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 NOTICE             )

OF VALUATION FOR TAXATION                              )         Docket No. 2002-162

PURPOSES BY THE MINERAL TAX DIVISION      )

OF THE DEPARTMENT OF REVENUE                     )

(Production Year 2001, Carter Creek)                        ) 

___________________________________________________________________________________________________________________________

FINDINGS OF FACT, CONCLUSIONS OF LAW, DECISION AND ORDER
___________________________________________________________________________________________________________________________

APPEARANCES

William J. Thomson, II, Randall B. Reed, and Brian J. Hanify of Dray, Thomson & Dyekman, P.C., for Chevron U.S.A., Inc. (Petitioner or Chevron).

Cathleen D. Parker of the Wyoming Attorney General’s Office for the Department of Revenue (Department).

JURISDICTION

In the spring of 2002, Chevron filed annual ad valorem reports with the Department related to its 2001 natural gas production processed through Chevron’s Carter Creek Gas Plant. Chevron reported its taxable value using the proportionate profits method, without the inclusion of taxes and royalties in the direct cost ratio. The Department did not accept Chevron’s reported values. Rather, the Department valued Chevron’s 2001 production using the comparable value method. The Department notified Chevron of its fair market value determination by Notice of Valuation dated May 13, 2002. On June 7, 2002, Chevron appealed the Department’s determination to the State Board of Equalization (Board) pursuant to Wyoming Statutes sections 39-14-209(b) and 39-13-102(n). The Board may hear objections to the Department’s determination of the fair market value of natural gas production, and accordingly has jurisdiction to consider this appeal.

The parties pre-filed written direct testimony of their witnesses, and a hearing was held September 7 through September 9, 2004, before the Board, consisting of Chairman Roberta A. Coates (resigned prior to issuance of the Decision and Order), Vice Chairman Alan B. Minier (Chairman at the time of the Decision and Order) and Board Member Thomas R. Satterfield (Vice Chairman at the time of the Decision and Order), with Gayle R. Stewart acting as Hearing Officer. Board Member Thomas D. Roberts considered this matter by reviewing the file, exhibits, and transcript, and participated in this Decision and Order.

STATEMENT OF THE CASE

This is the first case to be decided by the Board subsequent to the Wyoming Supreme Court’s decision in BP America Production Co. v. Department of Revenue, 2005 WY 60, ___ P.3d ___ (Wyo. 2005), an appeal of the Board’s first decision considering the Department’s selection and application of the comparable value method for production years 2000 through 2002. The Board’s decision is Union Pacific Resources, et al., Docket No. 2000-147, June 9, 2003, 2003 WL 21774603 (Wyo. St. Bd. Eq.) (hereinafter Whitney Canyon 2000). This is the seventh case in which the Board has reviewed the Department’s application of the comparable value method. See: Whitney Canyon 2000; Chevron U.S.A., Inc., Docket No. 2000-152, et al., October 15, 2003, 2003 WL 22422677 (Wyo. St. Bd. Eq.) (hereinafter Carter Creek 2000); Union Pacific Resources, et al., Docket No. 2000-149 et al., September 30, 2003, 2003 WL 22321611 (Wyo. St. Bd. Eq.) (hereinafter Painter 2000); Amoco Production Co., Docket No. 2000-156, December 5, 2003, 2003 WL 22931595 (Wyo. St. Bd. Eq.) (hereinafter Anschutz 2000); Chevron U.S.A., Inc., et al., Docket No. 2002-54, et al., January 25, 2005, 2005 WL 221595 (Wyo. St. Bd. Eq.) (hereinafter Whitney Canyon 2001); BP America Production Co., et al., Docket No. 2003-63, April 20, 2005, 2005 WL 959688 (Wyo. St. Bd. Eq.) (hereinafter Whitney Canyon 2002). Of the seven cases, Chevron has appeared as a party in six. Whitney Canyon 2002, Whitney Canyon 2001, Whitney Canyon 2000, Carter Creek 2000, and Painter 2000. In particular, this case is closely allied to the proceedings in Whitney Canyon 2001. Most of the legal and factual issues raised in Whitney Canyon 2001 have been raised again in this case. The facts in this case and the Whitney Canyon 2001 have similarities because both processing plants are designed to process sour gas, and have processed gas from the same sources.

In this case, Petitioner renews its dispute with the Department regarding the use of the statutory comparable value method to value Petitioner’s 2001 gas production processed through its Carter Creek Gas Plant. In litigation regarding the preceding production year, this Board affirmed both the Department’s selection and application of the comparable value method. Carter Creek 2000. After presentation of more extensive evidence than for production year 2000 (although not as extensive as presented in Whitney 2001), Petitioner urges us to reconsider the findings and conclusions we reached in Carter Creek 2000. Petitioner’s factual and legal claims are similar to, and in some instances the same as, the claims it made for production year 2000. Petitioner’s claims also parallel those asserted in Whitney Canyon 2001.

In 1999, the Department selected the comparable value method as the method to be used to value oil and gas production not sold until after the point of valuation for 2000 through 2002. Petitioner reported its taxable value for 2001 using a variant of the proportionate profits method, without including royalties and taxes in the direct cost ratio, and contends the Department should have accepted its reported value. The method used by Petitioner to report its 2001 production yielded a deduction from gross sales value for processing of over 55%. The method selected and applied by the Department for Petitioner’s 2001 production, the comparable value method, allowed Petitioner a deduction from gross sales value of 25%. Comparing the results of the different methods, the difference in taxable value for 2001 is more than 56 million dollars. [Confidential Exhibit 531].

We affirm the Department’s determination of value. Petitioner failed to show either that the Department’s valuation was not in accordance with the constitutional and statutory requirements for valuing state-assessed property, or that the Department’s valuation was contrary to its rules, regulations, orders, or instructions.

CONTENTIONS AND ISSUES

Petitioner’s principal contentions may be summarized as follows:

The use of the individual comparables does not result in fair market value for the 2001 production and the comparable value methodology as applied by the Department does not yield fair market value of the gas produced from the Carter Creek field for production year 2001.

Petitioner’s use of the proportionate profits methodology is the only methodology authorized by W.S. § 39-14-203(b)(vi) that results in fair market value being determined for its condensate and gas production processed at the Carter Creek Plant, and its use of that methodology in prior years has been confirmed on audit by the Wyoming Department of Audit.

