense to find a way to recycle these commodities. Some companies do take responsibility and have found many ways to turn these perceived liabilities and problems into profit centers. At the very least, by recycling these properties, the companies are taking responsibility to clean up their mess and not passing it own to an unknowing landowner who must deal with the problem at some juncture.

The Search for Abandoned Pipelines

I salvage pipeline. Most people have never even heard of this - that's because I may be the only person you'll ever meet that does this. Having been in the oil industry for 53 years, I can say that this industry has incredible opportunities. It has certainly treated me well.

My career in this unusual field started when I became the only person ever to get a permit to bring used drilling equipment out of Venezuela. I delivered a work-over rig that we had fabricated to a company over there and had a permit to bring it out. It turned out this was a blanket permit, and I realized the potential to buy and load a shipload of used equipment from a drilling company with long term operations in Maracaibo. They had accumulated a lot of drilling equipment over a long period. This strategy turned out to be profitable as there was a drilling boom going on in the United States, and all kinds of drilling equipment were in short supply and bringing top dollar.



On one salvage job some 28 years ago, I bought a lease for salvage of the tanks, separators, and related surface equipment and had to plug a couple of wells for the recoverable down-hole pipe. In addition, there was an eight mile long, eight inch pipeline that I had to remove as part of the deal. I had never done any pipeline salvage, but proceeded, learned how to do it and found the line was filled with diesel that the operator had left in order to preserve the pipe. The pipe was the right weight and size and we were able to sell the diesel and convert the pipe to downhole surface casing which worked fine for shallow applications. There was a shortage of pipe of this type at the time.

The oil field really hit bottom with $10 a barrel oil in the eighties, and I was having trouble finding a way to make a living in the industry. It was then that I remembered that pipeline salvage job. I knew I could find a way to make some money out of the salvaged steel (aside from the oil industry), so I started writing letters to pipeline owners and operators, soliciting them to buy the out-of-service, abandoned, idled or uneconomic pipelines. Sure enough, the structural steel market was strong, and I was able to salvage the pipelines I bought and sell the tubular steel into the steel piling market.

Most people thought that a buried pipeline had no value unless it had product going through it. As a result, this business potential had been completely ignored until I came along. I am proud to say that I was the first to pursue this kind of business. However, as the high cycles don't come around very often, I've been required to be nimble in order to stay successful in the oil field all these years.

What is an abandoned pipeline?
I have been unable to find a definition of abandoned pipelines that most people or companies would accept. In the end, most pipeline companies establish their own definition and their assessment generally goes unchallenged. Out of sight, out of mind.

In Texas, a pipeline is designated as abandoned by statement of the company doing the abandoning, along with notifying the Texas Railroad Commission (TRRC), or local taxing authorities or appraisal districts that a line has been abandoned. This does the trick in most cases although it does not necessarily mean that a company is disclaiming ownership or that that they no longer desire to maintain the pipeline or right of way. Oftentimes, a company can relieve itself of the responsibility of paying taxes or maintaining a pipeline or right of way if they make the claim to regulatory authorities that the pipeline is abandoned, but they keep it on the books anyway. If challenged, an easy out is to say it was only idled and still in use as it has pressure of some sort.

Most regulatory agencies basically state their criteria for abandoning a pipeline, but do not deal with ownership. As a result, the question of ownership remains vague and open to interpretation. The Pipeline Safety Office of the TRRC publishes maps showing which pipeline they deem abandoned, but this is unreliable, as pipeline operators may still claim ownership, but disclaim responsibility for maintaining the
right of way.

Use It or Lose It
The heart of ownership of what might be called abandoned pipelines lies with two factors; contractual statements and the intent or appearance of intent.

1) Contractual Statements
The law of the right of way is determined by the right of way agreement. Most contracts distinctly spell out the terms of the agreement, however most landowners and many pipeline operators seem to forget about these contracts. It is important to remember that, while most contracts are boilerplate repetitions, many vary as well. If there are deviations in the right of way agreement for a single segment on one man's property, portions of that pipeline could revert back to the landowner under the contract terms, which could jeopardize the entire easement. I recently encountered this on an old pipeline in Fort Bend County, Texas, where on one segment, the right of way had expired after termination of use, while on others, the right of way had expired at varying time periods and some only at the option of the pipeline operator. The pipeline is not viable when segments are missing.

