BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
CHEVRON U.S.A., INC., FROM A CHANGE )
OF VALUATION METHOD DECISION BY ) Docket No. 2000-152
THE MINERALS DIVISION OF THE )
DEPARTMENT OF REVENUE )
(Carter Creek) )
IN THE MATTER OF THE APPEAL OF )
CHEVRON, USA FROM A NOTICE OF )
VALUATION FOR TAXATION PURPOSES ) Docket No. 2001-112
DECISION OF THE MINERALS DIVISION )
OF THE DEPARTMENT OF REVENUE )
(Production year 2000, Carter Creek) )
_________________________________________________________________________________
FINDINGS OF FACT, CONCLUSIONS OF LAW, DECISION AND ORDER
OCTOBER 15, 2003
APPEARANCES
William J. Thomson, II, and John Kuker of Dray, Thomson, & Dyekman, P.C., for Petitioner, Chevron U.S.A., Inc., (Petitioner).
Cathleen D. Parker, Assistant Attorney General, for Respondent, Department of Revenue, (Department).
Bruce A. Salzburg, Freudenthal, Salzburg & Bonds, Uinta County Board of County Commissioner, Wyoming, (Intervenor).
DIGEST
This matter came on for hearing on September 10, 2002, by the State Board of Equalization (Board), consisting of Chairman Edmund J. Schmidt, Vice Chairman Roberta A. Coates (Chairman at the time of Decision and Order), and Board Member Sylvia Lee Hackl. Chairman Schmidt and Member Hackl resigned from the Board prior to the Decision and Order. Vice Chairman Alan B. Minier and Board Member Thomas R. Satterfield have considered the matter by reviewing the file, exhibits and transcript, and participated in the Decision and Order. This appeal arises from the Department of Revenue’s selection of the “comparable value method” for the valuation of gas products processed through the Carter Creek gas processing facility located in Uinta County, Wyoming for production years 2000 through 2002 and the Notice of Valuation for production year 2000.
JURISDICTION
Upon application of any person adversely affected, the Board must review final Department actions concerning state imposed taxes and “[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act and its own rules and regulations of practice and procedure.” Wyo. Stat. Ann. §39-11-102.1(c)(viii).
The Board must “[d]ecide all questions that may arise with reference to the construction of any statute affecting the assessment, levy and collection of taxes, in accordance with the rules, regulations, orders and instructions prescribed by the department.” Wyo. Stat. Ann. §39-11-102.1(c)(iv). The Rules of Practice and Procedure for Appeals before the Board involving tax matters contemplate appeals from final administrative decisions of the Department. Rules, Wyoming State Board of Equalization, Chapter 2, § 3. The Rules require that appeals be filed with the Board within thirty days of any final administrative decision. Rules, Wyoming State Board of Equalization, Chapter 2, § 5(e).
DISCUSSION
The Petitioner appealed the Department of Revenue’s selection of the comparable value method for the valuation of their gas products processed through the Carter Creek gas processing facility located in Uinta County, Wyoming for production years 2000 through 2002. The comparable value method is used for valuing oil and gas which is not sold at or prior to the point of valuation by bona fide arm’s length sale.
Petitioner reported the value of its natural gas to the Department using the proportionate profits method. The Petitioner excluded production taxes and royalties from the proportionate profits formula.
The Department rejected the value reported by the Petitioner for production year 2000 and used a contract processing fee to establish processing costs for the gas. The Department then calculated a value using the comparable value method.
The Petitioner appealed the Department’s application of the comparable value method for production year 2000.
This case is closely allied to the proceedings in Union Pacific Resources Company et al, Docket No. 2000-147 et al., June 9, 2003, 2003 WL 21774603 (Wyo. St. Bd. Eq.)(hereafter Whitney Canyon). The Petitioner, Department, and Intervenor, all of whom were parties in Whitney Canyon, stipulated to the incorporation of most of the evidence of Whitney Canyon into this case. [Stipulations of the Parties, ¶¶ D.1, H.1]. To underscore the point, several witnesses have individually reaffirmed their prior testimony. [E.g., Transcript Vol. II, pp. 196-198]. Most of the legal and factual issues raised in Whitney Canyon have been raised again in this case. The facts in this case and the Whitney Canyon have similarities because both processing plants are designed to process sour gas, and have processed gas from precisely the same sources.
The issues presented in this case are similar to those in Whitney Canyon, and are as follows:
A. Was the Department able to secure reliable information from which reasonable estimates could be made regarding processing fees which would be paid by a specific taxpayer had it been in the position of a third party producer requiring the services of a gas processing plant?
Yes.
B. Is the Department precluded from using the comparable value method because of the prior decision of Amoco Production Company, Board Case No. 93-104, and various legal theories?
No.
C. Is the Board of County Commissioners for Uinta County a proper intervenor?
Yes.
D. Does allowing other taxpayers to report gas production using the proportionate profits method, subject to audit, result in a lack of uniformity?
Based on the information presented at the hearing the Department was not arbitrary in accepting the proportionate profits from the other taxpayers.
FINDINGS OF FACT
1. The Parties stipulated to the incorporate the testimony of the following witnesses in Whitney Canyon, including direct examination, cross examination, confidential examinations, board questions and objections:
a. Paul Syring, Senior Tax Representative, BP America Production Company;
b. Chris Chambers, Manger, Upstream Property Tax, ChevronTexaco;
c. Greg Ostroff, Senior Financial Analyst, Anadarko Petroleum Corporation;
d. Lesa Adair, Petitioner’s Expert Petroleum Engineer;
e. Tom Brown, Petitioner’s Expert Appraiser;
f. Randy Bolles, Administrator, Mineral Division, Wyoming Department of Revenue;
g. Craig Grenvik, Manager/Supervisor, Mineral Division, Wyoming Department of Revenue;
h. Elwood Soderlind, Audit Supervisor, Wyoming Department of Audit; and
i. Derek Weekly, Audit Supervisor, Wyoming Department of Audit.
[Stipulations of the Parties, ¶D.1]. When we cite to the Whitney Canyon record we will refer to it as Whitney Transcript or Whitney Exhibit.
I. OVERVIEW
2. Chevron appealed the Department’s selection of comparable value method for valuing natural gas produced by Chevron and processed at the Carter Creek processing plant. It also appealed the value of gas for tax year 2000 because the Department determined the value by using a processing deduction of 25%. The Department determined 25% was a comparable processing fee. [Transcript, Vol. II, p. 239].
3. The Board must first decide whether the Department properly selected the comparable value method, and if so, then must determine whether the method was properly applied. If the Department did not appropriately apply comparable value and, because Chevron is a producer of sour natural gas and the sole owner of a facility that processes gas for sale, Chevron contends the proportionate profits method must be used to determine the value of the gas.
II. GENERAL PLANT INFORMATION
4. The Carter Creek field is located in Uinta County, Wyoming, in the area generally referred to as the “overthrust area.” The formations which are produced at the Carter Creek field produce gas which is “sour”, containing substantial percentages, 16% to 17%, of hydrogen sulfide. [Exhibit 131, p. 20; Transcript, Vol. I, p. 44].
5. In 1978, Chevron’s Federal 1-32 wildcat well in Lincoln County found significant gas and condensate reserves in the Madison and Weber formations. This discovery opened the Carter Creek Field. [Exhibit 131, p. 14].
6. The Carter Creek Plant was placed in operation in 1983 by its sole owner Chevron USA, Inc. Because it has only one owner there is no Construction and Operating Agreement, Chevron does not charge itself a processing fee. [Stipulations of the Parties, ¶¶ 1, 4, 5; Transcript, Vol. I, pp. 63-64, 102, 200].
7. The Plant was built for approximately $442 million. When the plant was built Petitioner and the owners of Whitney Canyon gas processing plant were in competition to complete a gas processing plant first. The plants were built to process gas from the same formation. [Transcript, Vol. I, pp. 33, 52-53, 88, 106; Exhibit 131, p. 20; Whitney Transcript, Vol. IV, p. 726].
8. The Plant was designed to process 165 million cubic feet of gas per day. The capacity varies depending upon the constituents of the gas. During the period at issue, the Carter Creek Plant processed an average plant volume of 113 million cubic feet per day. The Plant had 52 million cubic feet per day of excess capacity. Sometimes the Anschutz Yellow Creek gas, the same gas that we have previously identified as Wahsatch Gathering System gas, was processed at the Carter Creek facility. The only time the facility operated at full capacity was during a turnaround (shut-down) of the Whitney Canyon gas processing facility. [Stipulations of the Parties, ¶ 3; Transcript, Vol. I, pp. 45-46, 77, 80].
9. There are approximately 17 to 20 wells in the Carter Creek dedicated field. Each of these wells is individually metered and the product coming out of each well is extensively documented. [Transcript, Vol. I, pp. 40, 42].
10. All the sources of gas processed in the Plant are commingled before the start of processing. [Transcript, Vol. I, p. 64]. All sales of gas from Carter Creek occur at the tailgate of the Plant. [Transcript, Vol. I, p. 132; Exhibits 122, 123].
11. There are four sources of gas processed through the Carter Creek Plant: Carter Creek field, Whitney Canyon field, Exxon Road Hollow field and Anschutz Yellow Creek field. [Transcript, Vol. I, pp. 33, 36, 44].
III. SELECTION OF COMPARABLE VALUE METHOD
12. On August 31, 1999, the Administrator of the Mineral Tax Division, Wyoming Department of Revenue, notified Petitioner pursuant to Wyo. Stat. Ann. §39-14-203(b)(vi), that it should calculate the value of its production using the comparable value method for 2000, 2001, and 2002. The Department had issued similar notifications in 1990, 1993 and 1996. [Stipulations of the Parties, ¶ C.1; Exhibits 113, 151,155, 500; Transcript, Vol. II, pp. 378-379].
13. Wyoming Statute Annotated §39-14-203(b)(vi) provides:
(vi) In the event the crude oil, lease condensate or natural gas production as provided by paragraphs (iii) and (iv) of this subsection is not sold at or prior to the point of valuation by bona fide arms-length sale, or except as otherwise provided, if the production is used without sale, the department shall identify the method it intends to apply under this paragraph to determine the fair market value and notify the taxpayer of that method on or before September 1 of the year preceding the year for which the method shall be employed.
Comparable value is defined in Wyo. Stat. Ann. §39-14-203(b)(vi)(B).
(B) Comparable value - The fair market value is the arms-length sales price less processing and transportation fees charged to other parties for minerals of like quantity, taking into consideration the quality, terms and conditions under which the minerals are being processed or transported;
14. By letter of October 28, 1999, Petitioner objected to the use of comparable value method because in its opinion there was no way to calculate comparable value. Instead, Petitioner verified there were no comparables and therefore requested the use of the proportionate profits method. [Stipulations of the Parties, ¶ C.5; Exhibits 114, 501, 503, 506; Transcript, Vol. II, pp. 380-382].
15. By letter of November 16, 1999, the Department requested all processing agreements/contracts which the Petitioner had with all owners or non-owners of the Plant. [Stipulations of the Parties, ¶ C.6; Exhibits 115, 502, 508; Transcript. Vol. II, pp. 381-383].
16. In a letter requesting an extension to provide contracts, dated November 30, 1999, Petitioner identified the Whitney Canyon C&O Agreement (including the attached gas processing agreement), and the agreement with Whitney Canyon plant and the Carter Creek plant for back-up processing agreement as other contracts. However, Petitioner argued these other contracts were not comparable. [Exhibits 116, 503]. The tax representative for Petitioner, Christopher Chambers, generally referred the Department to agreements that had been in place during audits. There were a number of specific references to Chevron contracts related to properties in Wyoming, including the statement, “Carter Creek also has an agreement with Whitney Canyon for short-term processing during Whitney Canyon turnarounds that does not meet like quantity.” [Whitney Exhibit 108; Transcript Vol. II, pp. 364-365]. There is no specific reference to other contracts with other producers to process gas either at the Whitney Canyon or Carter Creek plants. Chambers says he relied on Amoco, as the operator, to produce the Whitney Canyon contracts, although he seems to have understood that the Department only knew of the C&O Agreement and the Wahsatch Gathering System Agreement. [Whitney Transcript Vol. II, p. 360; Transcript, Vol. II, p. 206; Exhibit 503]. The Department allowed the extension. [Exhibit 504].
17. Chevron did not provide the Department with the 1995 Chevron Agreement, the Wahsatch Yellow Creek Agreement, the Merit Agreement, the Whitney Canyon \Carter Creek Back-up Agreement, or the Anschutz Back-up Agreement, instead Chevron made the unilateral decision that they were not comparable and did not have to be provided to the Department.
18. After the Petitioner failed to provide additional contracts, the Department determined that there were contracts that met the criteria set forth in Wyo. Stat. Ann. §39-14-203(b)(vi)(B) for comparable value, and that all those contracts charged a maximum 25% processing fee. [Transcript Vol. II, pp. 391-394]. The Department considered the terms and conditions, the quantity, and the quality, and ascertained the Whitney Canyon Construction and Operating Agreement (Whitney C&O agreement), specifically the Gas Processing Agreement which is Exhibit F of the Whitney Canyon C&O Agreement, and the Exxon Road Hollow Agreement were comparable. The Department decided the processing fee did not exceed 25% of the end product. The Department reasoned comparable value must be used to value the Carter Creek gas processing deductions. [Stipulations of the Parties, ¶ C.8; Transcript, Vol. II, p. 208-209, 379, Vol. III, pp. 451-452; Exhibits 116, 118, 120 and 505, 507].
19. On February 4, 2000, the Department informed the Petitioner it should use the comparable value method. [Exhibit 505]. The Petitioner requested reconsideration of the method on March 30, 2000. [Exhibit 506]. The Department informed Petitioner it should use a 25% processing fee in a March 30, 2000 letter. [Exhibit 507].
20. The Department’s identification of specific comparables was communicated to the Petitioner nearly a year before annual reports for 2000 were due, Wyo. Stat. Ann. §39-14-207(a)(i), and more than a year in advance of the date the annual report was actually filed, taking into account the extensions to about April 25th customarily given to taxpayers like the Petitioner. [Exhibit 113]. Despite the transparency of the Department’s intentions, some Chevron witnesses have complained that they were handicapped in the application of the comparable value method by the absence of rules and regulations. [Whitney Transcript Vol. I, pp. 78-79, Vol. II, p. 376]. As we concluded in the companion case of Whitney Canyon, the complaints are largely an expression of litigation posture. We give them no weight. Whitney Canyon, Findings, ¶38. We further note that Mr. Chambers denied he was unable to determine whether a comparable value existed, instead making the milder complaint that the absence of rules “hampers the decision-making process.” [Whitney Transcript Vol. II, p. 376]. Chevron’s appraisal expert, Thomas Brown, stated he could prepare his evaluation without the need for rules and regulations to define such statutory terms as “other parties,” “like quantity,” and “terms and conditions.” [Whitney Transcript Vol. V, pp. 1038-1039]. Chevron expert Lesa Adair agreed that the concept of comparable value “is not that hard to understand.” [Whitney Transcript Vol. V, p. 945].
21. As we found in Whitney Canyon, Chevron was so opposed to the use of the comparable value method that the promulgation of rules would not have forestalled the dispute we decide today. Whitney Canyon, Findings, ¶39. We consider it revealing that Adair’s suggested rules would only have had the effect of prohibiting the use of the comparable value method in this case. [Whitney Transcript Vol. V, p. 945]. For example, she suggests limiting the use of the method “where you don’t have a lot of competition at the wellhead.” [Whitney Transcript Vol. V, p. 945]. This suggestion is being made in the context of a county in which “the bulk if not nearly the total gas production” is owned by Amoco, UPRC, and Chevron. [Whitney Transcript Vol. IV, p. 745].
