Potential Reporting Issues Due to Recent Value Assessments of Oilfield Equipment
Three frac spreads were sold at an oilfield equipment auction last week in Midland, Texas. The sale prices have been reported to be $5 million, $5.5 million and $6 million compared to $26 million per spread for new equipment. This is the most recent observation of the value for equipment in the oilfield services segment in the current oil and gas market. These auction results bring up some interesting questions about how they will be included in the context of accounting and finance issues that rely on equipment values as a major component:
1. Will ad valorem and property tax assessors view auction results as an indicator of fair market value?
2. How will banks and lenders consider the auction data with respect to collateral value?
3. Will auction buyers be profitable by marketing services at a lower price point?
4. How will auction results be considered in impairment testing of goodwill and longed-lived assets under Accounting Standards Codification 350 and 360 (ASC 350 and ASC 360)?
5. How will property insurance values and premiums be affected by replacement cost?