While the netback methodology under W.S. § 39-14-203(b)(vi)(C) is another method for valuing production, Chevron is statutorily precluded from using the netback method because Chevron, as the owner of the Carter Creek Plant, processes its own gas production.

The comparable value methodology using the alleged comparables identified by the Department does not accurately reflect the fair market value of the Carter Creek condensate and gas production for the following reasons, which include, but are not limited to:

A. The Department incorrectly applied the comparable value method, Wyo. Stat. Ann. § 39-14-203(b)(vi)(B). (9 subheadings)

B. The Department failed to follow standard appraisal techniques in its application of Wyo. Stat. Ann. § 39-14-203(b)(vi)(B). (4 subheadings)

C. The comparable value processing contracts selected by the Department do no meet statutory requirements. (7 subheadings)

D. Concepts of judicial estoppel and res judicata prevent a decision in this matter different from that reached by the Wyoming Supreme Court. (2 subheadings).

[Petitioner’s Updated Summary of Contentions].

Petitioner elsewhere identified fifteen contested issues of fact and twenty-three contested issues of law. [Petitioner’s Issues of Fact and Law and Exhibit Indices]. Many issues were restated, and some new issues added, in Petitioner’s proposed findings of fact and conclusions of law.

The Department contends:

1.The Department’s objective in valuing minerals for taxation purposes is to determine the fair market value of the mineral.

2.The proportionate profits method, using the direct cost ratio which the taxpayer has used (which excludes production taxes and royalties from direct production costs), does not render full value of the minerals.

3.The Department’s rejection of the proportionate profits method, and selection of the comparable value method for valuation, was reasonable, appropriate and consistent with Wyoming law.

4.The State Board affirmed the Department’s use of the comparable value method for the 2000 production year for Carter Creek production.

5.Inconsistent with Petitioner’s repeated declarations that the use of a comparable is impossible, other similarly situated taxpayers have in the past reported taxable values using comparable values for various gas productions.

6.There exists sufficient information and documentation from which the Department can apply the comparable value method using a 25% processing deduction as the comparable fee for the 2001 production year.

7.The use of the selected 25% comparable processing deduction yields an accurate reflection of the fair market value of Petitioner’s gas for the 2001 production year.

[Wyoming Department of Revenue’s Updated Summary of Contentions].

In its Issues of Fact and Law, the Department posed a single question of fact:

Whether sufficient data exists to apply the comparable value method for determining the fair market value of oil and gas produced from the Carter Creek field?

and two issues of law:

Whether the Department properly and correctly selected the Comparable Value method of valuation, as set forth in Wyo. Stat. § 39-14-203(b)(vi)(B), to determine the fair market value of Petitioner’s oil and gas for production years 2000, 2001, and 2002? and

Whether the Department properly and correctly applied the Comparable Value method of valuation, as set forth in Wyo. Stat. § 39-14-203(b)(vi)(B), to value the oil and gas produced by Chevron USA for Production Year 2001?

[Department’s Issues of Fact and Law and Exhibit List].

In its proposed findings, the Department further described its contention as follows: The Department’s selection of the comparable value method was proper and lawful because there exist other processing contracts which can be used to establish the fee charged to process “other parties” gas of “like quantity” which is of similar “quality” and processed under similar “terms and conditions.” In particular, the Department contended:

A. As to each of the Whitney Canyon Plant owners, the other owners are “other parties” within the meaning of the statute.

B. The 25% fee established by the Whitney Canyon Construction and Operation Agreement is a reasonable processing fee, and the maximum fee ever charged by the plant for processing, regardless of quantity or quality of gas or terms and conditions.

C. The proportionate profits method does not produce a representative fair market value for the Petitioner’s products processed at the Carter Creek Gas Plant.

D. The proportionate profits method violates the Wyoming Constitution’s requirement that minerals be valued at 100% of their fair market value.

[Wyoming Department of Revenue’s Proposed Findings of Fact and Conclusions of Law, pp. 3-5].

As in other proceedings, the parties have not provided us with a clear and consistent statement of the issues they would have us adjudicate. See Whitney Canyon 2001, Contentions and Issues. Based on our review of the notice of appeal, the respective statements of contentions, the respective listing of issues of fact and law, and the respective proposed findings of fact and conclusions of law, we have grouped the subject matter of the parties’ contentions into seven issues of fact and five issues of law that encompass all of the contentions raised by the parties.

The issues of fact, and our answers, are:

Did the Department have a reasoned basis for determining the value of Petitioner’s production?

Yes.

Does a processing allowance of 25% enable the Petitioner to recover its actual processing costs?

Yes.

Did Petitioner demonstrate that the Department improperly applied the comparable value method by its selection of sources of comparable processing fees?

No.

Did Petitioner demonstrate that the Department erred by not applying general appraisal principles when determining the value of Petitioner’s production using the comparable value method?

No.

Did Petitioner demonstrate that the values determined by the Department did not reach fair market value?

No.

Did Petitioner demonstrate that the Department violated prescribed procedures when determining the value of Petitioner’s gas production?

No.

Did Petitioner demonstrate that there were similarly situated taxpayers who were allowed to report taxable value using the proportionate profits method?

No.

The five issues of law, and our answers, are:

Did the Department correctly apply the comparable value method to determine the value of Petitioner’s production?

Yes.

Did the Department violate statutory requirements by the procedures it used to determine the value of Petitioner’s production?

No.

Did the Department determine a value which was contrary to statute?

No.

Did the Department violate any constitutional standard?

No.

Was the Department barred from use of the comparable value method by collateral estoppel or judicial estoppel?

No.

FINDINGS OF FACT

The Carter Creek Gas Plant

1.        The Carter Creek field is located in the area generally referred to as the “overthrust area.” [Stipulations of the Parties, ¶ 2]. Based on a map of the region and Chevron’s own brochure, the Carter Creek field is located in both Uinta County and Lincoln County, Wyoming. [Exhibit 923, p. 50; Exhibit 924, p. 64]. The formations which are produced at the Carter Creek field contain gas which is “sour,” containing 16% to 17% hydrogen sulfide. [Stipulations of the Parties, ¶ 2]; See Wyo. Stat. Ann. § 39-14-201(a)(xxv).

2.        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. However, because of lethal levels of hydrogen sulfide and because there was no processing facility that could process the gas into a marketable condition, the well was shut in. [Stipulations of the Parties, ¶ 3].