2) Intent or Appearance of Intent
The 'out of sight, out of mind' principle is always at work in the area of buried pipelines. As a result, an operator will frequently overlook the complete and proper maintenance of out of use pipelines without checking or adhering to the right of way agreements. Most of those agreements will state that the grantor has the right of egress, replacement, repair, maintenance, and so forth. The key word here is maintenance - with the right also comes the responsibility. Case law has shown repeatedly that easements of any sort can be lost when not used or maintained properly. But in the case of pipelines, the issues of "non use" and "failure to maintain" are rarely raised by the property owners.

Right of Way Contracts
Contractual law, or the right of way agreement, is a very strong document, but intent to abandon is almost equally as strong. The two together present an argument that is hard to defend.

For several years, I tried to buy a particular out-of-service pipeline from a well known energy company. I made an offer, and then increased the offer substantially, but their legal department stopped the deal and refused to sell. On further investigation, we found that contractually, the right of way agreements had basically reverted back to the landowners either at the time the use of the line terminated, 12 months later, or 24 months later. Some of the agreements stated that the line should be removed when it is no longer being used for its intended purpose. A few months later, I inquired about this line and was told by the company that it was to be abandoned in place. At first I wondered about the logic behind this, but then concluded that the company's legal department had looked at the right of way agreements and found that they could not sell the line because they no longer owned it. The line had legally reverted back to the landowners according to the right of way agreements.

We all know that we could argue that a line has pressure on it and is in use with 20 pounds of nitrogen and so forth. However, in this situation, the pipeline went from a refinery to an abandoned and dismantled storage facility. Signs had not been maintained or replaced and the cathodic was no longer serviceable, though the right of way had been mowed. The line had essentially been out of use for at least five years. In my opinion, this was a situation where intent to abandon was evident.

There are many pipelines in the country that are in this same state. These are all subject to be taken over by the landowners, who may actually be the rightful owners, and can then be sold or bartered in some way to salvage/recovery companies like ours, or taken over by other pipeline operators. Sometimes they are taken over anyway-without any of the protocol. Not using or maintaining a pipeline has become a risky business, especially in this high tech world where information regarding the location and status of these properties is available for the asking (or the paying).

It is the right of way contracts by which everything must be determined. Many times these are forgotten by landowners, especially when land changes hands frequently. They are often forgotten by pipeline operators as well. They are like real estate leases of any kind. We file them and forget about them until a problem arises. But they are the law that governs the right of way and generally whatever is in it.

Intent to Abandon
There are many factors to consider when determining intent, including:

• Whether the line is idled or abandoned


• Length of time the line has been idled or abandoned


• Whether the company continues to maintain, test, and /or patrol the line


• Whether the company continues to show the line and or the easement as an asset in its records and or continues to pay taxes on the line and/or the easement


• Whether the company has idled or abandoned the facilities at either end of the line, thereby making it unlikely that the line would be returned to service


• Whether the condition of the line is such that returning the line to service is cost prohibitive


• Whether the company has released or abandoned segments of the easement thereby making it impossible to use the line or a replacement line in this particular route at some time in the future

It should be noted here that when a pipeline is abandoned, ownership of the pipe in the right of way goes to the landowner, as it is considered a fixture according to case law. Most state regulatory agencies have no guidelines for abandonment of pipelines, but many go by federal regulations.

For example, in the State of Texas, the following guidelines are used:

1. Crude lines don't have to be removed once abandoned or out of service.


2. They must be safely disconnected from operating pipeline systems.


3. They must be purged of combustible materials.


4. They should seal abandoned facilities left in place to minimize environmental hazards.


5. They are not required to remove signs.


6. It is the company's choice to notify the TRRC to file T-4 abandonment notification.


7. Maintenance of the right of way is only required if the line or leaks are not visible during a flyover because of trees or overgrowth.

Salvaging pipeline either cross-country or within a lease, however, are totally different animals and have virtually no regulations or guidelines.