22. As we observed in Whitney Canyon, Chevron’s complaint that the Department ignored an earlier statement of the comparable value method, entitled “Determinative Formula for Computation of Comparable Value,” dated July 9, 1992 is without merit. [Whitney Exhibit 150; Transcript Vol. II, pp. 353-355]. The main point is that in 1992 the Department did not have the advantage of knowing of the existence of other agreements for processing. We find Chevron does not point to the existence of the Determinative Formula for the sake of advocating a viable alternative to the comparable value method used by the Department for production year 2000. Both Petitioner and the Board are aware of the legal defects of the Determinative Formula, which were one of the subjects of Amoco Production Company v. Wyoming State Board of Equalization, 882 P.2d 866 (Wyo. 1994)(compare 886 P.2d at 871, and Whitney Exhibit 150, pp. 1-2); Conclusions of Law, ¶¶171-178. We find that Chevron’s purpose of invoking the 1992 approach is to frustrate the selection of any method but proportionate profits. As in Whitney Canyon, we accord the complaints no weight, particularly insofar as Chevron suggests that it was in some way hampered in the preparation of annual reports using comparable value.
23. The Petitioner ignored the Department’s decision to use comparable value and reported the taxable value of the Carter Creek production for production year 2000 using the proportionate profits method. The tax report for the 2000 production was filed prior to the Board’s decision in Appeal of Amoco Production Company, Docket No. 96-216, 2001 WL 770800 (Wyo. St. Bd. Eq., June 29, 2001); on reconsideration, 2001 WL 1150220 (September 24, 2001), and therefore the calculation did not include production taxes and royalties in the direct cost ratio. Petitioner has not amended its returns since the Board’s decision in Docket Number 96-216. [Stipulations of the Parties, ¶C8; Exhibit 118].
24. For 2000 production, six oil and gas taxpayers in Wyoming, out of approximately eight hundred, reported using a method other than comparable value; five reported using proportionate profits, and one reported using a formula reached in settlement of litigation. [Whitney Transcript Vol. VIII, pp. 1341-1342].
25. The proportionate profits calculations filed by Chevron did not include taxes and royalties in the direct cost ratio, contrary to a decision of this Board issued after the annual reports were filed. Amoco 96-216 supra. That decision was appealed to the Wyoming Supreme Court. A ruling on the appeal is pending.
26. The Department valued Petitioner’s production using what the Department considered comparable value. The formula the Department used was a total gross revenue less a 25% processing deduction less exempt royalties resulted in taxable value. On May 24, 2001, the Department of Revenue issued the Notice of Valuation. [Stipulations of the Parties, ¶¶C.12, F.1; Transcript Vol. II, p. 324; Exhibit 161]. The Department accepted all reported information, subject to audit, except for the processing deduction reported by the Petitioner. [Transcript Vol. III, pp. 406, 419]. The arms-length sales price used in the comparable value formula was the sales price paid by third parties at the tailgate of the Carter Creek plant. Petitioner and the Department agree to the gross revenue as reported by Petitioner for the 2000 tax year, subject to audit. [Stipulations of the Parties, ¶F.1]. Transportation expenses are not questioned in this appeal.
27. Petitioner timely appealed the Department’s choice of comparable value method and the Notice of Valuation for the 2000 production year. [Stipulations of the Parties, ¶C13; Exhibit 122].
28. Even though available, the Department did not select the Carter Creek/Anschutz Backup Agreement condensate processing agreement as a comparable for use in valuing Chevron’s Carter Creek production. [Stipulations of the Parties, ¶D.2; Exhibits 123, 520].
29. Petitioner has never reported its Carter Creek production using the comparable value method. It has always reported the production from wells using either netback or, more recently, proportionate profits. However, it reported production in the same formation processed at Whitney Canyon under the 1995 Chevron Agreement using the comparative value method. [Stipulations of the Parties, ¶E.1]. See Whitney Canyon, Findings, ¶¶16, 88-93.
30. The question that must be answered is whether the 25% processing fee is a processing deduction value which yields an accurate reflection of fair market value for the year 2000. We find that it does. Moreover, we find no credible evidence that the 25% processing deduction does not yield a reasonable value. In contrast, there is evidence that the proportionate profits method yields a distorted, inflated and inaccurate value. See Findings of Fact ¶¶60-64.
31. The large differences in processing deduction percentages have prompted all parties to direct our attention to certain practical consequences for the uniform treatment of plants similarly situated to Carter Creek. The Department’s practical valuation concern arises if the comparable value method is rejected and proportionate profits is allowed for Petitioner as illustrated in Exhibit 525 amended.
32. The Petitioner complains about the valuation method available for production from certain other facilities, the most prominent being Lost Cabin. Petitioner characterizes that field and facility as being similar to Carter Creek because Lost Cabin has gas processing contracts calling for in-kind processing fees. [Whitney Transcript Vol. II, p. 368-371]. The Department has authorized use of the proportionate profits method for Lost Cabin production. The Petitioner asserts that, if the proportionate profits method is not allowed for Carter Creek production, the Lost Cabin production will enjoy a vastly higher processing deduction. The Department answered interrogatories directed to the reasons for granting use of the proportionate profits method to the other Plants. [Whitney Exhibit 198]. Based on information “available in the ordinary course of its business,” the Department examined contracts, particularly with respect to processing fees; considered whether gas was being processed from any wells not dedicated to the plant; and considered whether gas from the dedicated field had been processed at any other plant. [Whitney Exhibit 198]. In each instance, the Department found circumstances that distinguished Carter Creek from the other facilities of interest to Chevron. As we found in Whitney Canyon, the Department’s distinctions are reasonable, although we, like the Department, are not in a position to fully weigh the accuracy of the facts reported by the other Plants to the Department.
33. The Board of County Commissioners of Uinta County set the mill levy for Uinta County School District No. 1 using the value certified by the Department but used the value the Petitioner reported to set the mill levy for the county. Because of the litigation the school has not received the amount of revenue budgeted. [Stipulations of the Parties, ¶G.2; Exhibit 141, p. 10].
34. In 1995 and 1996, the Department accepted the Petitioner’s assertion that there were no comparable values and allowed the Petitioner to pay taxes on a value calculated using the proportionate profits method. [Transcript, Vol. II, pp. 203, 235-237; Exhibit 151, W. Exhibit 500, W. Transcript, Vol. VI, pp. 1167-1171].
IV. WHITNEY CANYON CONSTRUCTION AND OPERATING AGREEMENT IS A COMPARABLE
35. We find that the Whitney Canyon Plant and the Carter Creek Plant are readily capable of processing the same gas. Three wells in the field are physically alternated between the two Plants on the basis of the relative working interests in the well. Chevron volumes are processed at the Carter Creek plant. [Transcript, Vol. I, pp. 140-141, 154-155 Confidential and Under Seal]. Wahsatch Gathering System gas was processed at the Carter Creek Plant for twenty-five days in 2001, during a Whitney Canyon Plant shutdown. [Transcript, Vol. I, pp. 126-128; Exhibit 123]. Both the Whitney Canyon Plant and the Carter Creek Plant have agreements that if either plant needs they can process the gas from the other plant for a limited period of time. [Exhibit 516].
36. In 1980, a wildcat well drilled between the Whitney Canyon and Carter Canyon Fields confirmed that the two fields were geologically linked. [Exhibit 131, p. 14].
37. The Whitney Canyon and Carter Creek Fields are the same reservoir essentially divided in half by ownership. The Carter Creek plant was designed and built with the intent to process both Carter Creek and Whitney Canyon Field gas. [Exhibit 131, p. 14; Transcript, Vol. I, pp. 34, 63-64].
38. The gas processed at Whitney Canyon and Carter Creek is produced from the same field and has the same composition. [Transcript Vol. II, p. 397]. An advertising brochure of the Petitioner explains:
Similarities in seismic data and producing characteristics led explorers to speculate that Federal 1-32 was geologically linked to Amoco’s Whitney Canyon field. In 1980, a wildcat well drilled between Whitney Canyon and Carter Creek confirmed these suspicions.
The newly designated single field qualified as a giant, ranking among the largest natural gas fields in the North American continent.
The field is a series of anticlinal structures about 15 miles long and 3 miles wide, covering more than 31,000 surface acres.
[Exhibit 131, p. 14]. The producers from the reservoir could agree to have their gas processed at either plant. The two plants are in very close proximity. Carter Creek is in competition with Whitney Canyon for producers so the fee Carter Creek charges should be readily subject for comparison with the fee Whitney Canyon charges. [Exhibit 186].
39. Because the volume and composition of the gas is so similar, Petitioner could process all of the gas treated at the Carter Creek plant at the Whitney Canyon plant instead. [Transcript Vol. II, p. 320].
40. The steps for processing the gas at the Carter Creek plant are similar to steps taken in the Whitney Canyon facility. [Transcript, Vol. I, p. 71-72 ].
41. The potential volume of gas that could be processed at the Carter Creek plant is similar to the potential volume of gas that could be processed at the Whitney Canyon facility, 170 million cubic feet per day. [Transcript, Vol. II, p. 344, Confidential and Under Seal].
42. There are differences in the Carter Creek Plant and the Whitney Canyon Plant. The Whitney Canyon Plant enjoys a less stringent air quality permit than the Carter Creek plant. [Transcript Vo. I, p. 89]. As a result, the Carter Creek Plant has a process unit known as a Stretford unit, the sole purpose of which is to meet sulfur air emission requirements. [Transcript Vol. I, pp. 54-55, 69-70, 86].
43. The two Plants have different systems for recovering NGLs. The Carter Creek Plant uses a chiller system which is limited to recovering a very small amount of ethane, about half the propane that Whitney Canyon Plant recovers, and about the same amount of heavier products like butane and natural gasoline. As a result the NGL recoveries and efficiencies at Whitney Canyon Plant are greater than those at Carter Creek Plant, but the processed gas from Carter Creek has a higher BTU content. [Transcript., Vol. I, pp. 54, 72-73, 256].
44. There are other differences between the Plants. The Carter Creek Plant has one sulfur plant and one sulfur train while Whitney Canyon Plant has two trains and two plants. The Carter Creek Plant transports the resulting sulfur by pipeline, while the Whitney Canyon Plant trucks the sulfur. [Transcript Vol. I, p. 53].
45. We find that the differences between the two plants do not affect the ability of either plant to serve gas production from the Whitney Canyon Field, the Carter Creek Field, or the Wahsatch Gathering System.
46. Amoco, the operator of the Whitney Canyon Plant, had historically represented to the Department that the Whitney Canyon C&O agreement was negotiated as arms-length and reported their production value using the netback method. [Stipulations of the Parties, ¶H3; Whitney Transcript Vol. VI, P. 1112].
47. We find the similarities between the Carter Creek Plant and the Whitney Canyon Plant to be so great that each offers a reliable reflection of how the other would treat a specific taxpayer if it were a third party producer requiring the services of a gas processing plant. We reach this conclusion because both process the same composition high sulfur gas from the same formation. In fact, before the gas is produced it would be impossible to predetermine which plant would process the gas. The plants have some slight differences but each serves the same producers from the same field with the same ultimate goal, to process gas for sale of NGLS and natural gas. Therefore, we conclude the processing fee charged to Whitney Canyon producers is a comparable fee with respect to producers who process gas at Carter Creek.
48. The Exhibit F Gas Processing Agreement of the Whitney Canyon C&O Agreement, obliges each Producer to pay, to the Owner[s], an in-kind processing fee of 25% of the plant production which is recovered during each monthly settlement period, and which is attributable to that Producer. [Exhibit 142, p. 377, Exhibit F, Section 12.1]. The Owners are responsible for all operating costs of the Gas Processing Plant. [Exhibit 142, Exhibit F, Section 12.2]. The Gas Processing Agreement further recites that the compensation percentage in the in-kind fee “can be readjusted to provide a discounted cash flow rate of return of 25% after Federal Income Taxes” if the anticipated capital investment of slightly less than $340 million is exceeded. [Exhibit 142, p. 377, Exhibit F, Section 12.3]. The 25% in-kind fee has never been changed. [Exhibit 142, Exhibit F; Transcript Vol. VI, p.1115]. It continues to govern the fees paid by the original parties to the Whitney Canyon C&O Agreement and their successors in interest.
49. We found in the Whitney Canyon case that the Whitney Canyon C&O agreement was a third party contract between four taxpayers, Chevron was one of the parties, and the Whitney Canyon C&O Agreement created a business entity we characterized as a partnership comprised of the four taxpayers.
50. The Whitney Canyon C&O Agreement specifically addressed the terms of gas processing agreements with third parties. [Exhibit 142, Section 23.1]. All processing for third parties was to be under agreements similar to those of the C&O Agreement parties, but without any right to take plant products in kind. [Exhibit 142, Section 23.1].
51. In paragraph 23.1 of the Whitney Canyon C&O Agreement it is agreed that any gas processing agreement for the processing of third party gas is to be performed under agreements similar to the Gas Processing Agreement attached to the C&O Agreement. Any modification to the terms and conditions to the Gas Processing Agreement must be approved by the Plant Owners. [Whitney Exhibit 514, pp. 99, 100, 117, Whitney Exhibit 536, p. 249, 268; Whitney Transcript, Vol. I, pp. 161-165].
52. Pursuant to the Gas Processing Agreement, each producer pays 25% of the production at the tailgate of the plant as a processing fee. [Exhibit 514, p. 152; Transcript, Vol. II, p. 395; Whitney Exhibit 536, p. 284; Whitney Transcript, Vol. I, pp. 65, 161-165, Vol. III, pp. 529-530, 535-538, Vol. IV, p. 719, Vol. VII, pp. 1375-1380].
53. The Whitney Canyon facility processed an average plant volume of 160 to 170 million cubic feet per day of dedicated gas. [Whitney Transcript, Vol. II, p. 312, 325].
54. Petitioner is a successor in interest to one of the original parties of the C&O Agreement. Petitioner is not affiliated with the other parties to the Whitney Canyon C&O Agreement other than as a party to that C&O Agreement. [Transcript, Vol. IV, pp. 723-725; Exhibit 514, p. 80; Whitney Exhibit 536, p. 212- 213; Whitney Transcript, Vol. I, 153-161].
55. The 25% processing fee was intended to allow the Whitney Canyon owners to cover the operating costs of the Whitney Canyon Plant plus provide a return on investment. Amoco’s representative confirmed that “[t]he 25 percent (stated in the Gas Processing Agreement) does represent the processing fee paid by the parties under the contract.” [Whitney Transcript, Vol III, p. 536, Vol. IV, pp. 719, 724-725, Vol. VII, pp. 1375-1380].
56. As we found in Whitney Canyon, there is ample support in the testimony for a finding that the in-kind processing fee, as originally negotiated, was intended to be adequate to compensate for operating costs, together with a return of the capital investment, and a return on capital [Whitney Transcript Vol. III, p. 536], or as Adair phrased it, “the full meal deal.” [Whitney Transcript Vol. V, p. 932]. This conclusion is supported by the language of Section 12.3 of the Gas Processing Agreements incorporated into the Whitney Canyon C&O Agreement, which allowed adjustment of the fee in the event of capital cost overruns, using a “discounted cash flow rate of return of 25% after Federal Income taxes.” [Whitney Transcript Vol. V, p. 932; Exhibit 142, Exhibit F]. There was never any adjustment to the fee, from which we infer the absence of substantial capital cost overruns. Further, Amoco claimed 25% as processing cost for tax purposes during a portion of the 1980's. [Whitney Transcript Vol. VI, p. 1112]. So, at least during the early years of the project it was conceded that the 25% processing fee was a relatively sound measure of processing costs. Moreover, the C&O Agreement has remained in place despite the highs and lows of gas prices over two decades. Whitney Canyon, Findings, ¶67.