3.        After successful exploratory wells were drilled and completed in the Carter Creek field in the late 1970's, Chevron built the Carter Creek Gas Plant for the purpose of processing gas from the Carter Creek field into saleable products and byproducts. [Tysse Direct, p. 3]. There are approximately 17 to 20 wells in the Carter Creek field. [Stipulations of the Parties, ¶ 5; Brannan Direct, p. 10].

4.        The Carter Creek Gas Plant was constructed by Chevron, its sole owner. It was placed in operation in 1983. The original cost to construct the Carter Creek Gas Plant, including the sulfur pipeline, was $442 million. [Stipulations of the Parties, ¶ 6; Chambers Supplemental Direct, p. 1].

5.        Because the Carter Creek Gas Plant has only one owner, there is no Construction and Operating Agreement. Chevron does not charge itself a processing fee. [Stipulations of the Parties, ¶ 4].

6.        During this same time frame, Amoco (now BP America) drilled exploratory wells in the Whitney Canyon field. The first well, like Chevron’s first well, was shut in because of the high levels of hydrogen sulfide. [Stipulations of the Parties, ¶¶ 7-15]. The Whitney Canyon field and the Carter Creek field are geologically linked and together qualify as one of the largest natural gas fields in North America. [Exhibit 924, p. 64].

7.        While the Carter Creek Gas Plant was being constructed by Petitioner, the Whitney Canyon Gas Plant was being constructed by its owners, which at the time did not include Chevron. [Trans. Vol. II, pp. 266-267]. There are 16 wells in the Whitney Canyon field dedicated to the Whitney Canyon Gas Plant. [Stipulations of the Parties, ¶¶ 29-30]. The Whitney Canyon Gas Plant has the design capacity to process 250 million cubic feet of sour gas per day. [Stipulations of the Parties, ¶ 24].

8.        The Carter Creek Gas Plant was designed to process 165 million cubic feet of raw inlet gas per day. The Plant has capacity to take all of the gas from the Carter Creek field and room for more gas. [Brannan Direct p. 11]. The average production processed at the Carter Creek Gas Plant in 2001 was approximately 106 million cubic feet per day. [Tysse Direct p. 4]. Based on the design capacity of the Carter Creek Gas Plant and the average daily production in 2001, the Carter Creek Gas Plant had excess capacity of approximately 59 million standard cubic feet of gas per day in 2001. For a brief period of time in 2001, the Carter Creek Gas Plant processed 170 million cubic feet of raw inlet gas per day. [Brannan Direct, p. 11; Trans. Vol. I, p. 130]. The Carter Creek Gas Plant can process and, in fact, did process gas from the Whitney Canyon field in 2001. [Trans. Vol. I, pp. 126-127, 130, 154, Vol. II, p. 262; Confidential Exhibit 213].

9.        In 2001, there were four sources of gas processed through the Carter Creek Gas Plant: the Carter Creek field, the Exxon Road Hollow field, the Whitney Canyon field, and the Anschutz Yellow Creek field (Wahsatch Gathering System gas). [Brannan Direct, p. 5; Tysse Direct, pp. 5-6, 12, 15; Trans. Vol. I, p. 124, Vol. II, p. 262]. All the sources of gas processed at the Carter Creek Gas Plant are commingled before the start of processing. [Trans. Vol. I, pp. 124-125, Vol. II, pp. 258-259].

10.      The Carter Creek Gas Plant processed approximately 4 million standard cubic feet per day of Exxon Road Hollow gas in 2001. [Tysse Direct, p. 6; Confidential Exhibit 212]. The gas was processed pursuant to a 1992 Carter Creek Gas Plant Processing Agreement (Exxon Road Hollow Agreement). [Tysse Direct, pp. 4-7; Confidential Exhibit 200]. It constituted approximately 3.75% of the total volume of gas processed through the Carter Creek Gas Plant in 2001. [Tysse Direct, p. 6].

11.      The Carter Creek Gas Plant processed over 793 million standard cubic feet of gas from the Whitney Canyon field in May and June of 2001. [Tysse Direct, p. 12; Confidential Exhibit 213]. The gas from the Whitney Canyon field was processed at the Carter Creek Gas Plant pursuant to a 1993 Whitney Canyon/Carter Creek Mutual Back-up Agreement. [Tysse Direct, pp. 11-13].

12.      The Carter Creek Gas Plant processed between 8.6 and 13.9 million cubic feet of gas per day from the Anschutz Yellow Creek field for 13 to 15 days in 2001. Mr. Brannan estimated the amount of gas at 13.9 million standard cubic feet of gas per day for 13 days. [Brannan Direct, p. 14]. Mr. Tysse estimated the amount of gas at 8.6 million cubic feet of gas per day for 15 days. [Tysse Direct, p. 13]. The gas was processed pursuant to a 2001 Carter Creek Gas Plant/Anschutz Back-up Processing Agreement. [Tysse Direct, pp. 13-18; Confidential Exhibit 201].

13.      All gas processed at the Carter Creek Gas Plant and at the Whitney Canyon Gas Plant is commingled prior to processing. [Trans. Vol. II, pp. 258-259].

14.      All sales of gas from Carter Creek occur at the tailgate of the Plant. [Bolles Direct p. 13].

Procedures for reporting and determining taxable value

15.      On August 31, 1999, the Administrator of the Department’s Mineral Tax Division issued a Memorandum to all Wyoming oil and gas producers. The Memorandum notified producers that the Department elected the Comparable Value Method of valuation for production years 2000, 2001, and 2002, where oil and gas production was not sold at or prior to the statutory point of valuation. [Exhibit 912]. By this Memorandum, the Department satisfied its obligation to notify taxpayers of the selected method as required by Wyoming Statutes section 39-14-203(b)(vi). The Memorandum recited the statutory definition of the Comparable Value Method:

(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;

16.      The Memorandum obliged the taxpayer to notify the Department if the “. . . taxpayer has made a determination that a representative Comparable Value does not exist for a specific mineral property . . ..” [Exhibit 912].

17.      By letter dated October 28, 1999, Petitioner objected to the use of comparable value method for natural gas processed through the Carter Creek Gas Plant and requested the use of the proportionate profits method as a substitute. In its letter, Chevron stated that “ . . . to the best of its knowledge, no appropriate comparables exist for the listed properties. Any review of the comparable methodology is inclusive of the like-quantity, like-quality, and anti-trust and confidentiality tests. The proportionate profits method that Chevron intends to utilize is provided for in W.S. Sec. 39-14-203(b)(vi)(D) - recodified statutes.” [Exhibit 913].