The Liability Factor
The assets or liabilities associated with abandoned pipeline are typically low on the list of priorities for most companies. The lines are buried and generally don't cause problems - again, out of sight, out of mind. Usually when I get a call from a company about the disposition of an out-of-use pipeline, it is because there are liabilities. They are required to remove it by contract, environmental concerns or hazard to livestock, hunters or surface operators. In these cases, I investigate very thoroughly. Some companies will never sell unless a pipeline is a total liability. They also want to buy lines at salvage prices and then put them into some kind of service or try to find a use for the right of way.

Nonetheless, some companies may recognize these pipelines as liabilities and will sell them bundled with some operating assets in order to get rid of them. I recently experienced this - I had identified a line I wanted and the company recommended I make an unsolicited offer. They responded that they might consider my offer, but would bundle that line with four other inactive lines and two active lines in a package to be offered later this year. This is a smart way for a large company to rid itself of the liabilities of owning these uneconomic pipelines.

I call some pipelines uneconomic because of the way they are usually handled. Most companies do not have an asset management team that has the authority to look at all aspects of unproductive properties. In the case of pipelines, they oftentimes go to business development or commercial departments, where they are generally a low priority, especially during an expansion period like the one we are now experiencing.

The cost of maintaining these properties can be substantial. An idle pipeline is costly to operations in terms of relocations to right of way in terms of landowner problems and one-calls; legal; and of course, to the tax department for what they are required to pay. These expenses are often overlooked. Overall personnel costs are incalculable.

Another concern is environmental. In many cases, no one really knows what might be lurking in those old lines. Some could not be pigged or cleaned in any way due to the configuration or vintage of the pipe. Most major companies fear selling old abandoned pipelines for salvage as no one knows what liabilities to expect. The policy with some has been to let sleeping dogs lie, or wait to unload these nonproductive lines with some active or marginal lines to another company of sufficient size and stature, so as not to create problems down the road.

Once I was practically given a 40-mile, eight-inch line from an energy company. The line stretched from a depleted oil field to a storage terminal in an environmentally sensitive area near a bay and in the middle of what had become a suburban area of a small town. I wanted the line, as that particular size was in great demand at the time and I was eager to do the deal. The catch was that I also had to take two large storage tanks (250,000 barrels) as part of the deal. Naturally, the tanks had several inches of sludge, basic sediment and water, etc., that had accumulated over the years. We learned how to clean tanks through that experience and managed to sell the sludge to a reclaimer. The tanks were carefully cut down and eventually recycled as large diameter structural pipe.

The energy company relieved itself of a liability and an environmental expense, and once again, we see that one man's trash is another man's treasure.

Finding Unused Pipelines
Over the years I have targeted various departments and people to solicit for the purchase of pipelines, including executives and owners of companies, business development specialists, and even tax and legal departments. I have had enormous luck with right of way departments and personnel, as these people are accustomed to handling one calls, complaints from landowners and other administrative tasks that are generally considered unpleasant. These tasks can be especially painful if a line is out of service and there are no plans for any future use.

It's interesting to note that, regardless of which person or which company I contact, when I ask whether they have any idled or abandoned pipelines for sale, they almost always say no and expect me to go away. The only approach that has worked for me is to find the property myself and make an unsolicited offer. I do this by using personal know-how, scouts I have in the field, our proprietary database, mailings I send, and of course, networking through professional and voluntary association groups.

Once I locate a line, I make a formal offer, clearly identifying the property and including a specific dollar amount. A middle management guy cannot hide a financial offer or file it away. He is forced to deal with it or take action in some way by accepting or rejecting my offer, or by passing it along to someone else. If I have one secret to my success in this business, it would be my persistence in motivating people to act. Once I start the process, I stay until they get tired of me. Sometimes they will sell me the line in question just to get rid of me. Benjamin Disraeli once said, "The secret to success is constancy of purpose." Determination and persistence trumps almost anything.

Sometimes finding a pipeline leads to a discovery stage where we must thoroughly investigate the line in question. This may require reconstructing alignment sheets, if we have not obtained them, and finding out about the construction process, landowners, and the contracts or right of way agreements. Alignment sheets have the exact geographical bearings, pipe specifications, pipe coating information, depth of pipeline, terrain, landowner information, as well as replacement and repair data. These plans are of key importance to my type of operation. If we do not have them furnished, we build them from scratch.