57. As we found in Whitney Canyon, the 25% in-kind processing fee will continue to bear some relationship to costs over time. From 30% to 50% of the operating cost of the plant is associated with the plant’s electrical compressors. [Whitney Transcript Vol. II, p. 280]. A reasonable inference is that, as energy costs to the plant rise, the revenue value of the gas taken in-kind by the Plant Owners also rises, and vice-versa. Further, Amoco, as operator, bills an overhead charge of 20% on all operating costs. [Whitney Transcript Vol. IV, p. 672]. It is a reasonable inference that the size of the billings to the Plant Owners would likewise rise and fall with the principal expenses, such as energy. This self-adjusting feature of the in-kind processing fee, depending on gas pricing, suggests why the Plant Owners chose a percentage fee in the first instance. It is relatively easy to administer, tends to have an averaging effect on the Operator’s compensation over time and, because costs tend to fluctuate with gas prices, makes more common sense than a fixed fee. Our inference is further supported by Miller’s testimony that “the operator always believed the rates [for the operator’s overhead] to be inadequate and the nonoperators always believed the rates to be excessive.” [Whitney Transcript IV, p. 750]. This would not be true if the 25% fee had strayed too far from the mark. We find that the 25% fee is reasonably related to actual costs over time and reflects sound business judgment of continuing validity. Whitney Canyon, Findings, ¶68.
58. As we observed in Whitney Canyon, Brown relied on the age of the Whitney Canyon C&O Agreement to attack any method that concludes that the Whitney Canyon C&O Agreement is a comparable. [Whitney Transcript Vol. V, p. 983]. He explained that the determination of fair market value is oriented to today’s conditions, and says that the current effectiveness of a long-standing contract may not be “expressive of today’s fair market value or today’s fees in today’s market.” [Whitney Transcript Vol. V, p. 983]. This explanation must be weighed in light of his concession that the 25% processing fees were charged in 2000 under the existing contracts. [Whitney Transcript Vol. V, p. 999]. We cannot credit his insistence that there can be no comparables in the absence of “actual contracts inked for today in today’s market.” [Whitney Transcript Vol. V, p. 1000]. Specifically, Miller agreed that a 25% in-kind processing fee had become customary in the area, and an “acceptable fee.” [Whitney Transcript Vol. IV, pp. 719-720]. Brown offers us no reason to believe that his hypothetical “actual contracts inked for today” would have a processing fee any different than the Exhibit F Gas Processing Agreements under the Whitney Canyon C&O Agreement, or any of the other Gas Processing Agreements. In fact, since settlements under all of the Gas Processing Agreements are made on a monthly basis, 25% plainly continued to be an “acceptable fee” in 2000. Whitney Canyon, Findings, ¶74.
59. Having addressed these objections, we find that the Department’s reliance on the Exhibit F Gas Processing Agreements as comparables, taking into account the specific relationships between the entities we have identified, was reasonable in every respect. We also find the similarities between the Carter Creek gas, field and Plant and the Whitney Canyon gas, field and Plant are so great that the processing fee for both should be similar. The processing fee contained in Exhibit F of the Whitney Canyon C&O Agreement is comparable to the processing fee Carter Creek would charge because it is the same gas, from the same field, produced by the same producers and these same producers could choose either plant to process the gas.
V. PROPORTIONATE PROFITS RESULTS ARE NOT APPROPRIATE
60. Chevron entered into a confidential stipulation indicating actual cost information and included their report of costs to the Mineral Management Service. Both of these documents demonstrate the proportionate profit calculation results in a far greater deduction from revenues than the actual processing costs and transportation costs combined. The reduction of net revenue from the proportionate profit formula results in reduction far exceeding 70%. The comparable value formula resulted in a 25% reduction. The actual processing costs and actual transportation costs are much lower than the 25% reduction. This is for a plant that was placed in operation approximately twenty years earlier. [Confidential Stipulation, Under Seal]. The deduction calculated by the proportionate profits method results in a taxable value of $58,697,309 less than the calculation using the comparable value method. [Notice of Appeal]. From this, one can assume the comparable value calculation is nearer to fiscal reality than the proportionate profit calculation.
61. As we did in Whitney Canyon, for reasons we will address further in our conclusions of law, we believe that it is appropriate to consider whether the proportionate profits method accurately reflects fair market value for 2000. Conclusions of Law, ¶¶99-100. Petitioner’s own witness did not think the proportionate profits method reached fair market value. As Adair stated: “My understanding of the way it (proportionate profits) works is that it tries to account for fair market value over time. I don’t think it accurately represents it if we took one snapshot in time, 2000, I’m not sure I would agree doing the calculations that would be representative.” [Transcript, Vol II, p. 312]. Brown testified that his opinion was not an appraisal and “we have not reached a value conclusion.” [Whitney Transcript Vol. V, p. 1022].
62. Proportionate profits is particularly bothersome when gas prices rise. Chevron appreciated the effect of gas prices on the proportionate profits calculation. Chambers, tax representative of Chevron, noted that when gas prices were low in the early 1990's, proportionate profits “probably resulted in the highest taxable value methodologies at that time.” [Whitney Transcript Vol. II, p. 367]. Ostroff, of UPRC, conceded that as the price of gas goes up, the proportionate profits method will tend to undervalue the gas when compared to the netback method. [Whitney Transcript Vol. III, p. 568; see also Whitney Transcript Vol. III, p. 514 et seq]. In 2000, the prices for natural gas were the highest they had been in four years. [Exhibit 170]. For a definition of the netback method, the report of Chevron’s expert Adair states that, “[t]he market value of the raw gas can then be determined by netting the direct costs to gather, condition, and process the gas along with an allowance for recovery and on the capital invested in the assets required to transform the raw gas to marketable products, from the market value attributable to the products extracted.” [Whitney Exhibit 170, p. W1150]. Adair did not preform the calculation she recommended because as she did not receive adequate information from Petitioner to perform the calculations. [Transcript Vol. II, p. 322]. However, as we will discuss in our Conclusions of Law, in this case the application of the netback method defined under Wyo. Stat. Ann. §39-14-203(b)(vi)(c)) would apparently yield the same result as comparable value, i.e., a 25% in-kind fee. Conclusions of Law, ¶139-143.
63. As we observed above when gas prices are high proportionate profits yields an artificially low value. [Whitney Transcript Vol. III, p. 568; see also Whitney Transcript Vol. III, p. 514 et seq]. During the 2000 production year gas prices were much higher than they had been historically. [Exhibit 170]. If proportionate profits methodology were used the resulting value would be deflated particularly during the year in question.
64. The Department concluded that proportionate profits does not return fair market value for tax year 2000. [See Whitney Transcript Vol. VI, p. 1158; Transcript Vol. VIII, p. 146 and associated testimony]. We agree with Ms. Adair, and find that when the price of gas is high, the proportionate profits method does not yield a result with a reasonable relationship to actual processing costs. [Transcript Vol. I, p. 311, Whitney Transcript Vol. VIII, p. 1462].
VI. APPRAISAL THEORY IS NOT APPLICABLE
65. As we found in Whitney Canyon, Brown and Adair go too far in the direction of insisting that we ignore the Legislature’s definition of comparable value in favor of the expertise they have to offer. Both experts rely implicitly and heavily on experience valuing assets. Adair specifically alludes to the example of real estate when she discusses the sources of standard appraisal techniques. [Whitney Transcript Vol. V, p. 901]. However, the value which is being sought under the statute is not an asset. It is not the value of the plant. It is not the value of the product of the plant, since the value of the gas sold at the tailgate is known. It is not the value of the natural gas before the inlet of the plant, since that would involve a different method, comparable sales. Wyo. Stat. Ann. §39-14-203(b)(vi)(A). The problem is to find the value of the processing deduction. Brown admits that he has no experience in trying to find a comparable value for a processing fee [Whitney Transcript Vol. V, p. 997], or for gas production [Whitney Transcript Vol. V, p. 1036], nor does he have “any specific training on something as fine a point as what to deduct...in concluding a gas sales price.” [Whitney Transcript Vol. V, p. 1035]. As we noted similarly in the context of Adair’s proposals for rules, Findings of Fact, ¶20, the adoption of Brown’s many views would have the practical effect of repealing the statute. In light of the limitations on his own expertise, and the absence of persuasive advice or insight in the very specific context and statutory language at issue in this case, we give no weight to Brown’s opinions, or to similar opinions of Adair. We find similar limitations in the treatises that the Department offered into evidence. [Whitney Exhibit 547, 548, 549]. Whitney Canyon, Findings, ¶75.
VII. EXXON ROAD HOLLOW AGREEMENT IS A COMPARABLE
66. The Carter Creek Plant processed gas from Exxon’s Road Hollow field pursuant to an agreement with Exxon. [Confidential Exhibit 122, Under Seal]. This is an arms-length agreement between unrelated parties. [Transcript, Vol. I, p. 138, Confidential, Under Seal]. The gas processed under the Exxon Road Hollow Agreement contains a low amount of hydrogen sulfide, approximately 1%, as compared to Carter Creek gas and Whitney Canyon gas both of which contain a large percentage of hydrogen sulfide, between 16% - 17%. [Transcript, Vol. I, p.110]. Still, even this small quantity of hydrogen sulfide prevents the Road Hollow gas from being marketable without processing. [Transcript, Vol. I, pp. 109-110].
67. The fee charged to Exxon under this Agreement is a sliding scale based on volume with a maximum of 25%. Petitioner takes this fee in kind, meaning that it receives up to 25% of Exxon’s Road Hollow production at the tailgate of the plant. Exxon receives the same composition of gas at the tailgate of the plant as what is received at the inlet. Even though all the gas is commingled, the percentage of each component of the Exxon gas is recorded and the same percentage of that component is delivered to Exxon at the tailgate. [Exhibit 112, p. 9, Confidential, Under Seal]. Thus, Exxon receives higher BTU content than Chevron at the tailgate of the plant. The fee charged to Exxon decreases as it sends increased volumes of gas through the plant. [Confidential Exhibit 122, Section 11.1, Under Seal].
68. Four percent (4%) of the gas processed at the Carter Creek plant is from the Road Hollow field. [Transcript, Vol. I, p. 45].
69. Road Hollow gas is fourth priority and was shut in for 24 hours in 2000. [Transcript, Vol. I, pp. 5, 125]. The Department did not consider priority to be a concern because there is no taxable event until the gas is processed and sold. [Transcript, Vol. II, p. 3].
70. At all times, Chevron had a substantial interest in processing greater volumes of gas at the Carter Creek Plant. In principle, incremental production above that from the Carter Creek field affects the economic life of the Carter Creek Plant. Production from a source such as Road Hollow allows the Carter Creek Plant to operate longer, and in doing so, enables Chevron to recover more of the gas in the Carter Creek reservoir. [Transcript, Vol. I, pp. 116-120, 158-160; Exhibit 168]. However, Chevron offered no evidence about how far along the Plant is in its life span. [Transcript Vol. I, p. 120]. Chevron also realized a financial gain from the Road Hollow contract. [Transcript Vol. I, p. 131].
71. There is a quantity limit in the Road Hollow Agreement. Road Hollow gas has never exceeded the productions limitation so it did not effect the commercial viability of the Agreement. [Transcript, Vol. I, pp. 125, 144, Confidential Testimony, Under Seal].
72. We conclude the gas from Exxon Road Hollow must be processed and the producer has negotiated a fee of 25% or lower with a third party Chevron. This processing fee demonstrates a comparable fee.
73. The Exxon Road Hollow Agreement is a reliable source of information, or a comparable, from which we may infer and impute a reasonable processing fee which would be paid by another party for processing gas of like quantity, taking into consideration the quality, terms and conditions under which the gas was processed. That fee is an in-kind processing fee of 25% of the plant production recovered during each settlement period, subject to the adjustments for hydrocarbon content that we have described above. Sufficient similarity in quantity is assured by the fact that the maximum processing fee required (except with regard to sulfur) during 2000, under any known gas processing agreement related to Whitney Canyon or Carter Creek, was 25%. Sufficient similarity in quality is assured by the fact that the gas processed in the plant is sour gas, similar to the other gas processed at the Carter Creek Plant.
VIII. 1995 CHEVRON AGREEMENT IS NOT A COMPARABLE
74. Chevron has an agreement with the Whitney Canyon Plant to process its gas from a specific well for a 25% processing fee. [Exhibit 529].
75. When Petitioner acquired Gulf and became a successor in interest in the Whitney Canyon facility, Amoco, as Whitney Canyon operator, and Petitioner negotiated new terms of the 1995 Chevron agreement, lowering the processing fee to a maximum of 25% and changing the priority of the gas interests acquired from Gulf to third priority. [Exhibit 529, p. 388; Whitney Transcript Vol. IV, pp. 675-678; Whitney Exhibit 551].
76. The 1995 Chevron Agreement allows Chevron to process gas at Whitney Canyon at a processing fee of 14.17% and 25% of the product. Chevron also gained the option of sending the gas to Carter Creek. [Exhibit 529, pp. 388, 409; Whitney Transcript Vol. IV, pp. 726-730; Whitney Exhibit 551].
77. Petitioner, for production from four Whitney Canyon wells, has reported and currently reports as a processing allowance a processing fee of between 14.17% and no more than 25%, using the comparable value approach as opposed to proportionate profits approach. Chevron uses the Gas Processing Agreement entered April 1, 1995, with Whitney Canyon to calculate the processing deduction for those wells. [Exhibit 529, p. 409; Whitney Exhibit 551, pp. 682, 692; Whitney Transcript, Vol. II, pp. 378-380].
78. Petitioner owns an interest in dedicated Whitney Canyon wells and Whitney Canyon non-dedicated wells. The non-dedicated wells can be sent to either Whitney Canyon or Carter Creek for processing. Chevron claims a processing deduction in great excess of 50% under the proportionate profits method for its dedicated production at the Carter Creek plant and a flat 25% processing deduction for its non-dedicated well ownership in Whitney Canyon. The gas is produced from the same field, is of the same quality range and undergoes the same processing function. If the non-dedicated gas were processed at Carter Creek, Petitioner would also claim a large deduction under the proportionate profit method. [Exhibit 529, p. 388; Transcript Vol. II, p. 330; Whitney Exhibit 551; Whitney Transcript, Vol. II, pp. 378-382].
79. The 1995 Chevron Agreement is an agreement with Chevron as a producer therefore is not a comparable with Chevron a processor at the Carter Creek Plant. It is significant to note the gas processed under this agreement is the Petitioner’s gas and could be processed at Petitioner’s Carter Creek Plant but Petitioner finds it convenient to pay the 25% processing fee and have the gas processed at the Whitney Canyon Plant.
IX. WAHSATCH GATHERING SYSTEM AGREEMENT (Yellow Creek) IS A COMPARABLE
80. UPRC and the Whitney Canyon Plant have a processing agreement for gas produced from the Yellow Creek field, this is called the Wahsatch Gathering System. However the Department did not use the agreement as a comparable when it made its valuation decision for the Carter Creek production. [Stipulations ¶D.2]. The processing fee has a range of 14.17% to 25% depending upon the volume produced per day. Thus, regardless of the volume produced, UPRC never paid more than a 25% processing fee. [Exhibit 164; Transcript, Vol. III, pp. 404-405; Whitney Transcript Vol. IV, pp. 733-734; Whitney Exhibit 538].