18.      On November 16, 1999, the Department sent Petitioner a letter broadly requesting documentation “. . . to verify your claim of the non-existence of a comparable value and/or your believe (sic) that comparable value does not represent fair market value for the referenced properties . . ..” [Exhibit 914].

19.      In a November 30, 1999, letter requesting an extension to provide contracts, Petitioner identified the Whitney Canyon C&O Agreement (including the attached gas processing agreement), and the agreement with Whitney Canyon Gas Plant and the Carter Creek Gas Plant for back-up processing as other contracts. However, Petitioner argued these contracts were not comparable. [Exhibit 915]. The tax representative for Petitioner, Christopher Chambers, generally referred the Department to agreements that had been in place during audits. There were specific references to Chevron contracts related to properties in Wyoming, including the statement “. . . that the agreements/contracts that Chevron’s Tax Department is aware of include one at Carter Creek that neither meets the like quality nor like quantity tests for comparable. Carter Creek also has an agreement with Whitney Canyon for short-term processing during Whitney Canyon turnarounds that does not meet like quantity.” There is no specific reference to other contracts with other producers to process gas either at the Whitney Canyon or Carter Creek Gas Plants. [Exhibit 915]. For the Carter Creek Gas Plant, Mr. Chambers produced the Exxon Road Hollow Agreement and at some point the Anschutz Back-up Agreement. [Trans. Vol. II, p. 268; Confidential Exhibits 200, 201]. The Department allowed the extension. [Exhibit 916].

20.      Chevron did not provide the Department with any contracts related to the Whitney Canyon Gas Plant. [Trans. Vol. II, p. 268]. The contracts related to processing of gas at the Whitney Canyon Gas Plant included the 1995 Chevron Agreement, the Wahsatch Gathering System Processing Agreement, the Merit Agreement, and the Whitney Canyon/Carter Creek Back-up Agreement.

21.      On February 4, 2000, the Department informed Petitioner it had reviewed the agreements provided, and reiterated the requirement that Petitioner determine taxable value using the Comparable Value Method. [Exhibit 917]. On March 3, 2000, Petitioner requested reconsideration of the Department’s denial of its request for use of the Proportionate Profits Method. [Exhibit 918].

22.      In response to Petitioner’s March 3, 2000, letter, the Department informed Petitioner the comparable value method should be used to value the natural gas processed through the Carter Creek Gas Plant. The Department identified the Whitney Canyon C&O Agreement and the Exxon Road Hollow Agreement as comparables and advised Petitioner it would not allow a processing fee of more that 25% for Carter Creek production. [Exhibit 919].

23.      We find the Department unequivocally communicated its position nearly a year before annual reports for production year 2000 were due from Chevron, Wyo. Stat. Ann. §39-14-207(a)(i), and some two years before reports for production year 2001 were due. Any lingering doubt about the Department’s view was dispelled during the litigation concerning the selection and application of the comparable value method to production year 2000. Carter Creek 2000; Whitney Canyon 2000.

24.      Petitioner claims the Department’s notice was insufficient; in the absence of rules, regulations, policies or precedents, it was unable to determine how it was supposed to calculate its tax liability. [Chamber’s Direct pp. 20-21; Chamber’s Rebuttal, p. 2]. However, Petitioner did not seek an interpretation of the comparable value statute from the Department, [Trans. Vol II, p. 258; Bolles Direct, pp. 16-17, 20-21], or the promulgation of rules. [Bolles Direct, p. 56]. Rather Chevron took the position that the Department was obligated to “. . . demonstrate to Chevron that its interpretation [of the comparable value statute] is incorrect . . ..” [Chamber’s Rebuttal, p. 2]. We find that by the spring of 2002, when Petitioner filed its annual reports for production year 2001 [Grenvik Direct, p. 3], the Department’s policy was clear.

25.      From its initial attestation to the Department that “. . . no appropriate comparables exist”; through its first response to the Department’s request for contracts, “[o]ne [contract] at Carter Creek that neither meets the like quality or like quantity tests . . . ” and one contract “that does not meet like quantity”; and its second response, “no appropriate comparables exist for its producer/processor properties . . .” based on its “review of the comparable methodology . . . inclusive of the like-quantity, like-quality, and anti–trust and confidentiality tests;” Chevron maintained its position that there were no comparables. [Exhibits 913, 915, 918; Chambers Direct, pp. 14-15].

26.      Chevron understood the Department expected it to report its taxable value using the comparable value method, but chose instead to report utilizing a variant of the proportionate profits method. [Trans. Vol. II, p. 257]. None of the claims that the Department’s position was unclear are credible. Each of the processing contracts identified by the Department was used in 2001 to establish the fee charged to and paid by the producer for processing of its gas.

27.      The Department never adopted rules to further define the comparable value method. [Bolles Direct, p. 56]. The Department believed the statute was clear. [Bolles Direct, pp. 24, 25-26, 27; Trans. Vol. II, pp. 325, 326, 362].

28.      When Chevron filed its annual reports for production year 2001, it disregarded the Department’s repeated directives to use the comparable value method. [Trans. Vol. II, p. 257]. Instead the Petitioner reported its production processed at the Carter Creek Gas Plant using its own variant of the proportionate profits method. It did not treat production taxes and royalties as direct costs of production, contrary to a series of rulings by this Board dating from 2001. [Trans. Vol. II, pp. 257-258]. E.g., In the Matter of the Appeal of Amoco Production Company, Docket No. 96-216, 2001 WL 770800, (June 29, 2001); In the Matter of the Appeal of Amoco Production Company, Docket No. 96-216, 2001 WL 1150220 (Order on Reconsideration, September 24, 2001). Chevron’s variation of the proportionate profits method reduced the taxable value of its production. [Bolles Direct, p. 58].

29.      Generally speaking, a taxpayer’s annual ad valorem reports do not disclose what valuation method the taxpayer actually uses to calculate its processing deduction. Petitioner did not provide its proportionate profits calculations to the Department at the time it filed its annual ad valorem reports. [Trans. Vol. II, p. 279].

30.      The Department’s review of Chevron’s 2001 returns revealed they were not filed in accordance with the Department’s directions to use the comparable value method, but rather were reported using a variant of the proportionate profits method. [Bolles Direct, p. 58; Grenvik Direct, pp. 4, 6].

