Friday, December 09, 2011

Summary 2011 Wy 161

Summary of Decision December 9, 2011

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Summaries are prepared by Law Librarians and are not official statements of the Wyoming Supreme Court

Case Name:  Exxon Mobil Corp. v. Dep’t of Revenue; Dep’t of Revenue v. Exxon Mobil Corp.

Citation:  2011 WY 161

Docket Number: S-11-0047, S-11-0048

Rule 12.09(b) Certification from the District Court of Sublette County, The Honorable Marvin L. Tyler, Judge

Representing Appellant/Appellee (Petitioner/Cross-Respondent):  Lawrence J. Wolfe, P.C. and Patrick R. Day, P.C., Holland & Hart LLP, Cheyenne, Wyoming; Brent R. Kunz, Hathaway & Kunz, P.C., Cheyenne, Wyoming.  Argument by Mr. Day.

Representing Appellee/Appellant (Respondent/Cross-Petitioner): Gregory A. Phillips, Wyoming Attorney General; Michael L. Hubbard, Deputy Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General.  Argument by Mr. Hardsocg.


Date of Decision: December 9, 2011

Facts:  Appellant operates three federal natural gas units.  Appellant is the sole lessee in two units.  However, seven percent of the third unit is held by another lessee.  Appellant is the operator for all three units.

Following  litigation, a complex processing agreement regarding the third unit provides that possession, custody and control of the co-lessee’s gas is transferred to Appellant for processing immediately downstream of the wing valve on the wells, as measured by the meters located at each well.  Accordingly, Appellant takes custody of, but not title to, the raw gas at the wing valve and meters.  Appellant must perform an exact accounting for each well of the unit.  The meters at the wells are used to measure the production and to properly account for the working interest and royalty ownership of the gas. 

The matters giving rise to the instant litigation commenced in 2006 when Appellant filed its annual gross products return with the Revenue Department reporting its 2005 natural gas production from the production field.  The Department declined to accept Appellant’s reported values.  Disputes concerning the taxation of the gas production were previously addressed by the Court.  In the most recent opinion, the Court remanded one issue to the Board, that is, they were to determine the correct point of valuation in the context of whether the meters at the wells were “custody transfer” or volume meters. Appellant argued that the meters at the wells were custody transfer meters, and hence the correct point of valuation for its share of gas.  Conversely, the Department argued the meters were not custody transfer meters and that the statutory point of valuation for tax purposes for all gas produced in the field was the downstream inlet.  The Board determined that the meters were not custody transfer meters for gas owned by Appellant because Appellant did not actually transfer control or charge its gas to another entity at the meters.  However, the Board determined that the same meters were custody transfer meters for gas owned by the second lessee because, pursuant to their processing agreement, responsibility for the working interest owners’ gas is transferred to Appellant at the meters.

Issues: 1) Whether the State Board of Equalization was correct in its application of the statutory term “custody transfer meter” to value Appellant’s natural gas production; and 2) Whether it was proper for the Board to determine the meters at the wells were “custody transfer meters” for the co-lessee’s share of gas.

Holdings:  The Court affirmed the Board’s determination that the meters were not custody transfer meters for Appellant’s gas.  The Court observed the Board’s determination harmonized with precedent and definitions established in Amoco.  The statutory requirement that the gas pass from “one entity to another” at the meter could not be satisfied where Appellant has custody of the gas both prior to and after passing through the meters at the wells. 

As to the second issue, the Court reversed the Board’s determination that the meters were custody transfer meters for the co-lessee’s gas on the basis that the issue was not properly before the Board and that the co-lessees were not aggrieved parties. The Court held the Board does not have the authority to determine the valuation point for “non-party” persons or entities that do not appeal their tax assessments. In reaching its conclusion, the Court did not make a determination on whether different interest owners in a common gas stream can in fact have different points of valuation for tax purposes.    

District Judge Cranfill delivered the opinion for the court.

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