81. In 2001, Carter Creek similarly entered into an agreement to process Wahsatch gas at a processing fee of 25% and actually did process gas for twenty-five days during a shutdown of Whitney Canyon. [Exhibits 123, ¶7, Exhibit 521, p. 234, Exhibit 124; Transcript Vol. I, pp. 126-128 134-135, 147].
82. The Wahsatch Gathering System Agreement is a reliable source of information, or a comparable, from which we may infer and impute a reasonable processing fee which would be paid by another party for processing of gas of like quantity, taking into consideration the quality, terms and conditions under which the gas was processed. That fee is an in-kind processing fee of 25% of the plant production recovered during each settlement period, and attributable the Wahsatch Gathering System interests. Sufficient similarity in quantity is assured by the fact that the maximum processing fee required (except with regard to sulfur) during 2000, under any known gas processing agreement related to Whitney Canyon and Carter Creek, was 25%. Sufficient similarity in quality is assured by the fact the gas processed in the plant is sour gas, similar to the other gas processed at the Carter Creek Plant.
XI. OTHER CONTRACTS DEMONSTRATE COMPARABLES
83. Following Petitioner’s appeal of the selection of the comparable value method and notice of valuation, the Department continued to investigate the processing arrangements for the Carter Creek and Whitney Canyon Plants. All the additional contracts finally produced during litigation had processing fees not exceeding 25%. [Transcript, Vol. IV, pp. 453-454]. These contracts included:
1.Whitney Canyon/Carter Creek Mutual Back-up Processing Agreement between the Whitney Canyon facility, dated April 1, 1995. [Exhibit 516]. Because the Department did not place much weight as a comparable we decline to find this is a direct comparable.
2.Anschutz back-up processing agreement between Petitioner and UPRC producer of Yellow Creek Production. [Exhibits 520, Exhibit 123, Confidential, Under Seal]. This contract was not entered into until 2001 and is therefore not a comparable to value 2000 Production. [Transcript, Vol. I, p. 126, Confidential Testimony, Under seal]. Because the Department did not place much weight as a comparable we decline to find this is a direct comparable.
3.Whitney Canyon has an agreement to process gas under the terms of an agreement described as the Merit Agreement. The fee did not exceed 25% of the processed gas. [Exhibit 522]. We find this agreement to be further evidence of a comparable value.
Taken in total, these contracts support the Department’s conclusion that 25% is the processing fee for this market.
IX. UNIFORMITY WITH OTHER TAXPAYERS
84. Since 1995, the Department allowed Petitioner to use another method to value gas processed at the Lost Cabin plant after Chevron filed an attestation that there are no comparable values. [Exhibits 151, 155; Transcript, Vol. II, pp. 203-204, 234-235; Whitney Transcript, Vol. VI, pp. 1067-1069].
85. The Department required all producers to use the comparable value methodology, including producers Burlington, Marathon and Exxon Mobil. However, it found there were no comparables for Burlington, Chevron, Marathon and Exxon Mobil. The Department allowed Exxon Mobil to use an agreed upon formula to value its production. It allowed Burlington, Chevron and Marathon to use the proportionate profits method. The Department allowed this to occur but reserved its right to change the methodologies subject to audit of taxpayers by the Department of Audit. [Transcript, Vol. II, p. 242, Vol. III, pp. 412-414; Exhibit 505].
86. Following the 1999 selection of the comparable value method, two other taxpayers, Burlington Resources and Marathon, also attested to the Department that there were no comparable contracts for the valuation of the minerals processed at the Lost Cabin plant, or at the Oregon Basin/Garland processing plants. [Transcript, Vol. II, p. 242, Vol. III, pp. 412-414; Exhibit 505].
87. The Lost Cabin plant was considered to be different by the Department because the gas is from a different field, the Madden Deep field, and there were no fees charged in the processing agreements. The agreements used for Carter Creek or Whitney Canyon were not used by the Department to value Lost Cabin deductions because the gas from those other agreements could not be physically processed at Lost Cabin. [Transcript, Vol. III, pp. 412-414, 459].
88. The Department requested from Burlington Resources and Marathon all gas processing agreements related to the minerals at issue, and the taxpayers provided the agreements. Upon review of the contracts and other information available to it, the Department concluded that, unlike Whitney Canyon and Carter Creek, the agreements which governed processing of the minerals through the plants did not establish a fee pursuant to which the plants would process gas not owned by the plant owners, no minerals from the fields dedicated to the plants had ever been processed at any other plant, and no gas from any other field had ever been processed at the plants at issue. Therefore, the Department provisionally allowed these two taxpayers to report based on the proportionate profits method. The use of the proportionate profits method is subject to later audit, and if a comparable processing agreement is discovered, the Department will apply it for valuing the minerals. [Transcript, Vol., II, p. 242, Vol. III, pp. 412-414].
89. Chevron asserts that, if the proportionate profits method is not allowed for Carter Creek production, the Lost Cabin production will enjoy a vastly higher processing deduction. The Department answered interrogatories directed to the reasons for granting other taxpayers use of the proportionate profits method. [Whitney Exhibit 198]. Based on information available to the Department and information “available in the ordinary course of its business,” the Department examined contracts, particularly with respect to processing fees; considered whether gas was being processed from any wells not dedicated to the plant; and considered whether gas from the dedicated field had been processed at any other plant. [Whitney Exhibit 198]. In each instance, the Department found circumstances that distinguished Carter Creek from the facilities of interest to the taxpayers. As we found in Whitney Canyon, the Department’s distinctions were reasonable, although we, like the Department, are not in a position to fully weigh the accuracy of the facts reported by the other taxpayers to the Department until after an audit. Whitney Canyon, Findings, ¶52.
90. We also found in Whitney Canyon, as in the case of Carter Creek that the there are reasons to distinguish Carter Creek from the other facilities to which Chevron has directed our attention. Chevron, however, was content to confine itself to the cross-examination of Bolles on this subject, rather than calling witnesses with first hand knowledge. Chevron produced no evidence to shed light on the difference in cost structures at these locations. On the evidence presented to us, and without prejudging the findings and conclusions that we might make on other evidence in proceedings directly involving the other named facilities and the testimony of witnesses with knowledge, we find that there is ample reason to distinguish the operation of the Carter Creek facility from the other facilities to which Chevron has directed our attention. Whitney Canyon, Findings, ¶53.
91. Our findings related to the Whitney Canyon Gas Processing Agreement and the Road Hollow Agreement and the other agreements discovered in the course of litigation, taken together, support the decision of the Department. The Department’s selection and application of the comparable value method was free from error, and free from indications of carelessness.
92. The Petitioner has not requested rules be promulgated to interpret the comparable value statute. [Transcript, Vol. III, p. 414].
93. We find no credible evidence that the Petitioner has been the object of selective enforcement procedures by the Department.
94. Any Conclusion of Law set forth below which includes a finding of fact may also be considered a finding of fact and is therefore incorporated herein by this reference.
CONCLUSIONS OF LAW
I. SCOPE OF REVIEW
A. Selection of method
95. The Department selected one of four methods for valuing natural gas production not sold at the point of valuation, as it was authorized and required to do pursuant to Wyo. Stat. Ann. §39-14-203(b)(vi).
96. The appeal has been filed pursuant to Wyo. Stat. Ann. § 39-14-203(b)(viii):
(viii) If the fair market value of the . . . natural gas production . . . is determined pursuant to paragraph (vi) of this subsection, the method employed shall be used in computing taxes for three (3) years including the year in which it is first applied or until changed by mutual agreement between the department and the taxpayer. If the taxpayer believes the valuation method selected by the department does not accurately reflect the fair market value of the . . . natural gas, the taxpayer may appeal to the board of equalization for a change of methods within one (1) year from the date the department notified the taxpayer of the method selected. (Emphasis supplied).
97. The selection of method and its relation to fair market value is the principal subject of our review. We conclude that the test of fair market value must be applied to the valuation method selected by the Department.
98. To determine whether the method selected by the Department, the Comparable Value Method, accurately reflects fair market value, we must define “accurately.” The word “accurately” has several related senses, stemming from the root word “accurate,” which can mean both “free from error, especially as the result of care” and “conforming exactly to truth or to a standard.” Webster’s Ninth Intercollegiate Dictionary (1989), p. 50. The Legislature recognized the difficulty of conforming exactly to the standard of fair market value when natural gas production is used without sale – it provided four alternative methods of valuation, with the option of a mutually agreeable alternative in the event that Department and taxpayer agree that none of those four methods “produce a representative fair market value . . ..” Wyo. Stat. Ann. § 39-14-203(b)(vi),(vii). We therefore choose to rely on the first definition. In other words, we will consider whether the Department’s selected method is free from error, or is in some way marked by carelessness.
99. Reading the second sentence of Wyo. Stat. Ann. § 39-14-203(b)(viii) as a whole, and in the context of the objectives of the statute, Conclusions of Law, ¶106, we also conclude that our assessment of accuracy in reflecting fair market value authorizes us to consider evidence of the relative merits of competing methods available under Wyo. Stat. Ann. § 39-14-203(b)(vi). Particularly in view of the evidence presented in this proceeding, not doing so risks the possibility that rejection of one method might, by default, require the Department to employ a method that does not reflect fair market value at all. Even though the second clause of the sentence does not explicitly contemplate that an alternative to a rejected method must also pass the test of accurately reflecting fair market value, that is the fairest reading of the second sentence as a whole, giving meaning to all of its parts in the context of Wyo. Stat. Ann. § 39-14-203. Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo. 1993).
100. As we observed in Whitney Canyon, there is a further and separate reason for considering the results of using the alternative methods. Whitney Canyon, Conclusions, ¶109. Both parties have presented evidence and argument regarding the issue of uniformity of valuation under the Wyoming Constitution. One of the methods at issue may yield a deduction which is so excessive as to result in an artificially low price. “If such an artificially low price were utilized for purposes of taxation, the result would be a lower tax for operators [with the excessive deduction] than that paid by other operators. That lack of uniformity would be unacceptable because ‘[t]he Wyoming Constitution mandates that all [minerals] shall be uniformly taxed on the value of their gross product.’ Amax Coal West, Inc., 896 P.2d at 1332.” Wyodak Resources Development Corporation v. Wyoming Department of Revenue, 2002 WY 181, ¶34, 60 P.3d 129, 142 (Wyo. 2002).
B. Jurisdiction and Issues
101. Chevron timely filed a separate notice of appeal of its annual valuation pursuant to Wyo. Stat. Ann. §39-14-209(b) [“appeals”] and Chapter 2, Section 5 of the Board’s Rules [requirements for filing]. The relief requested was that “the Department of Revenue’s action on Chevron’s returned valuations be reversed and for Chevron’s originally returned valuations to be accepted and certified.” This is a reference to Chevron’s use of the proportionate profits method in its annual report. The Board’s decision in Appeal of Amoco Production Company, 2001 WL 770800 (Wyo. St. Bd. Eq. 2001); on reconsideration, 2001 WL 1150220 ( 2001), would have the effect of reducing the deduction claimed by Chevron. The Board’s decision increases the taxable value claimed by the Taxpayer using the proportionate profits method by requiring taxes and royalties be included as direct costs of production. However, Chevron has not accepted that decision, and we have considered this case on the basis of the relief it has requested.
102. The initial claims and contentions have been supplemented and amended during the course of the proceedings. We have taken these restatements and refinements of the issues into account in our decision of the case. However, Chevron did not identify or state theories of res judicata, judicial estoppel, and waiver until it submitted proposed findings of fact and conclusions of law following the hearing.
C. The Board’s Role
103. The Supreme Court has made it clear that the role of this Board is strictly adjudicatory:
It is only by either approving the determination of the Department, or by disapproving the determination and remanding the matter to the Department, that the issues brought before the Board can be resolved successfully without invading the statutory prerogatives of the Department.
Amoco Production Company v. Wyoming State Board of Equalization, 12 P.2d 668, 674 (Wyo. 2000). The Board’s duty is to adjudicate the dispute between Chevron and the Department, and nothing more.
D. Burden of proof
104. “The burden of proof is on the party asserting an improper valuation.” Amoco Production Company v. Wyoming State Board of Equalization, 899 P. 2d 855, 858 (Wyo. 1995); Teton Valley Ranch v. State Board of Equalization, 735 P. 2d 107, 113 (Wyo. 1987). The Board’s Rules provide that, “the Petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If Petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action . . ..” Rules, Wyoming State Board of Equalization, Chap. 2, § 20.
105. Under the analysis which follows, taken in light of our Findings of Fact, we conclude Chevron has not met its burden.
II. OBJECTIVE OF THE STATUTES
106. To properly interpret the various statutes applicable to natural gas valuation, we must first review their fundamental objective. Wyodak Resources Development Corporation v. Wyoming Department of Revenue, 2002 WY 181, ¶33, 60 P.3d 129 at 141-142 (Wyo. 2002). The Wyoming Constitution requires the gross product of mines to be taxed in proportion to the value thereof and uniformly valued for tax purposes at full value as defined by the legislature. Wyo. Const. Art. 15, §§ 3, 11. For oil and gas, the “value of the gross product means fair market value as prescribed by Wyo. Stat. Ann. 39-14-203(b), less any deductions and exemption allowed by Wyoming law or rules.” Wyo. Stat. Ann. §39-14-201(a)(xxix). The fair market value for natural gas must “be determined after the production process is completed.” Wyo. Stat. Ann. §39-14-203(b)(ii). “The production process for natural gas is completed after extracting from the well, gathering, separating, injecting and any other activity which occurs before the outlet of the initial dehydrator. When no dehydration is performed, other than within a processing facility, the production process is completed at the inlet to the initial transportation related compressor, custody transfer meter or processing facility, whichever occurs first.” Wyo. Stat. Ann. §39-14-203(b)(iv). All of these provisions read together provide the context within which the specific valuation methods contained in Wyo. Stat. Ann. §39-14-203(b)(vi) must be interpreted. Wyodak Resources Development Corporation v. Wyoming Department of Revenue, id., ¶33, 60 P.3d at 141-142.
107. The Petitioner in this case does not sell its natural gas at the point of production. Therefore, Wyo. Stat. Ann. §39-14-203(b)(vi) obliges the Department to value the production using one of four methods defined by statute: comparable sales, comparable value, netback, or proportionate profits. If none of these methods produces a representative fair market value, a mutually acceptable alternative method may be applied. Wyo. Stat. Ann. §39-14-203(b)(vii). There was no effort to reach a mutually acceptable alternative in this case, so a mutually acceptable alternative is not available to value the processing deduction.
III. SELECTION OF THE METHOD
A. Procedures
108. The Department identified the valuation method it intended to apply pursuant to Wyo. Stat. Ann. §39-14-203(b)(vi), and duly notified Chevron before September 1 of the year preceding the year for which the method was to be employed, as required by Wyo. Stat. Ann. §39-14-203(b)(vi). [Exhibit 113]. At the hearing of this matter, Bolles, on behalf of the Department, explained the valuation options available to him, and the reasons for selecting the comparable value method. We conclude, as we did in Whitney Canyon, that the identification and notice requirements of the statute were met. We further conclude that the Department was under no obligation to accept any request to substitute the proportionate profits method simply because such requests had been granted in previous years. Whitney Canyon, Conclusion, ¶119. Any other conclusion would contradict the plain meaning of the statute, which contemplates a periodic exercise of the Department’s discretion to select a method.