31.      The Department responded to Chevron’s annual reports by preparing a Notice of Valuation. [Exhibit 509]. The Department adjusted the processing deduction for the Carter Creek Mineral Groups by applying a 25% processing deduction against Chevron’s reported gross sales value of plant products, and recalculating taxable value using the 25% processing deduction. [Bolles Direct, p. 22; Grenvik Direct, pp. 4-5]. The only thing that changed was the processing fee deduction. [Bolles Direct, p. 22].

32.      Chevron reported part of its 2001 production using “essentially” a netback method. [Trans. Vol. II, pp. 262-263]. Chevron reported a processing deduction of 25%, without requiring guidance from the Department. [Trans. Vol. II, pp. 262-263].

33.      Chevron has not appealed the Department’s mathematical calculations of the comparable value processing allowance or the taxable value that results from those calculations. [Trans. Vol. II, p. 264].

Did the Department have a reasoned basis for determining the value of Petitioner’s production?

34.      The Department concluded that the words “of like quantity,” as they appear in the statutory definition of the comparable value method, were clear and were satisfied by the Department’s application of the comparable value method. In principal part, the Department observed that the fee charged under pertinent processing agreements was never greater than 25% in-kind regardless of the quantity of gas processed. [Bolles Direct, pp. 23-24]. In all cases the Department observed that the fee charged to process any quantity of gas, large or small, was 25% in-kind of the gas product at the tailgate of the plant. [Bolles Direct, p. 24].

35.      The Department concluded that the word “quality,” as it appears in the statutory definition of the comparable value method, was satisfied by the Department’s application of the comparable value method. The Department concluded that:

     a.  The gas covered by contracts was processed or could be processed at the Carter Creek Gas Plant.

     b.  The gas from various wells processed at the Carter Creek Gas Plant was commingled and became a unified product.

[Bolles Direct, p. 25].

36.      The Department concluded that the words “terms and conditions,” as they appear in the statutory definition of the comparable value method, were satisfied by the Department’s application of the comparable value method to all processing contracts that charged producers a maximum processing fee of 25%. Further the Department concluded that:

     a.  Terms and conditions referred to the terms and conditions of the contracts.

     b.  The terms and conditions of the contracts which were provided, as least prior to discovery, were almost identical, if not identical with the exception of the Exxon Road Hollow Agreement which contained a sliding fee scale that did not exceed 25%.

     c.  The processing of the gas, including the fee paid, did not change depending upon the priority of the gas. Since gas is not taxed until produced and sold, priority has no significance for tax purposes.

[Bolles Direct, pp. 26-27].

37.      The Department concluded the statutory definition of the comparable value method did not require a processing fee charged to other parties be arms-length. The words “arms-length” only modified the words “sales price.” [Trans. Vol. II, pp. 309-312]. The Department further concluded each of the contracts included a processing fee derived from an arms-length agreement. [Bolles Direct, pp. 29-30, 42-43, 45-46, 50, 52, Bolles Confidential Direct pp. 60, 63].

38.      In the Department’s March 30, 2000, correspondence with Chevron, the Department identified two contracts as comparable contracts which could be used to determine the processing deduction for valuing Chevron’s production processed through the Carter Creek Gas Plant. [Exhibit 919]. The contracts were the Whitney Canyon C&O Agreement and the Exxon Road Hollow Agreement. [Exhibits 919, 927; Confidential Exhibit 200].

39.      The Department concluded Exhibit F to the Whitney Canyon C&O Agreement, under which each producer paid the plant owners a processing fee of 25% of the gas product, was a comparable which the Department could use to determine the processing deduction for valuing Chevron’s production. [Exhibit 919]. Specifically, the Department concluded that:

           a.  Each of the parties negotiated the C&O Agreement in an arms-length manner because each party was acting in its own best interest, were not controlled by each other, and were competitors. [Exhibit 927; Bolles Direct, pp. 29-30].

           b.  The processing fee paid by each producer individually to the plant owners jointly was, for each individual company, a fee charged by the plant owners to an other party within the meaning of the statutory definition of comparable value. [Bolles Direct, pp. 27-29, 33].

           c.  The 25% processing fee the plant owners received was intended to cover plant operating costs. It depends on the price of gas whether or not there is a return on investment to the plant owners. [Exhibit 927; Bolles Direct p. 28].

           d.  For production years 1983 through 1988, Amoco (now BP America), one of the parties to the C&O Agreement, reported the 25% processing fee as the actual fee paid to process Whitney Canyon field production using the netback method. [Bolles Direct, pp. 35-38].

           e.  The 25% processing fee charged by the Whitney Canyon Gas Plant owners to process each producer’s gas was also imposed on all other producers under the C&O Agreement, and no producer paid a fee greater that 25% during production year 2001. [Exhibit 927; Bolles Direct p. 28].

           f.   Regardless of the quantity of gas processed at the Whitney Canyon Gas Plant, the producers never paid more than a 25% processing fee regardless of quantity differences. [Bolles Direct, pp. 38, 39].

           g.  All gas was commingled and goes through the same processing. Regardless of differences in the quality of the gas streams delivered for processing, the C&O Agreement provided for a 25% processing fee. There was no indication that different gas qualities might require a different fee. [Exhibit 927; Bolles Direct pp. 34, 39].

           h.  The terms and conditions of the Exhibit F gas processing agreement were the same for all producers. [Exhibit 927; Bolles Direct p. 33].

           i.   The Carter Creek Gas Plant can process gas from either the Carter Creek field or the Whitney Canyon field. There are no significant differences in quality. [Bolles Direct, p. 40].