Once I have the right of way agreements and alignment sheets, I can determine all I need to know about a pipeline no matter how old it might be. We have removed lines that have been in the ground for 80 or 90 years. Many are in great shape and can go on to piling jobs or be recycled in some way.

Market Opportunities
Many people are interested in what we do with the pipe once we take it up. They usually assume it is sold for scrap. However, we also use this material for a range of structural purposes, such as flagpoles, bridge railings, culverts, piling, road bore casing, rathole pipe for oil and gas well drilling operations, bollards and rehab for reuse as pipeline. In fact, many lines are relays from a time when lines were taken up and moved after a field was depleted during the thirties or in the war, when steel was unavailable. Sometimes we can use the line for another purpose
like water transportation.

I recently did an appraisal of an old pipeline that had been sold several times and went through College Station, Texas. The city wanted to buy this 23-mile line from a salvage operation, but the charter required an appraisal. The line went by a wastewater plant and two major parks that were owned by the city. It could be a perfect fit for transporting irrigation water, and it appears that the city will be able to buy the line for a little over salvage price and save the city several million dollars. When this deal is completed, it will be a great asset for the city.

The lines can also be reused for fiber optics or other cable. A last resort is scrapping, and we do plenty of that as well. But we could not afford to buy a line in the ground exclusively for scrap value except at a time of very high prices. Essentially, there are various grades of steel, depending on the vintage, and as such, they are basically all tubular steel, which is always a commodity.

Serving as Agents
On occasion, we have served as brokers or agents in purchasing pipe for major companies when they did not want the market to know the identity of the purchaser. We have also assembled bits and pieces to put together for operators for the same reason.

Recently, a well known energy firm purchased a company because it offered valuable assets they wanted in a specific region. Oftentimes there is one main asset needed and the other assets are overlooked or disregarded. The energy company called and asked me to purchase a jet fuel line which was out of use. It was uneconomic for salvage value, but I went to look as a courtesy and noticed it ran alongside another line for most of its 23-mile length through the city. With one call, I made a sale to another company that furnished gas utilities to that city and they accepted it at my asking price. I made a quarter million on the trade, but had I done a little more research, I might have made a couple of million.

Appraising Pipelines
We are one of the very few companies that value or appraise pipeline in the ground and within a right of way. We value the entire package of right of way, pipe, present and future economic value, throughput, highest and best use or alternate usage, salvage, replacement, and so forth. All of our methods include those that real estate appraisers use, such as the income approach, comparison and cost analysis. Altogether, we also include an additional 40 factors in our valuations that are unique and specific to the pipeline industry.

Appraisals or valuations are done in preparation for sale or divestiture of a pipeline, re-adjustment of state and local taxes, estate settlements, settlement of partnership and divorces, value for salvage, and in preparation for purchase of pipelines, as well as to satisfy requirements of lending or funding institutions.

Appraising pipelines is a highly specialized field and unlike any other kind of appraisal. As there are no two pipelines or markets alike, each case is entirely unique. There are no real comparisons to draw from, so each scenario must be built from scratch. We do this work because there is a demand for pipeline valuations and it keeps our company in the mix for other deals like salvage and brokerage which are more lucrative. Like I said, one man's trash really is another man's treasure.

The Value of a Pipeline

Every right of way appraiser in the country appraises the value of a right of way based on acquisition or relocation methods...very few, appraise the value of a pipeline within that right of way.

Pipeline Equities saw the need to find a method of appraisal to value pipelines that may have been overvalued after time for tax purposes or undervalued in terms of a merger, acquisition or estate settlement.

Why Appraise?
These are the basic reasons for a valuation report on an active or inactive pipeline:

1. Preparing for a sale or divestiture
2. Readjusting state, local, ad-valorem taxes/tax assessments
3. To settle an estate
4. To settle a partnership
5. To determine value of an asset in any entity
6. To determine salvage value
7. Preparing for a purchase or acquisition

Methods of Appraisal
To come to a value, Pipeline Equities uses the methods of market analysis, income approach and asset based. Each can be employed if the occasion calls or a combination of all can be used. We have found that value occurs with the interaction of demand for product, utility of product, scarcity or supply, and transferability of ownership rights.

Factors for Determining Values
Going deeper, we use as many as forty different factors to make our determinations. These factors are the more technical aspects pertaining to those broader areas of demand, utility, scarcity, and transferability.