109. The Petitioner has complained that the Department failed to provide the Petitioner with sufficient notice of how to apply the comparable value method. In light of our findings of fact with regard to the positions taken by the Petitioner, we conclude, as we did in Whitney Canyon, that it has failed to carry its burden of proof to establish its complaint as a matter of fact. Findings of Fact, ¶¶ 12-19. We further conclude that the Petitioner has been fully afforded its “statutory and constitutional rights to protest and contest.” Pathfinder Mines v. Wyoming State Board of Equalization, 766 P. 2d 531, 535 (Wyo. 1988). We emphasize our conclusion from Whitney Canyon, that the Department, rather than the individual Chevron, is responsible for determining value. Wyo. Stat. Ann. §39-14-203(b)(vi); Conclusions of Law, ¶122; Whitney Canyon, Conclusions, ¶120.
B. The definition of comparable value method
110. The dispute between the parties begins with how the comparable value method is defined. We accordingly begin by addressing the requirements of the statute.
111. There is no dispute that the Department has correctly identified the statutory definition of the comparable value method, which is:
Comparable Value – The fair cash market value is the arms-length sales price less processing and transportation fees charged to other parties for minerals of like quantity, taking into consideration the quality, terms and conditions under which the minerals are being processed or transported.
Wyo. Stat. Ann. §39-14-203(b)(vi)(B).
112. Our reading of the statute is governed in the first instance by well established principles. The Board must look to the intent of the legislature when enforcing or construing statutes, and legislative intent must be ascertained initially and primarily from the words used in the statute. Allied-Signal, Inc. v. Wyoming State Board of Equalization, 813 P.2d 214, 219 (Wyo. 1991). For a more complete statement of related principles, see generally State of Wyoming by and through the Department of Revenue v. Union Pacific Railroad Company, 2003 WY 54, ¶12, 67 P.3d 1176, 1182-1183 (Wyo. 2003).
113. The first word of interest is “comparable.” As used in the phrase, comparable value, “comparable” is an adjective which is defined as “capable of or suitable for comparison.” Webster’s Ninth New Collegiate Dictionary (1989), p. 267. The root of “comparable” is “compare,” which in this context means “to examine the character or qualities of especially in order to discover resemblances or differences.” Id., p. 267. A usage note states that compare “implies an aim of showing relative values or excellences by bringing out characteristic qualities whether similar or divergent.” Id., p. 268.
114. The statute’s directive for determining fair market value parses into three phrases. The first phrase is, “the arm’s length sales price.” We understand there is no dispute about the meaning of this phrase. It refers to the price received for sales of gas from the tailgate of the plant. That is what we conclude as a matter of law.
115. The second phrase is, “less processing and transportation fees charged to other parties for minerals of like quantity.” We have already mentioned that transportation fees are not an issue in this case. Findings of Fact, ¶26. We can therefore simplify our task, and address the phrase, “less processing . . . fees charged to other parties for minerals of like quantity.” There does not appear to be any dispute in this proceeding with regard to what a processing fee is, perhaps because “processing” is defined by statute. Wyo. Stat. Ann. §39-14-201(a)(xviii). There is, however, a dispute regarding the qualifying words, “charged to other parties for minerals of like quantity.”
116. We reach the common meaning of the words “other parties” by reliance on simple dictionary definitions. The appropriate sense of “other” in the statute is “being the one or ones distinct from that or those first mentioned or implied.” Webster’s Ninth New Collegiate Dictionary (1989), at 835; see also The American Heritage Dictionary of the English Language, 4th Edition (2000); Black’s Law Dictionary, 5th Edition (1979). The identity of “that or those first mentioned or implied” is plain. The first paragraph of Wyo. Stat. Ann. §39-14-203(b)(vi) obliges the Department to notify “the taxpayer” of the method the Department has selected. The language regarding voluntary selection of an alternative valuation method is similarly singular, i.e., “the taxpayer.” Wyo. Stat. Ann. §39-14-203(b)(vii). So is the language providing for appeal of the valuation method. Wyo. Stat. Ann. §39-14-203(b)(viii). The appropriate sense of “party” is “a person or group participating in an action or affair.” Webster’s Ninth New Collegiate Dictionary (1989), at 859. We accordingly conclude that “other parties” are simply persons or groups distinct from the individual taxpayer. We further conclude that this is “‘the ordinary and obvious meaning of the words employed according to their arrangement and connection.’” Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo. 1993).
117. The Petitioner has offered a variety of arguments urging us to find ambiguities in the phrase “other parties.” Divergent opinions as to the meaning of a statute may be evidence of an ambiguity, but the fact that opinions may differ as to a statute’s meaning is not conclusive. Campbell County School District v. Catchpole, 6 P.3d 1275, 1285 (Wyo. 2000). We have already found that the Petitioner was actively opposed to the use of the comparable value method. The Petitioner has simply taken a position contrary to the ordinary and obvious meaning of the words employed in the statute. We conclude that there is no ambiguity regarding the words, “other parties.”
118. Defining the term “other party” is important in this case because of our conclusion that the Whitney Canyon Gas Processing Agreement is good evidence that the processing fee for Carter Creek is similar. If “other party” is a partnership as opposed to a member of that partnership then the Whitney Canyon Gas Processing Agreement is a comparable agreement and thus a comparable fee. We concluded Carter Creek and Whitney Canyon are similar in Findings of Fact ¶ 35-59.
119. At one level, the words “minerals of like quantity” are also of plain meaning. “Minerals” is a shorthand for the crude oil, lease condensate and natural gas that are taxed under Wyo. Stat. Ann. §39-14-203(b). Although “like” has many meanings, the correct meaning in this context is “the same or nearly the same (as in appearance, character, or quantity).” Webster’s Ninth New Collegiate Dictionary (1989), at 692 (Emphasis supplied); see also The American Heritage Dictionary of the English Language, 4th Edition (2000); Black’s Law Dictionary, 5th Edition (1979). “Quantity” means “an indefinite amount or number.” Webster’s Ninth New Collegiate Dictionary (1989), at 963. We can therefore paraphrase “minerals of like quantity” to mean natural gas of the same or nearly the same amount.
120. However, a “same amount” unavoidably implies a comparison based on a measurement. There is no dispute that natural gas is measured volumetrically, but the words in the statute arguably raise a question about what sorts of measurements must be
made to make a comparison. Possibilities include total quantities, e.g. 100 MMCF, and unit quantities, e.g. 1 MCF. This question cannot be answered exclusively by reference to the words “minerals of like quantity.” However, it can be answered by reference to the context of the whole phrase, “processing....fees charged....for minerals of like quantity,” and by reference to the context of Wyo. Stat. Ann. §39-14-203(b)(vi) as a whole. Therefore, we look to processing fees charged for minerals in the same volume measurement.
121. Although there is no dispute regarding the meaning of the words “processing fees,” those words are also unspecific with respect to measurement. Possible ways to gauge processing fees might include total fees measured in-kind or in dollars, or fees per unit of volume, measured in-kind or in dollars. For example, the fee for processing 100 MMCF might be $25 or 25 MCF, which in turn might be calculated under a fixed rate or a sliding scale. When “processing....fees” and “minerals of like quantity” are read together in the phrase as a whole, their meaning comes into focus. The intention of the statute is to reach a comparison using the same measurement approach to both processing fees and amounts of mineral. If the comparable value method is to be used, the Department must be certain that it has investigated the circumstances with sufficient diligence to assure that there are no ambiguities or errors in its determination of what the fees are. The words chosen by the legislature avoid difficulty with a specific directive regarding the means of measurement, which could exclude comparisons that might be valid. A measurement specifying comparisons in terms of dollars per MCF, for example, might have excluded a comparison based on the in-kind fee presented by a comparable in this case.
122. The statute provides additional context for the phrase. The Department is the entity by which the valuation method is “employed,” and which must “determine the fair market value by application of” the selected method. Wyo. Stat. Ann. 39-14-203(b)(vi). That is, the statute contemplates an exercise of discretion by the Department. The language chosen by the legislature to define the comparable value method must be considered in that light, just as the same language must be considered in the context of the objectives of the statute, Conclusions of Law, ¶¶108-109.
123. The larger context of Wyo. Stat. Ann. §39-14-203(b)(vi), and what it implies for the comparable value method, was considered by the Board in the context of an earlier production year. The resulting principle was cited with apparent approval by the Wyoming Supreme Court. “[T]he reasonableness of the comparable value methodology is tested by whether there exist reliable, available information within the ‘market’ of natural gas processing fees paid by others (i.e., the ‘known’), which can be used to reasonably infer or estimate a just and fair processing fee (the ‘unknown’) that would have been paid by Petitioner had it been in a ‘third party’ producer position vis-à-vis the processing plant.” Appeal of Amoco Production Company, SBOE Docket 91-174, 1992 WL 126533 (Wyo. St. Bd. Eq. 1992); Amoco Production Company v. State Board of Equalization, 882 P.2d 866, 870 (Wyo. 1994). It is important to note that the Board’s decision rested on an analysis of the “minimum standard which must be met to uphold the method selected by the Department.” Appeal of Amoco Production Company, 1992 WL 126533, p. 4. In addition, the application of the quoted principle under different facts required a different result than we reach today. Conclusions of Law, ¶¶171-178. The precedent nonetheless assists us in reaching a final conclusion regarding the words, “minerals of like quantity”.
124. We conclude that the phrase, “processing fees . . . charged to other parties for minerals of like quantity” is a broad test which must be used by the Department when the Department selects the comparable value methodology to determine fair market value. That test requires the Department to exercise its sound discretion to analyze available information of known processing fees in the context of known volumes of gas for which such fees are charged, with the objective of securing reliable information from which reasonable estimates can be made regarding processing fees which would be paid by a specific taxpayer had it been in the position of a third party producer requiring the services of a gas processing plant. This is primarily a determination of fact. We conclude that we have reached “‘the ordinary and obvious meaning of the words employed according to their arrangement and connection.’” Parker Land and Cattle Company, 845 P.2d 1040,1042.
125. Chevron has focused considerable attention on what it considers to be an ambiguity in the words, “minerals of like quantity.” We conclude that there is no ambiguity, but will address four of the concerns articulated by Chevron. The first concern is an argument, to the effect that the volumes of gas on which a suitable comparison can be based must be defined in advance of applying the comparable value method. [Taxpayers’ Proposed Findings of Fact and Conclusions of Law, pp. 83-85, ¶¶245-248]. Chevron asks us to conclude that there is or should be an additional constraint on the discretion of the Department. We see no valid reason for adding and thereby imposing such a constraint as a matter of law, and by doing so, prejudging the range of pricing and volume relationships that the Department may select for analysis. Where the Department and Chevron disagree about the significance of pricing and volume relationships for the sound exercise of the Department’s discretion, the dispute must be resolved on the basis of evidence presented to the Board. See Amoco Production Company v. Wyoming State Board of Equalization, 12 P.3d 668, 672 (Wyo. 2000).
126. A second concern advanced by Chevron is that the Department could not have reached valid conclusions regarding application of the comparable value method on the basis of information available to the Department before commencement of litigation. It is true that the Department was not as fully informed about pricing and volume relationships at the time it issued the Notice of Valuation as it is now, after the presentation of all evidence. This concern is fully addressed by the statutory appeal procedures that taxpayer has invoked. These procedures require us to adjudicate disputes between the Department and the taxpayer. The procedures contemplate that the parties will argue their positions in a contested case proceeding, after discovery by the parties. The discovery then becomes a part of the body of evidence we consider in adjudicating the dispute. In addition, we reject any principle that would encourage the taxpayer to withhold information from the Department in hopes of affecting the outcome of the dispute. The potential for failing to disclose information is of direct interest in this case, where Chevron refused or neglected to produce the Merit Agreement, the 1995 Chevron Agreement, the Wasatch Yellow Creek Agreement, the Whitney Canyon\Carter Creek Mutual Back-up Processing Agreement and the Anschutz Back-up Agreement, thereby hindering the Department’s application of the comparable value method. Findings of Fact, ¶ 17. A taxpayer cannot fault the Department because the taxpayer fails to report important information in a timely fashion to affect the valuation process. Airtouch Communications, Inc., et. al. v. Department of Revenue, 2003 WY 114 (2003) ¶39.
127. A third concern advanced by Chevron is that it is hampered by the lack of standards “for the purpose of establishing an appropriate processing deduction.” [Taxpayers’ Proposed Findings of Fact and Conclusions of Law, p. 79, ¶238]. We have already found, as we did in Whitney Canyon, that this concern is without basis in fact. Findings of Fact, ¶¶16-20. As important, this concern appears to suppose that a taxpayer, rather than the Department, is charged with applying a selected method to reach fair market value. We have concluded the contrary. Conclusions of Law, ¶122.
128. A fourth concern advanced by Chevron is that if the statute provides latitude to the Department to exercise its judgment (something we have concluded, although not necessarily in the specific manner feared by Chevron), then “by definition the application of this statute is ad hoc decision-making which is arbitrary and capricious . . ..” [Whitney Transcript Vol. IX, p. 1652]. We disagree. The statute provides a discernible test for the exercise of the Department’s discretion. Conclusions of Law, ¶111. The statute also provides for an appeal process based on a separate test, i.e., whether the selected method accurately reflects fair market value. Conclusions of Law, ¶¶97-100. It bears repeating that this taxpayer has clearly demonstrated its opposition to any method but proportionate profits. Findings of Fact, ¶¶14-20. We have found no factual basis to support this fourth concern, so the taxpayer has failed to carry their burden of proof. Based on the appeal method provided by the statute, we also reject Chevron’s concern as a matter of law.
129. The third phrase of the comparable value method definition is, “taking into consideration the quality, terms and conditions under which the minerals are being processed or transported.” Transportation of the minerals is not at issue, so the phrase may be simplified to, “taking into consideration the quality, terms and conditions under which the minerals are being processed . . ..” We have previously concluded that the Department is the entity responsible for taking the referenced subjects into consideration, since the Department is the entity by whom the method is “employed,” and which must “determine the fair market value by application of” its selected method. Conclusions of Law, ¶122; Wyo. Stat. Ann. §39-14-203(b). Chevron urges us to conclude that the obligations imposed on the Department by this phrase are vague. We disagree. Particularly when taken in conjunction with the second phrase, the meaning of the statute is plain. The Department must assure itself of the reliability of any comparison upon which it bases inferences regarding processing fees, and in doing so it must consider at least the quality of the minerals, and the terms and conditions under which the minerals are being processed. We conclude that we have reached “‘the ordinary and obvious meaning of the words employed according to their arrangement and connection.’” Parker Land and Cattle Company, 845 P.2d 1040,1042.
130. Chevron argues that the Department has failed to consider a large number of pertinent distinctions between and among various gas processing contracts, and hence has failed to consider “terms and conditions” as required by the statute. We conclude that this is a dispute between the parties regarding the significance of those distinctions for applying the comparable value method. As such, we view the resolution of that dispute as a question of fact. We have made various findings in this regard. E.g., Findings of Fact, ¶¶59, 69, 71, 82. We conclude that the Department has met the requirements of the statute with respect to considering the terms and conditions under which the minerals are being processed, and somewhat like the Department, we further conclude the terms and conditions to which Chevron has directed our attention are not commercially significant. Therefore, the taxpayer has failed to carry its burden of proof.