40.      The Department concluded the Carter Creek Gas Plant Processing Agreement between Chevron and Exxon Company, USA, (Exxon Road Hollow Agreement) was a comparable which the Department could use to determine the processing deduction for valuing Chevron’s production. [Confidential Exhibit 200]. Because of Chevron’s confidentiality concerns, our discussion of the Department’s reasoning for selecting this agreement as a comparable must be of a general nature. The Department generally concluded that:

           a.  The Exxon Road Hollow Agreement was an arms-length contract, with Exxon as an “other party.” [Bolles Confidential Direct, pp. 60-61].

           b.  The Exxon Road Hollow Agreement contained quality requirements, with a provision for an adjustment of the processing fee. However, no specific provisions were included on how the processing fee would be adjusted. [Bolles Confidential Direct, p. 61].

           c.  The Carter Creek Processing Plant was able to process the gas. [Bolles Confidential Direct, p. 61].

           d.  The gas was commingled with Chevron’s gas at the inlet of the Carter Creek Gas Plant. [Bolles Confidential Direct, p. 61].

           e.  The Exxon Road Hollow agreement contained a maximum quantity provision with a sliding fee scale that decreased as the quantity increased. [Bolles Confidential Direct, p. 62].

           f.   The fee under the Exxon Road Hollow Agreement did not exceed the processing fee seen in other processing contracts, including the Whitney Canyon C&O Agreement, the Wahsatch Gathering System Processing Agreement, and the Merit Agreement. [Bolles Confidential Direct, p. 62].

41.      The Department also concluded other processing agreements disclosed through discovery or during hearings supported its allowance of a processing fee of no more than 25% for Carter Creek production. The agreements were the Carter Creek/Whitney Canyon Mutual Backup Agreement, the Wahsatch Gathering System Processing Agreement, the Merit Agreement, and the Carter Creek Gas Plant/Anschutz Back-up Processing Agreement. [Exhibits 516, 943, 944; Confidential Exhibit 201].

42.      The Department concluded the Carter Creek/Whitney Canyon Mutual Back-up Agreement was a comparable which the Department could use to determine the processing deduction for valuing Chevron’s production. [Exhibit 516]. Specifically, the Department concluded that:

           a.  The Whitney Canyon Gas Plant went into turnaround in 2001, and Whitney Canyon gas was processed at the Carter Creek Gas Plant. [Bolles Direct, p. 41].

           b.  The gas from the Whitney Canyon and Carter Creek fields comes from a common reservoir so the quality of the gas is very similar, if not identical. There is no adjustment to the fee based on the quality of the gas. [Bolles Direct, pp. 41, 43-44].

           c.  Although some of the processes are different between the plants, the processes used at both plants are similar and the end results are essentially the same. The differences do not affect the ability of either plant to process the gas and are outweighed by the similarities. [Bolles Direct, p. 41].

           d.  There was no difference in the processing fee based on which plant was processing the gas. [Bolles Direct, p. 41].

           e.  The only quantity limitation was the capacity of the plant processing the gas. There was no adjustment in the fee for quantity. [Bolles Direct, pp. 42-43].

           f.   The Mutual Back-up Agreement was an arms-length agreement, and the processing fee of 20% was reflective of what would be charged to process gas at either plant. [Bolles Direct, p. 42].

           g.  The difference in priority was not significant because gas is not taxed until it is produced, processed and sold. [Bolles Direct, p. 44].

43.      The Department concluded the Wahsatch Gathering System Processing Agreement for Yellow Creek gas, under which the producer (Anschutz) paid the Whitney Canyon Gas Plant owners a processing fee based on a sliding scale with a maximum of 25% of the gas product, was a comparable which the Department could use to determine the processing deduction for valuing Chevron’s production. [Exhibit 943]. Specifically, the Department concluded that:

           a.  The Whitney Canyon Plant owners and Union Pacific Resources, as a third party producer, negotiated the Wahsatch Gathering System Processing Agreement for Yellow Creek gas in an arms-length manner. When Anschutz Corporation purchased Union Pacific Resources’ interest in the Yellow Creek gas it was not an owner of the Whitney Canyon Gas Plant. [Bolles Direct, pp. 45-46].

           b.  The Wahsatch Gathering System Processing Agreement has no specific quality standard or requirement. The Yellow Creek gas is commingled and the gas is processed in the same manner regardless of the quality. [Bolles Direct, pp. 46, 47-48].

           c.  The Wahsatch Gathering System Processing Agreement does not contain a quantity limitation, other than the capacity available in the Whitney Canyon Gas Plant. The fee will never exceed 25% regardless of the quantity of gas processed and will typically be much less than 25%. [Bolles Direct, pp. 46, 47].

           d.  The maximum fee charged under the Wahsatch Gathering System Processing Agreement is 25%. [Bolles Direct, p. 47].

           e.  The Carter Creek Gas Plant was capable of processing the Yellow Creek gas and did so under the Carter Creek-Anschutz Back-up Processing Agreement. [Bolles Direct, p. 48].

44.      The Department concluded the Merit Agreement, under which Merit paid the Whitney Canyon Gas Plant owners a processing fee of 25% of the gas product and 100% of the sulfur product, was a comparable which the Department could use to determine the processing deduction for valuing Chevron’s production. [Exhibit 944]. Specifically, the Department concluded that:

           a.  The Whitney Canyon Gas Plant owners negotiated the Merit Agreement in an arms-length manner with Merit’s predecessor in interest. Neither Merit, nor Merit’s predecessor in interest, was an owner of the Whitney Canyon Gas Plant when the agreement was negotiated. [Bolles Direct, pp. 51-53].

           b.  The processing fee paid by Merit to the Whitney Canyon Gas Plant owners was a fee charged to an other party within the statutory meaning of comparable value. [Bolles Direct, p. 53].

           c.  The Merit Agreement provides that the Whitney Canyon Gas Plant will process Merit’s gas as long as there is capacity, without limitation. The processing fee does not vary depending on the quantity of gas processed. [Bolles Direct pp. 51, 53].

           d.  The Merit Agreement contains no provision changing the processing fee depending on the quality of the gas. [Bolles Direct, p. 53].

           e.  The Merit Agreement and Exhibit F to the Whitney Canyon C&O Agreement were similar. The only difference between the Merit Agreement and Exhibit F to the Whitney Canyon C&O Agreement was the fee of 100% of the sulfur. [Bolles Direct, pp. 52-53].

           f.   Both the Whitney Canyon Gas Plant and the Carter Creek Gas Plant are capable of processing the Merit gas. [Bolles Direct, p. 52].

