Not in My Back Yard

Litigation, North America

A "legally non-conforming use" of an oil and gas production facility in an area rezoned for urbanization was terminated. Some jurisdictions allow for removal of use without compensation following a reasonable amortization period. Baker & O'Brien determined the amortization period based on capital investment, operating expenses, and fair return on investment. Our expert report was presented in local public hearings.

As urbanization has continued to grow around previously remote oil and gas facilities that have operated for decades, municipalities often rezone these areas to be used for recreation and planned residential purposes. In such cases, oil and gas facilities often continue to operate as a "legal non-conforming use."

In some jurisdictions, a municipality may require the termination of a legal non-conforming use by one of two alternatives: 1) it can eliminate the use immediately by payment of just compensation; or 2) it can require removal of the use without compensation following a reasonable amortization period. In most cases, local courts have determined whether the amount of time given to a property owner to terminate a non-conforming use was a reasonable amortization period for recoupment of its investment. Since the value of a business depends to a great extent upon its future income, the amortization period is often a point of contention between the municipality and a business that operates as a legal non-conforming use.

In one such case, Baker & O'Brien was asked to determine an amortization period for the assets of an oil and gas producer. In determining the amortization, we considered the total capital investment, revenues, and operating expenses since inception of operations at the site more than 40 years ago. It was also necessary to determine a fair return on investment for the business. Our consultants also considered the recovery of costs to relocate the facilities outside of the municipality, the abandonment of field development opportunities, and whether the amortization period would be different for a company that purchased the oil and gas facilities after they had been deemed to be a legal non-conforming use. The conclusions of our investigation were presented in an expert report and in local public hearings.

Charles G. Kemp

Vice President

Industry
Oil & Gas Production / Natural Gas and NGLs
Service
Commercial Contracts / Asset Valuations / Engineering, Procurement, and Construction (EPC) / Project Feasibility / Litigation / Expert Witness Testimony / Operations and Maintenance / Offshore / Physical Asset Appraisal
Region
North America