Background
CONSOR was retained on behalf of Chevron Corporation to provide an opinion regarding the value of the Chevron, Texaco, Havoline, URSA, and other trademarks (collectively the “Chevron Trademarks”) that had been subject to an embargo order in Ecuador. The Chevron Trademarks were being used in Ecuador for the sale of automotive and other industrial lubricant products.
CONSOR’s analysis was limited to the use within the country of Ecuador and did not address the global value of the Chevron Trademarks. Chevron, at the time of the valuation, was subject to an $18.2 billion judgement based on a verdict enacted against Chevron in the Lago Agrio case.
Industry Asset Value Allocations
To properly value the Chevron Trademarks, CONSOR needed to ascertain the relative contribution of the Trademarks to the total earnings generated by the sale of lubricants using the Chevron Trademarks in Ecuador. Chevron generated earnings through use the of both tangible and intangible assets. As the Chevron Trademarks were used in conjunction with other assets, only a portion of the past and expected future earnings were directly attributed to use of the Chevron Trademarks. The contribution of a given trademark varies based on a range of factors, including customer recognition, history of usage, business performance, market conditions, and brand opportunities.
To establish a range of values attributable to trademarks in the oil and gas industry, CONSOR reviewed merger and acquisition data from public financial statements of other companies. When public companies merge or acquire other companies they are required to make disclosures regarding the nature of the transaction. Generally, the level of detail correlates to the size of the transaction, as it would be impractical to disclose extensive information for many small transactions.
Overall, the values allocated to trademarks in various mergers and acquisitions ranged from 4% to 16% of the overall purchase price.
Allocation of Value to Chevron Trademark
In conjunction with the trademarks reviewed in the industry asset value allocation analysis and CONSOR’s proprietary method, the VALMATRIX analysis, the Chevron Trademarks indicated an extensive history of usage and recognition compared to others in the industry. Lubricants sold under the Chevron Trademarks were also market share leaders in Ecuador. As a result, the value attributed to the Chevron Trademark was above the industry median. CONSOR estimated that the Chevron Trademarks contributed to 10% of the total enterprise value of lubricant sales operations in Ecuador.
Relief from Royalty Approach
As a second approach, CONSOR used the relief from royalty method, where a hypothetical situation is created to estimate what a business would pay to license its own intellectual property assets in an arms-length transaction. The value is then calculated as the present value of the avoided hypothetical royalty charges. CONSOR used this method as comparable licensing agreements and their associated royalty rates were available. CONSOR reviewed a database of over 3,000 trademark license agreements of similar assets in similar circumstances. CONSOR arrived at a royalty rate of 1% and applied it to Chevron’s revenue in Ecuador.
Conclusion
CONSOR valued the Chevron, Texaco, and other trademarks using two different valuation methodologies: the purchase price allocation approach and the relief from royalty method. The final values of the Chevron IP in Ecuador were consistent under both methods, thus demonstrating not only that CONSOR’s analysis was accurate, but also the effectiveness and consistency of different intellectual property valuation methods.