45.      The Department concluded the Carter Creek Gas Plant/Anschutz Back-up Processing Agreement under which Anschutz paid Chevron a processing fee of 25% of the gas product was a comparable which the Department could use to determine the processing deduction for valuing Chevron’s production. [Exhibit 520]. Specifically, the Department concluded that:

           a.  Chevron and Anschutz Corporation entered into an arms-length contract for the processing of Anschutz gas at the Carter Creek Gas Plant. This is the same gas processed at the Whitney Canyon Gas Plant pursuant to the Wahsatch Gathering System Agreement. [Bolles Direct, p. 63].

           b.  Under the agreement Anschutz pays a fee of 25% of the gas product. While the agreement included an additional 5% fee for inlet compression, the Department understood that the fee was not charged. [Bolles Direct, p. 63].

           c.  The agreement does not contain any quality restrictions or fee adjustment based on quality. [Bolles Direct, p. 63].

           d.  Both the Carter Creek Gas Plant and the Whitney Canyon Gas Plant can process the gas, and the Carter Creek Gas Plant did process the gas in 2001. [Bolles Direct, p. 64].

           e.  The agreement does not contain any limitation on the processing fee related to the quality of the gas. [Bolles Direct, p. 64].

           f.    The gas was commingled with Chevron’s gas at the inlet of the Carter Creek Gas Plant. [Bolles Direct, p. 64].

46.      Finally, the Department concluded that the 1995 Chevron Agreement, under which Chevron paid the Whitney Canyon Plant owners a processing fee of 25% of the gas product, confirmed the fact that the 25% fee could be used as a comparable and was a reasonable processing allowance, even though the 1995 Chevron Agreement could not itself be a comparable. [Exhibit 529]. Specifically, the Department concluded that:

           a.  The owners of the Whitney Canyon Gas Plant and Chevron negotiated this contract in an arms-length manner prior to Chevron’s acquisition of Gulf’s interest in the Whitney Canyon Gas Plant. The agreement was originally negotiated during a period when relations between Chevron and Amoco, an owner of the Whitney Canyon Gas plant, were tense. The agreement allowed Chevron, the owner of the Carter Creek Gas Plant, to have its gas processed at the Whitney Canyon Gas Plant. [Bolles Direct, p. 50].

           b.  The fee charged under the agreement does not exceed 25% regardless of the quality or quantity of gas sent to the Whitney Canyon Gas Plant by Chevron. [Bolles Direct, p. 50].

           c.  Chevron reported its production processed pursuant to the agreement using the netback method with a 25% fee. [Bolles Direct, p. 51].

           d.  The agreement does not meet the “other party” requirement of the comparable value statute. [Bolles Direct, p. 50].

47.      Although the Department was generally committed to the application of the comparable value method, its witnesses commented on the Department’s position with regard to whether other methods were available. The Department took the position that Chevron was a producer-processor, so it could not use the statutory netback method to report Carter Creek production. [Grenvik Direct, p. 12;]. No data existed to apply the comparable sales method because all sales of the Carter Creek gas occurred after the point of valuation, near the tailgate of the plant. [Bolles Direct, p. 6].

48.      The Department favors the comparable value method because, in nearly all circumstances, it yields the most accurate reflection of the fair market value of the gas being valued. The comparable value method offers a better reflection of value than a cost based system such as proportionate profits method. [Bolles Rebuttal, p. 5].

49.      The Department disfavors the proportionate profits method because, in years like 2001, it returns the least amount of taxable value of the methods. [Bolles Direct, p. 60; Grenvik Direct, p. 11]. In the Department’s view, as the selling price of the gas increases, with the same direct costs in the direct cost ratio, the proportionate profits method returns too low of a taxable value because there is no relationship between the actual costs to process the gas and the processing deduction allowed. [Grenvik Direct, pp. 11-12]. In effect, the proportionate profits methodology may allow in any one year for processing and transportation deductions two to four times greater than the actual expenses incurred for transportation and processing. [Bolles Direct, p. 10].

50.      The Department also disfavors the proportionate profits method for administrative reasons. In the Department’s experience, taxpayers using the proportionate profits method classify costs differently among themselves in the same plant, and some taxpayers have aggressively pursued tax reduction by classification practices. [Bolles Direct, p. 9].

51.      The Board finds the Department had a reasoned basis for applying the comparable value method to Petitioner’s production. However, it remains for us to consider whether all the details of the Department’s conclusions are sound in light of the contrary views of Petitioner.

Does a processing fee of 25% enable Chevron to recover its actual processing costs?

Overview of the parties’ evidence

52.      Petitioner contends a processing fee of 25% would cover its costs of processing in only two out of twenty years since the plant was in operation and, therefore, the Department’s application of the 25% allowance for 2001 should be rejected. [Petitioner’s Proposed Findings of Fact and Conclusions of Law, p. 38; Chambers Supplemental Rebuttal, pp. 1, 2; Confidential Exhibits 223, 224]. Significantly, Chevron does not contend a processing fee of 25% did not enable it to recover its actual processing costs for production year 2001. [Petitioner’s Proposed Findings of Fact and Conclusions of Law, p. 38]. However, Mr. Wilkinson, a witness called on behalf of Chevron, provided a revised report expressing a position that a 25% processing allowance would result in an internal rate of return for 2001 of a negative 13 percent (-13%). [Wilkinson Revised Direct, Question 20; Confidential Revised Exhibit 214, Exh. F, p. 2 of 2]. Therefore, it is necessary for us to analyze the effects of the Department’s application of the comparable value method in 2001. The analysis also provides a useful framework for evaluation of Petitioner’s other contentions.

53.      In Whitney Canyon 2001, the divergence in evidence and data and in the conclusions drawn therefrom required the Board to undertake a comprehensive analysis of the facts presented. Whitney Canyon 2001 ¶¶ 51-161. In this case, we are presented with information in a summary fashion. [Confidential Exhibits 208, 209, 223, 224, 511, 531]. Data supporting Chevron’s calculations was not provided to the Department or included in the evidence offered at hearing. [Trans. Vol. II, pp. 273-274].

2001 Plant Revenue

54.      In reviewing the revenue information presented for 2001, we found the figures used by Chevron’s Tax Representative, Mr. Chambers, by Chevron’s witness, Mr. Wilkinson, and by the Department in their respective calculations were not consistent. Mr. Chambers began his calculations with a gross revenue figure higher than reported to the Department. [Trans. Vol. II, p. 271; Confidential Exhibits 208, 510, 511, 531]. The Department began its calculations with the gross revenue figures reported by Chevron to the Department. [Grenvik Supplemental Direct, pp. 3-4; Trans. Vol. III, pp. 520-522; Confidential Exhibit 510]. Mr. Wilkinson began his revised calculations with a revenue figure significantly lower than used by either Mr. Chambers or the Department. [Confidential Revised Exhibit 214, Exh. F, p. 2 of 2; Trans. Vol. I, p. 65]. Unfortunately, neither party provided us with the original returns filed by Chevron with the Department from which we could verify the gross revenue figures.