131. Petitioner raises a concern about the term “quality” when comparing Carter Creek gas with Road Hollow gas. Webster’s New World College Dictionary, Fourth Edition (2002), at 1173 defines quality as “1) any of the features that make something what it is; characteristic element; attribute 2) basic nature; character; kind . . ..” Black’s Law Dictionary, Seventh Edition (1999) at 1255 defines quality as “[t]he particular character or properties of a . . . thing . . . often essential for a particular result.” Petitioner’s argument would demand the Department analyze all gas to determine if any components are in differing amounts and conclude the gas is not of similar “quality” and thereby disqualify a contract for comparison of processing fees. A more reasonable interpretation of the term “quality” is that the Department must first determine if the characteristic is similar. If the characteristic is gas as opposed to a solid or liquid, then the Department should determine if the gas must be processed, and if so, for what purpose. The general point is that the Department must reasonably exercise its discretion. We do not read the statute as requiring the Department to then analyze each percentage of components. We likewise conclude that the Department has met the requirements of the statute with respect to considering quality, and that the taxpayer has failed to carry its burden of proof.
132. Under our reading of the plain language of the statute, the Department correctly applied the comparable value method, subtracting an inferred processing fee from a known sales price to reach a value. We decide this issue based upon all of the information known at the close of the hearing, and not just on the basis of the information known to the Department when it prepared the Notice of Valuation for the Petitioner. Taken in light of the circumstances of this hearing, we find that several agreements were reliable sources of information to determine processing fees. The following are the fees that are evidence for the Carter Creek plant fees:
● Processing fees charged by the Whitney Canyon Plant Owners to Producers Amoco, UPRC, and Forest Oil under the Exhibit F Gas Processing Agreements
●Processing fees charged to Exxon under the Road Hollow Agreement
●Processing fees charged by the Whitney Canyon Plant Owners to Merit under the Merit Agreement
●Processing fees charged by the Whitney Canyon Plant Owners to Anschutz under the Wahsatch Gathering System Agreement
133. As we concluded in Whitney Canyon, with respect to the 25% in-kind processing fee charged under all of the agreements referenced in Conclusion of Law, ¶132, the Department correctly determined by comparison of processing rates in the context of suitably measured volumes that there was a constant rate applied against any and all volumes processed under the referenced agreements during 2000. As a further and separate ground for our decision in this regard, we find that the taxpayer failed to carry its burden of proof.
134. The Department adequately considered both the quality of the gas being processed, and the terms and conditions under which the gas was being processed. In all instances, similarity of quality was assured by virtue of the fact that all gas was commingled before becoming available at the tailgate of the plant or an adjustment was made in the amount of BTU’s the producer received at the tailgate. In all instances, the terms and conditions were sufficiently similar to conclude that the comparison was valid. We conclude that Department met the requirements of the statute. As a further and separate ground for our decision in this regard, we find that the taxpayer failed to carry its burden of proof.
C. Evidence of Fair Market Value
135. In determining whether the method selected by the Department accurately reflects fair market value, Wyo. Stat. Ann. §39-14-203(b)(viii), we consider the results of the method rather than the results of specific comparables, and consider whether the Department’s selected method is free from error. We also consider whether an alternative method would reach fair market value. We have weighed the evidence that has been presented to us. In all respects, we conclude that the Department’s selected method accurately reflects fair market value. We summarize the main points, while incorporating by reference details set forth in our Findings of Fact.
136. The 25% fee of the Whitney Canyon plant originally covered operating costs, plus return on and of investment. We conclude that the similar fee Petitioner charged at the Carter Creek plant also covered operating costs, plus return on and of investment. Due to the direct relationship between gas prices and processing costs, the fee has continued over time to bear a substantial relationship to actual processing costs. Because gas prices were unusually high in 2000, there is sufficient reason to believe that revenues from the in-kind processing fee paid to the plant owners met or exceeded the actual costs of the plant owners. There is also evidence that the 25% had become the customary processing fee in the area. Findings of Fact, ¶58.
137. The Department’s selection and application of the comparable value method was free from error, both with respect to the Department’s analysis of the facts, and with respect to the law. Our conclusion in this regard would decide the dispute between the parties, even without attention to the question of whether the proportionate profits method, as employed by Chevron, reflects fair market value for year 2000 production processed at the Carter Creek gas Plant.
138. There is no evidence that the alternative method requested by Chevron, the proportionate profits method, would accurately reflect fair market value for 2000. To the contrary, there is considerable evidence that the proportionate profits method would not accurately reflect fair market value, but would instead result in an excessive deduction, thereby raising constitutional issues if it were used to value year 2000 production processed at the Carter Creek Plant. Conclusions of Law, ¶100. Moreover, it is clear that Petitioner was aware that the proportionate profits method would yield a distorted value for this tax year. Findings of Fact, ¶60.
D. The netback objection
139. As a further and separate objection, Chevron argues that the Department’s application of comparable value for production year 2000 is indistinguishable from the Department’s application of the netback method “[d]uring 1980-1989.” [Chevron’s Proposed Findings of Fact and Conclusions of Law, pp. 118-119, ¶¶ 340-341]. It further argues that this cannot be allowed, since the Legislature has specifically excluded the application of the netback method to Carter Creek production. Id.
140. As we found in Whitney Canyon, we are not troubled by the fact that the Department’s use of the comparable value method yields a result which appears to be the same as the netback method of earlier years for two reasons. First, Chevron concedes that some form of netback calculation yields fair market value. The report of Chevron’s expert Adair states that, “[t]he market value of the raw gas can then be determined by netting the direct costs to gather, condition, and process the gas along with an allowance for recovery and on the capital invested in the assets required to transform the raw gas to marketable products, from the market value attributable to the products extracted.” [Whitney Exhibit 170, p. W1150]. The Department agrees, at least in principle. [Whitney Transcript Vol. VI pp. 1066-1067]. If a result that reflects fair market value has been achieved, then honoring the objection by Chevron will thwart the statutory objective of fair market value.
141. Second, and perhaps more important, in light of the uniform 25% processing fee which is the subject of this case, the statutory definition of netback requires the same 25% processing deduction that is reached by the comparable value method. The statutory netback calculation is defined this way: “The fair market value is the sales price minus expenses incurred by the producer for transporting produced minerals to the point of sale and third party processing fees.” Wyo. Stat. Ann. §39-14-203(b)(vi)(C)(emphasis supplied). If we look to the fees being paid by the Producers in this field, the simple answer is 25% in-kind. Let us assume for a moment that the netback exclusion does not apply, the difference between the netback and comparable value methods lies only in the point of inference – for netback, it is each Producer’s own fee, and for comparable value, it is the fee charged to other producers.
142. As we found in Whitney Canyon, the statutory netback method differs from netback calculations offered into evidence by both Chevron and the Department, which essentially follow the formulation stated in Adair’s report. Neither Chevron nor the Department rely on the 25% fee for their calculations. [Whitney Exhibit 193 (Ostroff), Whitney Exhibit 535 (Grenvik)].
143. Further, we believe, as we did in Whitney Canyon, that a focus on the facts and circumstances of each year, as directed by the appeal statutes, Wyo. Stat. Ann. §39-14-203(b)(viii) and Wyo. Stat. Ann. §39-14-209(b), obliges us to avoid conclusions which extend beyond the year at hand. The record before us suggests that circumstances may change substantially from year to year, based on such factors as changing gas prices and changing economic conditions in the field. It would be unwise for us to prejudge which of the methods authorized by the legislature will prove the most suitable for determination of fair market value in another year. We therefore decline to entertain a blanket rejection of the proportionate profits method, as urged by the Intervenor.
IX. THE APPLICATION OF THE METHOD WAS APPROPRIATE
A. Mathematical calculations
144. Chevron has not disputed the mathematical calculation performed by the Department and reflected in the Notices of Valuation.
B. Not a hypothetical processing allowance
145. Chevron contends that the 25% processing fee represents a hypothetical processing allowance, in apparent allusion to Amoco Production Company v. Wyoming State Board of Equalization, 12 P.3d 668, 672 (Wyo. 2000). The Court in that case characterized the situation in this way:
Amoco and the Department had agreed that the actual costs should be relied upon instead of the twenty-five percent allowance, but they could not agree as to which costs were to be utilized in connection with formula. The issue that was properly before the Board was whether Amoco or the Department was correct with respect to those costs, and we previously have acknowledged the authority of the Board to decide that question . . .. Instead of adjudicating the dispute between Amoco and the Department, however, the Board in this instance determined to arrive at its own valuation . . .
Id., p. 673.
146. The case before us now is different. There is no agreement between Chevron and the Department on a set of costs that are agreed to be “actual.” Instead, the Department has determined that the 25% is the correct processing fee, and Chevron contends that it is not. The Board will adjudicate that dispute as it has been presented.
147. In addition, the characterization of value as hypothetical is not necessarily pejorative under Wyoming law. The facts of the specific case are of critical importance:
The decision . . . [in Appeal of Monolith Portland Midwest Co., Inc., 574 P.2d 757 (Wyo. 1978)] does not say that hypothetical costs are per se illegal. But, more importantly, we do not agree with Amax that the method used creates hypothetical costs. Amax itself admitted at the hearing that the costs were not hypothetical. The Division’s evaluation of Amax’s operations may have produced a different result (number) than did that evaluation which Amax has done–the numbers may be different, but that does not make one hypothetical.
Amax Coal Co. v. Wyoming State Board of Equalization, 819 P.2d 825 (Wyo. 1991).
148. The Board also addressed the potential problem of hypothetical fees in Appeal of Amoco Production Company, SBOE Docket 91-174, 1992 WL 126533 (Wyo. St. Bd. Eq. 1992). At that time, the Board observed:
For utilization of the comparable value methodology, the only requirement is reliable information from which a reasonable processing fee may be inferred and imputed for Petitioner’s production. Such a process does not result in a hypothetical fee inasmuch as the estimated processing fee would be based on analysis of actual fees.
We conclude that the requisite analysis of actual fees has occurred in this case.
C. Appraisal principles are not applicable
149. As we found in in Whitney Canyon, many of the issues identified by Petitioner are addressed to the application of appraisal principles. The word “appraisal” has been freely used by the parties in at least two of the root senses of “appraise.” See Webster’s New World College Dictionary (4th Edition)(2001), p. 69. One is the sense of setting value. The other is the sense of exercising judgment to set value. This latter sense is commonly associated with the flexibility afforded an appraiser to make a determination of value after employing different methods to calculate value, then weighting the results of those calculations to reach an opinion of value. 34 Rocky Mt. Min. Law Inst., ch. 2, §2.03[2](1988)(“Keeping the Assessor at Bay: A Guidebook to Property and Production Taxes”; “Traditional Approaches to Valuation”); Rules, Wyoming Department of Revenue, Chap. 7, §6 (“Ad Valorem Valuation and Methodology and Assessment”). Appraisal in the sense of exercising judgment in this way is a professional discipline, and often associated with such descriptions as general appraisal principles, recognized appraisal techniques, or appraisal judgment. For the reasons that follow, as we did in Whitney Canyon, we conclude that general appraisal principles should be applied sparingly, if at all, in the context of Wyo. Stat. Ann. §39-14-203(b)(vi) and the four methods that it defines.
150. Prior to 1990, mine products were valued annually at fair cash market value after “the mining or production process [was] completed.” Wyo. Stat. Ann. §39-2-202(a), 1977. “The production process [was] deemed completed . . . when the mine product [was] removed from the . . . well and prior to any . . . further processing [was] placed . . . in the case of natural gas, in the pipeline for transportation to market.” Wyo. Stat. Ann. §39-2-202(b),1977. “In the event the [mine product was] not sold at the mine or mine claim by bona fide arm’s length sale . . . the department shall determine the fair cash market value by recognized appraisal techniques.” Wyo. Stat. Ann. §39-2-202(d),1977(emphasis supplied).
151. In 1990, the legislature adopted different valuation statutes for solid minerals, 1990 Wyo. Sess. Laws, Ch. 53, and for oil and gas. 1990 Wyo. Sess. Laws, Ch. 54. The statute for oil and gas appeared in a format essentially the same as the current statute (using the word “product” at the time, rather than the later words, “crude oil, lease condensate or natural gas production”). Wyo. Stat. Ann. §39-2-208(d), 1990. The overall objective of each of the four methods available since 1990 is to reach fair market value for oil and gas not sold at the point of valuation. However, the oil and gas valuation statute makes no reference to recognized appraisal techniques. The history of the legislation implies that the legislature rejected the use of “recognized appraisal techniques” in favor of the legislatively defined alternatives for determining fair market value. We conclude that the legislature’s amendments to the statutes indicate that some change in existing law was intended. Barcon, Inc. v. Wyoming State Board of Equalization, 845 P.2d 373, 377 (Wyo. 1992).
152. For oil and gas taxpayers, with the enactment of Wyo. Stat. Ann. §39-14-203(b)(vi), the legislature stripped the Department of authority to exercise judgment in the sense of comparing the outcomes of various methods, then weighing the outcomes of those methods to reach an opinion of value. Instead, the Department must make a commitment to a specific method of valuation in advance of having all of the information that might bear on the consequences of employing that method. That is, the Department must select a single valuation method no later than September 1 of the year before the method is to be applied, or nearly a year and a half before having complete taxpayer data in the form of annual reports. Wyo. Stat. Ann. §39-14-203(b)(vi); Wyo. Stat. Ann. §39-14-207(a)(i).
153. As important, each of the four statutorily defined methods for oil and gas valuation is specific about how fair market value is to be calculated using that method. With regard to comparable value, we have previously observed that the unknown which is being sought is the value for the processing fee; once inferred, the statute tells us how to then calculate fair market value. Findings of Fact, ¶58. In contrast, reaching a direct inference about the value of natural gas at the point of valuation requires use of a different method, the comparable sales method. Wyo. Stat. Ann. §39-14-203(b)(vi)(A). Further, the statutory netback method is confined to “third party processing fees” rather than the type of calculation described by Adair. Wyo. Stat. Ann. §39-14-203(b)(vi)(c). The proportionate profits method, Wyo. Stat. Ann. §39-14-203(b)(vi)(D), is even further removed from traditional appraisal judgment. The proportionate profits method is grounded in calculation of the depletion deduction for federal income tax purposes, not traditional appraisal theory, even though the federal income tax version of the proportionate profits method is not available for oil and gas. Maxfield, Taxation of Mining Operations, §2.03[2][c](1991); 26 C. F. R. §1.613-4(d)(4)(“Gross income from the property in the case of minerals other than oil and gas”; “Cases where a representative market or field price cannot be ascertained “proportionate profits method”); see: 26 C. F. R. §1.613-3. Compare 36 Rocky Mt. Min. L. Inst., ch. 11 (1990); 34 Rocky Mt. Min. L. Inst., ch. 2, §2.03
154. The legislature having supplanted “recognized appraisal techniques” for oil and gas valuation, we disagree with the Department’s argument that we should look to authorities that rest on those very words. E.g., Thunder Basin Coal Co. v. Wyoming State Board of Equalization, 896 P. 2d 1336, 1338-1339 (Wyo. 1995); Amax Coal West, Inc., v. Wyoming State Board of Equalization, 896 P. 2d 1329, 1332 (Wyo. 1995); Amax Coal Co. v. Wyoming State Board of Equalization, 819 P.2d 834 (Wyo. 1991). Our conclusion might be different if this were a case involving coal, trona, or other valuable deposits. The application of recognized appraisal techniques is still included in subsections of the articles of Chapter 14 related to those mine products. Wyo. Stat. Ann. §39-14-102(c)); Wyo. Stat. Ann. §39-14-302(c)); Wyo. Stat. Ann. §39-14-702(c)); Rules, Wyoming Department of Revenue, Chap. 6, §10, (“Recognized Appraisal Techniques Applicable to Miscellaneous Minerals”).