They include:

• Throughput value transportation (income)


• Depth of coverage of pipe


• Right of Way agreements


• Replacement Value (asset)


• Salvage Value


• Supply (other pipelines in area/scarcity)


• Demand (potential buyers?)


• Surface Inventory (including appurtances)


• Sales Contracts / Length


• Potential for replacement volume (new wells, tie ins)


• Type of System, oil & gas, product, etc.


• Size of pipe


• Specification of pipe


• Management (front office)


• Maintenance


• Date of Installation


• Interconnects


• Cathodic protection


• Pipe coatings (vintage)


• Environmental concerns


• Appearance


• Reservoir studies


• Market price of commodity


• Type of system: trunk, gathering, etc.


• Chemical content of transported product (H2S, CO2)


• Market diversity


• Proximity to markets


• Geography / terrain


• Diversity of suppliers

Other factors depending on whether product is purchased at the wellhead and resold , whether and to what extent product is compressed, enhanced, treated, cleaned or processed and in what way.

Various Uses:
Over the years, Pipeline Equities has had a diverse list of clients who sought pipeline valuations for reasons such as:

(1) Settle a family estate or as in a closely held corporation.

(2) Reestablish value for county, school, and other local taxing authorities for a gathering system which had lesser throughput than when taxes had been originally assessed.

(3) Value of a pipeline for purpose of establishing value for accounting purposes (client sought to expand the line with loan and bank sought appraisal.)

(4) A city seeking a valuation of an abandoned line to convert it to waste water transport (city charter requires an appraisal.)

(5) Still another requires appraisal of an existing line in order to grant a new loan for expansion.

The appraisal of pipeline is a niche industry - overshadowed by those who are appraisers of right of way for the purpose of paying damages to landowner or acquiring new right of way. The methods are different. One is the way a land appraiser looks at land the other is the way a pipeliner looks at a pipeline and the right of way it rests in.

Pipeline Equities uses a combination of appraisal methods, but centers on those that particularly lend themselves most readily to the oil and gas pipeline industry. We always take into account the perspective of the pipeline operator, whether trunk, transmission or gatherer.

Salvage Specialist Sees Rising Demand for Defunct Pipelines

By Monica Perin
Houston Business Journal



High fuel prices and feverish trading in energy assets are pumping up David Howell's pipeline business.

The owner of Pipeline Equities is attracting more customers for the company's niche services as old projects find new value in the overheated oilpatch.

Howell buys and removes small defunct pipelines, then sell them for salvage. In one instance that illustrates current frenzied conditions, the salvaged pipe was recycled into downhole casing for oil well drilling.

Appraisal jobs also are coming more frequently these days for Howell. Owners want to know if their assets may be worth more now than the last time they checked, or whether they are paying excessive taxes on old pipelines.

Says Howell: "Appraisals for estate disposition, tax disputes, mergers and acquisition are a new growth market that places strong demands on the few companies in this business."

Transpetco Transport Co. of Shreveport, La., a group of petroleum engineers who operate pipelines, asked Howell to appraise an 11-year-old pipeline. The company wanted to determine how much value had been added by an upsurge in activity requiring the pipeline's services.

Transpetco partner Wallace Stanberry says pinpointing value has become more important than ever in the current market.

Says Stanberry: "We need to have a fair value on the pipelines because we have partners on some of them and we're always considering mergers, joint ventures and potential salvage in the future. So you need to have a value that is supportable."

Most professional appraisers work for consulting or engineering firms and deal with big transactions for large oil and pipeline companies.

Howell calls his deals "small potatoes." But a ton of them out there after years of little or no activity are changing hands at a faster pace now.


PIPELINE TO PROFIT

Howell, 66, was a drilling contractor and CEO of an oilfield supply company earlier in his career. In the 1980s he bought and sold pipe and drilling and production equipment while constructing drilling and workover units worldwide as Tradex Petroleum Services.

When a shortage of pipe emerged in the late 1980s, Howell started taking out old pipelines and found the business profitable.

Clients of Pipeline Equities have included Chevron Corp., Coastal Corp., Exxon Corp., Koch, Arco, Amoco, TXU Corp., Pickens Pipeline and Gulfmark Energy Inc.

