Equipment Appraisal Blog | Understanding Machinery Appraisals

Look Far and Wide and be Patient Before you Liquidate your Machinery & Equipment

Given the sharp downturn in the oil and gas field production industry during the last couple of years, with energy companies dealing with low market prices and oversupply, it is difficult to imagine the market ever returning to the boom days it enjoyed in the past. With many drilling and service companies currently sitting on their equipment, waiting for some positive news, it may seem like there is no light at the end of the tunnel.

Hydraulic fracturing or "fracking" as it is commonly referred to, is a process of drilling and then injecting water, sand, and chemicals into the earth, where the rock, or shale, below is fractured and, as a result, releases oil and gas. This industry has been heavily regulated, and, although it produces natural gas which is considered "cleaner" than coal, it has been harshly criticized for various health and safety reasons, among others.

The early results of fracking led to an oversupply of energy sources in the US, Canada, and various overseas countries, however, the resulting issues included a sharp drop in oil prices along with many energy services companies taking huge losses given all the costs and penalties of doing business.

If you own or work for a company that services the oil and gas fields where fracking was commonplace in the past but has since dried up, it may be time to complete an updated equipment appraisal on your equipment and begin to look outside your local resale markets to potentially sell some of your excess inventory of assets. There are still pockets in North America as well as overseas where the oil and gas markets remain active, and you may be able to find an opportunity to receive a fair price for your equipment.

As an alternative to liquidating through an auction service or sitting idly by while the uncertainty grows in this industry, you may want to consider engaging in a longer-term hybrid plan of selling what you can at fair prices and paring down your business to a more reasonable level, in anticipation of some kind of upward market turn in the months to come.

These market fluctuations can be severe in the oil and gas industry, and maybe no more so than it is experiencing at present, however, historically, there have always been changing economic developments over the years which turn things around when you least expect it.

Along the way, consider obtaining an updated equipment valuation from an independent accredited machinery & equipment appraiser who can provide realistic values on your assets without the additional agenda of trying to assist in your resale effort.

Business owners, buyers, sellers, investors, banks, leasing companies, financial institutions, investment firms, business consultants, insurance claimants, attorneys, courts, business appraisers, accountants, tax auditors.

What do all these types of companies, individuals, and institutions have in common? At some point, they will all require an independent valuation of machinery & equipment, personal property, and related capital assets to support their larger transactional needs.

Many of these entities have never worked with an equipment appraiser before and would prefer to hire a company that can facilitate the process and provides an efficient, effective, defendable analysis and report that will hold up to scrutiny. The best way to ensure this is to engage an accredited machinery & equipment appraiser who has years of experience working in any number of different markets and understands their client’s specific needs in the context of the overall transaction at stake.

In order to select the right appraiser, the business or individual responsible for vetting the appraiser should look for the following:

• A current curriculum vitae (CV) that highlights the valuation professional's experience and work history.
• Validation that the appraiser is accredited through the American Society of Appraisers (ASA) with a senior designation and complies with the Uniform Standards of Professional Appraisal Practice (USPAP). Both of these organizations are nationally recognized and require continuing education to maintain their credentials.
• Responsiveness and a professional work ethic from the first point of contact to the completion of the assignment.
• Thoughtful discussions on the scope of work effort involved and assistance in formulating a timeline and game plan to complete the valuation effort in conjunction with the overall transaction.
• A summary of the appraiser’s experience working with attorneys on business dispute cases where litigation support, deposition, and court testimony are involved. This is a critical component to validating the appraiser’s true experience as these seasoned professionals have to formally support and defend their work product in a legal setting.

In summary, this due diligence effort is an important first step in selecting the best appraiser to work alongside you and will create value-added to the overall goal of the business or individual in need of an equipment valuation. Settling for anything less than an experienced, accredited appraisal firm to assist you in these efforts can lead to an undesirable outcome.