155. There is a noteworthy echo of the comparable value definition of Wyo. Stat. Ann. §39-14-203(b)(vi)(B) in one subsection of the coal valuation statutes. That subsection provides:
For coal used without sale, or coal not sold pursuant to a bona fide arms-length agreement, the sales value for the purposes of paragraph (vii) of this subsection shall be the fair market value of coal which is comparable in quality, quantity, terms and conditions under which the coal is being used or sold, both in the spot market and through long-term agreements negotiated within the previous (12) months, multiplied by the respective number of tons used or sold for each reporting period;
Wyo. Stat. Ann. §39-14-103(b)(viii)(emphasis supplied).
156. However, there are significant differences between Wyo. Stat. Ann. §39-14-103(b)(viii)[coal] and Wyo. Stat. Ann. §39-14-203(b)(vi)(B)[oil and gas] that reinforce our reluctance to supplement or modify the language of the comparable value definition by reliance on appraisal theory. The legislature has used similar words to different effect with respect to coal on the one hand, and oil and gas on the other. First, Wyo. Stat. Ann. §39-14-103(b)(viii) is not the statute which addresses coal sold away from the point of valuation; that is instead Wyo. Stat. Ann. §39-14-103(b)(vii). Wyo. Stat. Ann. §39-14-103(b)(viii) addresses the very limited case of “coal used without sale, or coal not sold pursuant to a bona fide arms length agreement.” For coal which is not “used without sale,” there must be a factual inquiry regarding the absence of a bona fide arms length agreement. Under Wyo. Stat. Ann. §39-14-203(b)(vi)(B), relating to oil and gas, there is no such inquiry. Instead, the method is premised on the existence of an arms-length sale after the point of valuation. Second, for coal, the unknown which is to be “comparable in quality, quantity, terms and conditions” is the coal itself, not a processing fee. Third, for coal, there is very specific language about the context of sales, i.e. “in the spot market and through long term agreements negotiated within the previous (12) months,” providing express guidance about factors that might influence price. There is no similar language in Wyo. Stat. Ann. §39-14-203(b)(vi)(B).
157. From the standpoint of direct guidance from the Wyoming Supreme Court, it would be advantageous if Wyo. Stat. Ann. §39-14-103(b)(viii) were more closely related to Wyo. Stat. Ann. §39-14-203(b)(vi)(B), because the coal subsection has recently been interpreted by the Wyoming Supreme Court in Wyodak Resources Development Corporation v. Wyoming Department of Revenue, 2002 WY 181, 60 P.3d 129 (Wyo. 2002). However, the lessons of Wyodak Resources Development Corporation regarding comparable value are not broadly applicable. We conclude instead that Wyodak Resources Development Corporation requires us to read Wyo. Stat. Ann. §39-14-203(b)(vi)(B) carefully, and to consider the record carefully, for the ultimate purpose of reaching fair market value.
158. The Board has already found, as a matter of fact, that the evidence regarding appraisal theory did little to aid either our understanding generally, or to aid the interpretation and application of the comparable value statute. Findings of Fact, ¶64. There are aspects of our conclusions that are consistent with, but not dictated by, the significance of individual judgment in appraisal theory, such as our conclusions regarding the discretion afforded the Department in its application of the comparable value method. Conclusions of Law, ¶122. However, we conclude the correct reading of the statute, the plain and obvious reading, does not require us to view the statute through an overlay of appraisal theory. We accordingly conclude, as we did in Whitney Canyon, that Chevron’s many objections based on appraisal theory are without merit.
D. Rules and regulations were not imperative
159. Chevron has been specifically critical of the Department’s refusal to pursue rule making to more fully define the comparable value method. It relies on a suggestion made by the Court in Amoco Production Company v. State Board of Equalization, 882 P.2d 866, 871 (Wyo. 1994), which the Court itself characterized as being “in the nature of an aside.” We have already concluded that this suggestion was made under different circumstances. Also, rulemaking is not required “so long as statutory and constitutional rights to protest and contest are afforded the taxpayer.” Pathfinder Mines v. State Board of Equalization, 766 P.2d 531, 535 (Wyo. 1988); Amoco Production Company v. Wyoming State Board of Equalization, 899 P.2d 855, 860 (Wyo. 1995); see AT & T Communications v. State Board of Equalization, 768 P.2d 580, 585 (Wyo. 1989). Moreover, we doubt that rule making would have been a productive endeavor. Findings of Fact, ¶20. We also note that it has always been within the power of Chevron to petition for rule making, Wyo. Stat. Ann. §16-3-103, and in doing so, to offer to their own vision of a workable approach to making sense of the comparable value method.
E. Uniform valuation
160. We have already described the potential state constitutional problem that arises from excessive deductions. Conclusions of Law, ¶100.
161. The Department has directed our attention to disparities in deductions for gas from the same formation, which squarely fits the characterization of facts of concern in Wyodak Resources Development Corporation, supra., at ¶27. At the same time the production is sent to Whitney Canyon and the 25% comparable value deduction is used and at other times the production is sent to Carter Creek and the proportionate profits method is claimed. Our concern is not with differences in the sale prices received by the different producers in a given well, but rather with gross disparities in deductions which would yield gross disparities in valuation. We conclude that the Department’s evidence raises a valid issue, particularly in the absence of any evidence to support the deduction reached under proportionate profits. However, since we likewise conclude that the Department’s use of the comparable value method must be affirmed, the constitutional problem does not arise.
162. In order for a constitutional issue to arise, Chevron must first show that it is situated similarly to other taxpayers that are being treated in a way that gives rise to the concern for lack of uniformity. “Equal protection in Wyoming requires a law to operate alike upon all persons or property under the same circumstances and conditions.” W. W. Enterprises, Inc., v. City of Cheyenne, 956 P. 2d 353, 356 (Wyo. 1998)(Emphasis in original). The taxpayer has failed to carry this burden. This is enough to dispose of the constitutional claim.
163. We also conclude that the Petitioner has failed to carry its burden to demonstrate that it has been the object of selective or arbitrary enforcement of the tax laws of Wyoming.
164. Our conclusion, as it was in Whitney Canyon, with respect to the Petitioner’s failure to carry its burden of proof warrants further comment on the hurdles that any taxpayer must face in making a constitutional uniformity claim while contesting the Department’s application of a valuation method. There are inherent difficulties in complaining about the treatment of other taxpayers when the Department is dependent on the self-reporting of all taxpayers. Since the reliability of information submitted by other taxpayers (not a party to this and the companion cases) granted the use of the proportionate profits method cannot be directly tested in this proceeding, there are threshold concerns about meeting the evidentiary standard of a contested case proceeding: “the type of evidence commonly relied upon by reasonably prudent men in the conduct of their serious affairs.” Wyo. Stat. Ann. §16-3-108(a). These evidentiary concerns are compounded when, as in this case, limited additional evidence regarding the other taxpayers is presented by witnesses who are partisans in the cause of their employers. Findings of Fact, ¶21. Reasonably prudent men in the conduct of their serious affairs will require more corroboration of the accuracy and reliability of the information reported by the absent taxpayer than has been presented to the Board in these proceedings.
165. In our Findings of Fact, we stated that we are not now prejudging the possibility that facts may later come to light which might serve to clarify the circumstances of other gas processing facilities. Those additional facts might in turn give rise to well grounded and specific concerns regarding the constitutional requirement for uniformity. Those facts can best be developed in the context of an audit of the taxpayer that have been authorized to use the proportionate profits method for 2000. If the use of the proportionate profits method were disallowed on audit due to existence of valid comparables, the uniformity concerns would be addressed. If the Department remained satisfied that the use of the proportionate profits method was appropriate, there would be an audit record to help us consider constitutional objections. Further, the Board would likely be relieved of the possibility that there would be “more to be accomplished” by way of development of the pertinent facts. See Board of County Commissioners for Sublette County, Wyoming v. Exxon Mobil Corporation, 2002 WY 151, ¶36, 55 P.3d 714, 723-724 (Wyo. 2002). As an alternative to audits, the Board has the power to initiate an investigation at a later date, should circumstances warrant. Wyo. Stat. Ann. §39-12-102.1(c)(x).
XI. Uinta County Intervention is appropriate
166. Chevron has urged us to reverse our order authorizing the intervention of Uinta County under certain terms and conditions. It relies entirely on Board of County Commissioners for Sublette County, Wyoming v. Exxon Mobil Corp., 2002 WY 151, 55 P.3d 714 (Wyo. 2002). In that case, the Wyoming Supreme Court recognized, inter alia, limits on a county’s authority to file a contested case appealing ad valorem tax decisions, and on a county’s authority to raise certain types of issues in such an appeal. In this proceeding, the county neither filed the contested case proceeding nor defined the issues that comprise the subject matter of the proceeding; the initiative was seized by the taxpayer.
167. Under Wyo. Stat. Ann. §18-3-504(a)(v), a board of county commissioners may “[r]epresent the county, care for the county property and manage the business and concerns of the county in all cases where no provision is made by law . . ..” This language is directly contrary to the inference that Chevron would have us draw from Exxon Mobil Corp., i.e., that it is incumbent upon the Board of County Commissioners of Uinta County to direct our attention to a statute which specifically authorizes the commissioners to intervene. The statute grants authority under circumstances “where no provision is made by law”, but Chevron insists that we should infer the absence of authority instead. We do not accept Chevron’s inference, and decline the taxpayer’s invitation to declare the Board’s rule on intervention invalid with respect to counties.
168. Perhaps we will receive further express guidance from the Wyoming Supreme Court when it decides Amoco Production Company v. Department of Revenue, et al., No. 02-171. In the absence of that guidance, we believe our Order on Intervention, and the positions articulated in that Order, should stand. There is no question that intervention was granted with express recognition of the commissioners’ status as representatives with legitimate concerns for Uinta County. In fact, we are concerned that Chevron’s arguments logically demand that we deny intervention to any person or entity seeking to intervene in a proceeding like the one we decide today. There is no indication that Chevron would be receptive to the intervention of another governmental entity of any stripe, or a private group claiming to represent the public interest. Historically and practically, the county is the entity best positioned to represent many interests that, for whatever reason, are not prepared to acquiesce in the judgments of the Department of Revenue and/or the Department of Audit. Further, in appeals filed under Wyo. Stat. Ann. §39-14-209(b)(iv), such as the one before us, the appeal statute itself assures that county commissioners will reliably have notice that the Department’s determination is being contested, unlike the public at large.
169. We also think Chevron’s position is unwise. Where, as in this case, a county is prepared to pursue concerns that are not frivolous, we believe that the public good may be well served by airing those concerns at the earliest possible stage, rather than insisting that those concerns be addressed, if at all, only after the much later conclusion of audits, or in a separate proceeding under the Board’s power to investigate. Under Chapter 2, Section 14(a), of the Board’s Rules, the Board is in an advantageous position to condition the participation of county intervenors, as we have done in this case, to minimize disruption of the proceeding and to prevent unnecessary and unfair expenditures of money, time, and effort by other parties. The county is also bound by its participation as an intervenor, and hence practically foreclosed from initiating later proceedings in a way that cannot apply to a less formal means of appearance.
170. In short, intervention can be an effective means to reach an early, efficient, and satisfactory disposition of the public business before the Board. As such, our Rule falls squarely within the purview of our authority to exercise discretion in the conduct the Board’s affairs. Wyo. Stat. Ann. §39-11-102.1(c)(viii), (xvi).
XII. THE EFFECT OF AMOCO PRODUCTION COMPANY, Case No. 93-104
171. The source of many of Chevron’s objections to the comparable value method lies in events which occurred over a decade ago. At that time, the Department pursued an approach to calculating comparable value that was rebuffed first by the Board, and then by the Wyoming Supreme Court. Amoco Production Company v. Wyoming State Board of Equalization, 882 P.2d 866 (Wyo. 1994)(Case No. 93-104, referenced in Chevron’s notice of appeal, Conclusions of Law, ¶101). The end result was that the Department’s attempt to use the comparable value method failed, and Chevron was authorized to use the proportionate profits method. Amoco Production Company , 882 P. 2d at 868. Chevron
wishes to reach that same result now. To do so, we understand Chevron to claim that the litigation in Amoco Production Company, supra, has forever limited the Department to pursue comparable value method which was the subject of that case. [Exhibit 148]. Since that “Definitive Formula for Computation of Comparable Value” was flawed, the result of accepting Chevron’s position would inevitably lead to the use of the proportionate profits method, by default. We know of no principle of law that binds the Department to an exercise in futility. As we did in Whitney Canyon, we will address the various theories which Chevron have invoked to that end.
172. The issues raised by Petitioner in its notice of appeal, Conclusions of Law, ¶101, cannot be fully understood without discussing both the record made at the Board hearing which gave rise to Amoco Production Company, supra, and the version of comparable value method that the Department proposed in 1992.
173. One of the striking features of Amoco Production Company, Docket 91-174, 1992 WL 126533 (Wyo. St. Bd. Eq. 1992), is the paucity of facts reflected in the record made before the Board. There was only one explicit finding of fact unrelated to jurisdiction: “While there is testimony in the record as to example calculations which might be made for natural gas processing fees charged to unrelated parties, there is no evidence as to the actual processing fees or fee arrangements charged to such parties in circumstances similar to those for the natural gas processing at issue.” Id. at ¶3; quoted in Amoco Production Company, 882 P.2d at 869. Moreover, a large universe of Amoco processing plants were considered at once, rather than just Whitney Canyon. The opinion lists these as “the Brady Plant, Salt Creek Facility, Beaver Creek Gasoline and Phosphoria Facility, Whitney Canyon Plant, Anschutz Ranch CPF and NGL/NRU Plants, and the Bairoil CO2 Facility.” Amoco Production Company, 1992 WL 126533. There is no indication of any scrutiny of the Whitney Canyon C&O Agreement, or similar agreements pertaining to the other facilities. To the contrary, the concurring opinion summarizes the factual focus of the proceeding as follows: “The record herein contains substantial testimony and evidence relating to Petitioner’s preferred valuation methodology, proportionate profits.” Id. One of the Board’s conclusions of law further sums up the record in this way: “Upon reflection, we conclude that the record herein contains insufficient evidence to allow any finding or conclusion as to whether reliable, available information exists from which a reasonable processing fee may be inferred.” Id. It was this absence of information which prompted the Board to remand the case “to the Department for adoption of a more determinative formula for computation of comparable value based upon reasonable inferences from third-party natural gas processing fees.” Id.
174. In response, the Department produced the valuation formula which became the focus of Amoco Production Company, 882 P.2d 866 (Wyo. 1994). The Department’s formula was derived from an unspecified number of processing agreements between unrelated parties. [Whitney Exhibit 150]. This information had been obtained from two sources, an unidentified taxpayer and the confidential records of investigations by the Department of Audit, so that all of the underlying data in the formula was subject to confidentiality restrictions. [Whitney Exhibit 150].