Last year, Howell bought 50 miles of pipeline in Brazoria County from Gulfmark Energy, a company controlled by Bud Adams.

The pipeline laid by Exxon in 1925 had become uneconomical, but was still in "pristine condition," says Howell.

He sent 200,000 feet of the salvaged material to CPS Houston Inc., a pipe recycler who cleaned and straightened the pipe.

Howell then sold the pipe to Razien Metals Co., a wholesale dealer in Oklahoma , where the pipe was threaded and turned into downhole casing for drilling wells.

More recently, Howell bought a Florida pipeline formerly used for jet fuel from Valero Corp.

The 26-mile line from the Miami Airport to Homestead Air Force Base is no longer needed.

Removal would have been difficult because much of the line through Miami runs under pavement.

Howell noticed that it also ran parallel to an active six-inch natural gas line, so he contacted the owner to see if there would be any interest in acquiring the old jet fuel line.

With a Southern Florida gas market growing by leaps and bounds, the utility jumped at the offer and plans on converting the line to carry gas.

Howell has sold other defunct oil and gas pipelines to various customers. Cable companies like Time Warner retrofit them to run cables. Water utilities convert them into water lines.

Often the pipelines are in environmentally sensitive areas.

The Gulfmark Energy pipeline recycled into drill casing ran through U.S. Fish & Wildlife lands in Brazoria County.

A 20-mile gas transmission line Howell bought from Exxon ran through Texas wetlands near Anahuac . And a 35-mile crude oil transportation line ran through a wildlife refuge near Corpus Christi.

In each case, Howell deeds the right-of-way back to the landowner after removing the pipeline.

Says Howell: "The wildlife and parks people are always really happy to get it out of there."

Energy; Week of 19-25, 2006
Section 14A
mperin@bizjournals.com
http://houston.bizjournals.com
713-960-5910

Twenty Factors for Pipeline Appraisals

Pipeline Equities uses twenty factors or criteria for valuating oil, gas and product pipelines. All or some of these will be used on a typical appraisal depending on the circumstance. No two pipelines are alike and broad criteria for appraising petroleum pipeline properties have not proved accurate. We feel the careful and thorough application of the following factors by qualified personnel will yield accurate results that will stand any test.

1. Replacement value or cost factor
2. Throughput value or income factor
3. Value of right of way for pipe or any other use
4. Surface inventory including appurtances
5. Salvage or removal value
6. Potential for future activity
7. Interconnect availability with extended carriers
8. Markets or demand factor
9. Market price of commodity
10. Contracts and duration
11. Reservoir studies of existing wells
12. Maintenance
13. Market diversity
14. Proximity to markets
15. Environmental concerns
16. Field Personnel experience
17. Geography/Terrain
18. Front Office Management
19. Condition of pipe, coating, cathodic,etc.
20. Comparisons (utilizing the Pipeline Equities M&A Database)

It is important to note that typically in an appraisal type situation, there are not more than four factors determining what is called "fair market value" and these three or four criteria are generally limited to the cost, income, and comparison type factors. For additional information, contact David Howell at 713-623-0690

Energy Prices Pushes Demand for Pipeline Appraisals

HOUSTON - Pipeline Equities said today that high oil and gas prices generated new demands on its exclusive appraisal services required by owners, operators and buyers of pipelines as the trend to mergers and acquisitions steadily increases.

The company's latest pipeline appraisals for clients illustrate a new trend in valuations of properties that now change hands at record speeds for private and public operators, it said.

David Howell, Managing Partner of the Houston-based firm, said government projects have increased substantially as authorities struggle to find qualified personnel to appraise properties for taxation purposes. "Inquiries to Pipeline Equities has risen sharply over the past few months and are expected to continue at a high rate as prices remain strong and more companies enter the business," he said.

"Appraisals for estate disposition, tax disputes, mergers and acquisitions are a new growth market that places strong demands on the few companies in this business, "Howell said. Most pipeline appraisals were done by accounting or engineering firms who are limited in experience and information, he said. "This has changed due to technology and time requirements," he said.

Pipeline Equities was formed in the 1980s to perform salvage and environmental remediation projects that have increased with rising prices.

"Evaluating a pipeline system often requires study of right-of-way, salvage, replacement, throughput, drilling potential and the economic outlook for energy", Howell said.