175. The Department’s exclusive reliance on confidential information naturally gave rise to the concerns which lie at the heart of Amoco Production Company, supra. If all of the information which determines the fate of the taxpayer is confidential, the taxpayer is severely handicapped in defending itself from questionable data, from questionable applications of the data, and even from wholesale misapplication of the stated method. So, in Board Docket 91-174, there was no evidence of processing fees, and when the case reached the Wyoming Supreme Court, the Department relied entirely on information that could not be disclosed to the taxpayer. This situation naturally oriented the issues before the Wyoming Supreme Court toward any conceptual tools that might be available to salvage the Department’s use of its formula. Consideration was given to the direct participation of the taxpayer, to rule making delimiting the Department’s actions consistent with the statute, to analogies from appraisal practice, and to other “parameters or definition” which would allow the method to be utilized “by taxpayer reporting production, price, cost, and value information.” In the end, there was nothing that could be done to sustain the application of the Department’s approach at the time. There is no reason to believe that the result would be different today under the facts presented there. Amoco Production Company, 882 P.2d at 870-872 (Wyo. 1994)
176. When we consider the difficulties of statutory application that were posed in Amoco Production Company, 882 P.2d 866, it becomes apparent that the source of those difficulties lay in the Department’s formulaic approach, rather than with the letter of the statute. When the Court observed that “some of the statutory factors are amorphous to a degree,” 882 P.2d at 871, it was laboring under the absence of any concrete information about what the Department of Revenue had actually done. The director of the mineral tax division denied having documented comparables or identifying specific comparables. 882 P.2d at 869. No detailed discussion of the plain meaning of the statute was apparently considered by the parties, or of interest to the Court, due to the posture in which the case reached the Court, i.e., after the Board remanded the matter to the Department, thereby granting the Department an opportunity to support its position.
177. The factual circumstances in this case, as they were in Whitney Canyon, are starkly different. The information which is the basis for the Department’s action is not hidden from Chevron by any veil of confidentiality. Comparable processing fees, together with the documentation for those fees, have been specifically identified and are now public information. The Department’s inferences with respect to processing fees have been plainly stated during the course of the proceeding, and the Department’s conceptual approach was disclosed to Chevron more than a year in advance of the date that annual reports were filed. Chevron has been given ample opportunity to “respond and present evidence and argument”, see 882 P.2d at 872, and have fully availed themselves of that opportunity.
178. The Petitioner’s focus on Amoco Production Company tends to distract attention from an event which prompted the Department to reconsider its approach to comparable value, and which was unknown during the period when the Department’s formula was at issue. We refer to the discovery, during an audit, of the Wahsatch Gathering System Agreement. This discovery led to the Department’s pursuit of information that would enable it to apply the statute as it has done, and ties to a last distinction regarding Amoco Production Company, 882 P.2d 866. There is an additional ground for distinguishing the circumstances of production year 2000 for Carter Creek from the circumstances of the earlier proceeding. Whitney Canyon and Carter Creek clearly processed gas for other producers in 2000.
XIII. COLLATERAL ESTOPPEL
179. As the taxpayers did in Whitney Canyon, Chevron requests that we apply the doctrine of collateral estoppel. We begin with a statement of the principles involved:
The doctrines of res judicata and collateral estoppel incorporate ‘a universal precept of common-law jurisprudence’ * * * that a right, question or fact put in issue, and directly determined by a court of competent jurisdiction, cannot be disputed in a subsequent suit by the same parties or their privies. . .. While the interests of finality served by this doctrine are the same, this court has carefully distinguished between the two: [A]lthough many cases speak of res judicata in the administrative context, they actually apply collateral estoppel. * * * Collateral estoppel . . . bars relitigation of previously litigated issues. * * * Res judicata on the other hand bars relitigation of previously litigated claims or causes of action.
Tenorio v. State ex rel. Wyoming Workers’ Compensation Division, 931 P. 2d 234, 238 (Wyo. 1997)(emphasis in original).
180. The Wyoming Supreme Court has stated the elements of collateral estoppel:
Generally, four factors are considered when determining application of collateral estoppel: (1) whether the issues decided in the prior adjudication was identical to the issue presented in the present action; (2) whether the prior adjudication resulted in a judgment on the merits; (3) whether the party against whom collateral estoppel is asserted was in a party or in privity with a party to the prior adjudication; and (4) whether the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in the prior proceeding.
Tenorio, 931 P. 2d at 238-239.
181. The core of Chevron’s claim is that, “The same parties, same property and the same issues were previously decided by the Wyoming Supreme Court in Case No. 93-104.” Conclusions of Law, ¶101, item 1. We conclude the contrary. Conclusions of Law, ¶¶171-178.
182. The principal issue in this case is whether the Department’s selection of a valuation method for production in tax year 2000 “accurately reflects fair market value.” This issue was not and could not have been decided in a previous proceeding. At a minimum, when the Board decided Case No. 93-104, it had no jurisdiction to rule on anything related to the matter of production in 2000. Production year 2000 methods and valuations were not identified as issues by the parties to Case No. 93-104. Nor was any such issue then litigated and decided by the Board as a fact finder. The Board did not purport at the time to determine any questions related to production year 2000. The judgment at that time was not dependent upon determination of the any issues with regard to production year 2000. On this basis alone, we conclude that the doctrine of collateral estoppel does not apply. However, there are many other bases to support this result, based on what has already been discussed so far in our Findings and Conclusions. These include facts, such as the unusual gas prices in 2000, Findings of Fact, ¶62. They also include such questions of law the Department’s authority to select its method of choice for the coming year, Wyo. Stat. Ann. §39-14-203(b)(vi), which directly contradicts an inference that one administrator of a Department can commit a successor to a preferred valuation method.
183. As we did in Whitney Canyon, we believe our conclusion is even clearer when broadly considered in light of the common law policy concern for relitigation. Even if we set aside the central fact that tax year 2000 is the subject of this case, and set aside the obvious limitations on the fact finding that preceded Case No. 93-104, Conclusions of Law, ¶173, we cannot avoid noticing that Chevron has introduced issues that became involved in the fabric of our decision. We refer, among other things, to the contrasts between C&O Agreement for Whitney Canyon and agreements for other facilities, to the significance of Case No. 93-104 for this proceeding, Conclusions of Law ¶171; to the application of appraisal theory in the context of Wyo. Stat. Ann. §39-14-203(b)(vi); Findings of Fact, ¶65; Conclusions of Law, ¶149-158; to the distinctions between the Exhibit F Gas Processing Agreements and other processing agreements, some of which Chevron withheld from the Department’s scrutiny. We have decided the dispute that was brought to us. Conclusions of Law, ¶103. It is a very different dispute than that presented in Case No. 93-104. As we concluded in Whitney Canyon, we conclude that the concern for relitigation is groundless.
IV. STARE DECISIS
184. As was advanced in Whitney Canyon, Chevron requests that we apply the doctrine of stare decisis, which it describes as “the doctrine of precedent, under which it is necessary for a court to follow earlier judicial decisions when the same points arise again in litigation,” State v. Campbell County School District, 32 P.3d 325, 344 (Wyo. 2001)(Voight, J., dissenting). The Board accepts this definition, and submits it has honored the doctrine fully.
185. Chevron invokes the doctrine of stare decisis using allegations contrary to the evidence. Chevron raises the claim that the Department contended that co-signatories to the C&O Agreement were not other parties, [Taxpayers’ Proposed Findings of Fact and Conclusions of Law, p. 65, ¶207] we disagree that the relationship of the co-signatories under the C&O Agreement was previously considered or determined. Chevron contends that an earlier decision found that the statutory terms were not sufficiently clear to allow application of the comparable value method, [Taxpayers’ Proposed Findings of Fact and Conclusions of Law, p. 65, ¶208] we have already explained at some length that the earlier case was premised on different facts, Conclusions of Law, ¶¶171-178, and disagree with the complaint about the clarity of the statute, Conclusions of Law, ¶¶110-125.
186. Finally, we note that the Wyoming Supreme Court has observed that, “we should be willing to depart from precedent when it is necessary ‘to vindicate plain obvious principles of law and remedy continued injustice.” Goodrich v. Stobbe, 908 P.2d 416 (Wyo. 1995), quoting Gueke v. Board of County Commissioners, 728 P.2d 167, 171 (Wyo. 1986). To the extent that we have departed from precedent, we conclude our departure is amply justified.
V. RES JUDICATA
187. As was requested in Whitney Canyon, Chevron requests that we apply the doctrine of res judicata to this case. The four criteria used to determine the applicability of res judicata are: (1) the parties were identical; (2) the subject matter was identical; (3) the issues were the same and related to the subject matter; and (4) the capacities of the persons were the identical in reference to the subject matter and the issues between them. Livingston v. Vanderdiet, 861 P.2d 549, 551-552 (Wyo. 1993). The subject matter is the Department’s selection of valuation for production for tax year 2000, and a variety of specific claims regarding application of that method. Conclusions of Law, ¶¶101-102. This factor alone is enough for us to conclude, as we did in Whitney Canyon, the doctrine of res judicata does not apply, although further analysis would show a general failure to meet the criteria for res judicata.
188. As a further and separate reason for rejecting the proposed application of the doctrine of res judicata, Chevron failed to raise this issue in prehearing statements as required under our Rules. Rules, Wyoming State Board of Equalization, Chap. 2, §10(d).
VI. JUDICIAL ESTOPPEL
189. “Judicial estoppel is a doctrine which precludes a party from asserting inconsistent positions in different judicial proceedings. Under this doctrine, a party who by his pleadings, statements or contentions, under oath, has assumed a particular position in a judicial proceeding is estopped to assume an inconsistent position in a subsequent action.” Ottema v. State ex. rel. Worker’s Compensation Division, 968 P. 2d 41, 45 (Wyo. 1998). Stated in somewhat punchier fashion, “The principle is that if you prevail in Suit #1 by representing that A is true, you are stuck with A in all later litigation growing out of the same events. “Eagle Foundation, Inc., v. Dole, 813 F.2d 798, 810 (7th Cir. 1987). Similarly, an older Wyoming case held that where “a man is successful in the position taken in the first proceeding” then that position “rise[s] to the dignity of conclusiveness.” Hatten Realty Co. v. Baylies, 42 Wyo. 69, 290 P 561, 568 (Wyo. 1930), quoted in Matter of Paternity of SDM, 882 P2.d 1217, 1224 (Wyo. 1994). Chevron argues, as was argued in Whitney Canyon, that, some ten years ago, the Department took a different position with respect to the application of the phrase “other parties” than it does now, directing our attention to Amoco Production Company, 882 P.2d 866. Conclusions of Law, ¶¶171-178.
190. In making its argument, Chevron has neglected to account for the principle that, “In general estoppel against inconsistent positions will operate where the position first asserted has been successfully maintained.” 31 C. J. S. Estoppel and Waiver §138c, p. 590. Conversely, “A party is not bound to maintain a position it unsuccessfully maintained.” Matter of Cassidy, 892 F 2d. 637, 641 (7th Cir. 1990). “Estoppel against such a change of position is dependent upon maintaining the success of the original claim.” 74 Am. Jur. 2d Estoppel and Waiver §73, p. 498; see also 74 Am. Jur. 2d Estoppel and Waiver §74. Since the Department did not succeed in employing the method advanced in 1992, we conclude that judicial estoppel does not apply. Having reached this conclusion, we find it unnecessary to discuss other defects in the application of judicial estoppel in this case, or the application of the principle that “the initial position taken must be one regarding fact.” Willowbrook Ranch v. Nugget Exploration, 796 P.2d 769, 771 (Wyo. 1995).
191. As a further and separate reason for rejecting the proposed application of the doctrine of judicial estoppel, Chevron failed to raise this issue in prehearing statements as required under our Rules. Rules, Wyoming State Board of Equalization, Chap. 2, §10(d).
VII. WAIVER
192. Chevron has requested, as was done in Whitney Canyon, that we find the Department has waived the right to introduce documentation of comparables, because the Department did not “introduce any agreements that could support an inferred processing fee,” [Taxpayers’ Proposed Findings of Fact and Conclusions of Law, p. 63, ¶171], as contemplated in the Board decisions that were the subject of Amoco Production Company, 882 P.2d 866. The Wyoming Supreme Court has recently stated the principles governing a decision on this waiver theory:
We have defined waiver as an intentional relinquishment of a known right that must be manifested in some unequivocal manner. [citation omitted]. “While the necessary intent for waiver may be implied from conduct, the conduct should speak to the intent clearly.” [citations omitted]. In addition, we have recognized that the three elements of waiver are: 1) an existing right; 2) knowledge of that right; and 3) an intent to relinquish it....
Jensen v. Fremont Motors Cody, Inc., 2002 WY 173, ¶16, 58 P.3d 322, 327 (Wyo. 2002).
193. As in Whitney Canyon, our analysis begins and ends with the proposition that the Department does not seek, in this case, to support the formulaic approach of 1992, stated in Determinative Formula [Exhibit 146] and referenced in Amoco Production Company. Conclusions of Law, ¶¶171-178. Chevron apparently suggests that the failure of the 1992 approach should be deemed a waiver of any comparable value approach. It rests this theory on conduct, i.e., on the fact that the Department did not attempt to introduce evidence in support of the 1992 approach. In contrast, we have already ruled that the Department is not forever wedded to the 1992 formulaic approach.
194. As we did in Whitney Canyon, we find no waiver, express or implied, of the Department’s right to use the comparable value method as it has done in this case. Further, and in response to a theory of Chevron, we disagree that the facts and circumstances in this case warrant application of waiver as a matter of law. In re Worker’s Compensation Claim of Wright, 983 P.2d 1227, 1231 (Wyo. 1999). At the very least, Chevron’s characterization of the facts in this case is very much in dispute.
195. As a further and separate reason for rejecting the proposed application of the doctrine of waiver, the taxpayer failed to raise this issue in prehearing statements as required under our Rules. Rules, Wyoming State Board of Equalization, Chap.2, §10(d).
XII. PRESUMPTION FAVORING DEPARTMENT
196. As a further and separate ground for our decision, there is presumption favoring the Department’s action:
The Department’s valuations for state-assessed property are presumed valid, accurate, and correct. [citation omitted]. This presumption can only be overcome by credible evidence to the contrary. [citation omitted]. In the absence of evidence to the contrary, we presume that the officials charged with establishing value exercised honest judgment in accordance with the applicable rules, regulations, and other directives that have passed public scrutiny, either through legislative enactment or agency rule-making, or both.
Colorado Interstate Gas Company v. Wyoming Department of Revenue, 20 P.3d 528, 531 (Wyo. 2001). We find and conclude that Chevron has not produced credible evidence to overcome the presumption.
XIII. ADDITIONAL CONCLUSION
197. We conclude that the Gas Processing Agreements attached as Exhibit F to the Whitney Canyon C&O Agreement and the Exxon Road Hollow Agreement, considered without regard to other comparables, support the decision of the Department. In other words, the Department properly applied the comparable value method based on the information available to it when it issued Notices of Valuation to Chevron.
198. We conclude that the Wahsatch Gathering Agreement and the Merit Agreement, considered without regard to other comparables, support the decision of the Department. In other words, the Department properly applied the comparable value method.
199. We conclude that the Department’s selection of the comparable value method was not unfounded, capricious, arbitrary, and without merit, as alleged by Chevron. We conclude that the Department’s application of the comparable value method was not unfounded, capricious, arbitrary, and without merit, as alleged by Chevron. We conclude that the Department’s calculation of the notice of valuation was not unfounded, capricious, arbitrary, and without merit.
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ORDER
IT IS THEREFORE HEREBY ORDERED: the Department’s selection of the comparable value method is affirmed; and
The Department’s application of the comparable value method for production year 2000 is affirmed.
DATED this 15th day of October, 2003.
STATE BOARD OF EQUALIZATION
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Roberta A. Coates, Chairman
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Alan B. Minier, Vice-Chairman
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Thomas J. Satterfield, Member
ATTEST:
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Wendy J. Soto, Executive Secretary