55.      Mr. Chambers did not provide gross revenue numbers to Mr. Wilkinson, but offered an explanation as to why Mr. Wilkinson’s original figures were significantly lower than either the figures used by Mr. Chambers or the Department. [Trans. Vol. II, p. 272; Confidential Revised Exhibit 214, Exh. F, p. 2 of 2]. However, we were unable to reconcile the revenue differences following Mr. Chamber’s suggestions. Even Mr. Wilkinson was unable to provide any explanation as to why his revised revenue figures were lower than the figures used by either Chevron or the Department. [Trans. Vol. I, pp. 65-66; Compare Confidential Revised Exhibit 214, Exh. C, Exh. F, p. 2 of 2 with Confidential Exhibit 208]. Because no adequate explanation was provided as to why Wilkinson’s revised 2001 revenue figures were significantly lower than the figures used by either Mr. Chambers or the Department, we do not accept Mr. Wilkinson’s unverifiable gross revenue figures.

56.      Mr. Chambers acknowledged the gross revenue figure he used in his calculations was slightly higher than the gross revenue figure used by the Department. [Trans. Vol. II, p. 271; Compare Confidential Exhibit 208 with Confidential Exhibit 510]. We will resolve this discrepancy in favor of the Department. Based on Mr. Grenvik’s testimony that the revenue figures used by the Department were taken from Chevron’s filed tax reports, we find the gross revenue figures reported to the Department by Chevron to be the most reliable figures presented to us and will use those figures for purposes of our analysis. Supra ¶ 54. [Confidential Exhibits 510, 531].

2001 Plant Costs

57.      The components of plant costs are: 1) current operating costs; 2) return of investment, in the form of depreciation for the current year; and 3) annual return on investment, expressed as a percentage of capital currently invested. Whitney Canyon 2001, ¶ 55.

58.      For purposes of its analysis, the Department accepted the operating costs, depreciation, and un-depreciated asset balances reported or provided through discovery by Chevron. [Grenvik Supplemental Direct, pp. 1-4; Confidential Exhibits 530, 531].

59.      Chevron criticized the Department’s cost calculations because the Department did not appear to include indirect processing costs. [Chambers Rebuttal, Questions 10, 13, p. 6]. However, Chevron did not provide any indirect cost information at the hearing in this matter. Therefore, Chevron did not meet its burden of production with respect to any claimed indirect costs.

60.      The operating cost figures used by both Mr. Chambers and the Department are reflected in Chevron’s summary expense information. [Confidential Exhibit 209, p. 557; Confidential Exhibit 530, p. 1011]. This amount, consistently reflected on all exhibits, will be accepted for purposes of our analysis.

61.      Chevron’s operating expenses for 2001 contained two categories important to our analysis, (1) the actual depreciation claimed by Chevron and (2) the amount attributed by Chevron to the processing of Exxon Road Hollow and Whitney Canyon gas. [Confidential Exhibits 209, 530]. We will accept both figures for purposes of our analysis.

62.      Wilkinson did not use Chevron’s depreciation information in his calculations. Rather, Wilkinson performed his own depreciation calculation which he applied in his analysis. We find Wilkinson’s calculations flawed. First, at least for 2001, he did not remove the depreciation contained in Chevron’s plant expense figures before applying his own calculated depreciation. By not removing depreciation from Chevron’s expense figures, Wilkinson deducted depreciation twice. This failure on Mr. Wilkinson’s part resulted in a depreciation deduction over seven times greater than that actually claimed by Chevron. [(Chevron depreciation, Exhibit 209, p. 557, line 6 “DD&A” plus Wilkinson calculated depreciation, Confidential Revised Exhibit 214, Exh. F, p. 2 “Depreciation”) divided by Chevron depreciation, Confidential Exhibit 209, p. 557 line 6 “DD&A”]. Second, Wilkinson calculated depreciation using a straight line method. While we found Wilkinson’s straight-line depreciation calculations useful in our analysis in Whitney Canyon 2001 because of the large differences in depreciation claimed by the parties there, we will not accept Wilkinson’s depreciation calculation in lieu of Chevron’s actual depreciation calculated using the units of production method. [Trans. Vol. II, p. 275]. See Whitney Canyon 2001, ¶ 60. We find Chevron’s actual depreciation a more accurate starting point for our analysis in this case.

63.      Chevron provided the un-depreciated asset balance used by the Department in its calculations. [Grenvik Supplemental Direct, p. 2; Confidential Exhibit 530, p. 1013]. We will accept Chevron’s un-depreciated asset balance for purposes of our analysis.

Whether plant revenues exceeded plant costs in 2001

64.      Accepting the 2001 gross revenue figures reported to the Department by Chevron and the expense and depreciation figures provided by Chevron, we find a processing fee allowance of 25% of gross revenue enabled Chevron to recover more than 100% of its direct processing costs. [Confidential Exhibits 209, 530, 531]. The Department’s 2001 processing allowance of 25% of gross revenue allowed Chevron a processing deduction just under three times its reported direct processing costs including depreciation with Exxon and Whitney Canyon Gas Plant expenses deducted. If the expense offset taken by Chevron for processing gas from Exxon and the Whitney Canyon Gas Plant is treated as a surrogate for revenue, rather than an offset against plant expenses, the processing deduction allowed by the Department for 2001 is 2.3 times greater than Chevron’s 2001 direct processing expenses including depreciation.

65.      Based on the evidence presented, we find the processing deduction allowed by the Department using the comparable value method, 25% of gross revenue, allowed Chevron to cover its direct costs of processing in 2001. We acknowledge this finding is simplistic, but the simplicity is required by the confidentiality of the actual amounts used in our calculations, and by the limited evidence presented to us. Chevron did not provide any indirect cost information. Nor did Chevron provide an explanation of how it valued the gas received for its processing services provided to third parties, Exxon, Whitney Canyon or Anschutz. Neither party provided us with the tax returns filed by Chevron. [Trans. Vol. II, p. 273].

2001 Return on Investment

66.      The next issue presented is whether the Department’s processing allowance is sufficient to allow Chevron a return on its investment. [See Petitioner’s Proposed Findings of Fact and Conclusions of Law ¶ 69, 161.] For purposes of our analysis, we will use the excess, if any, of the processing allowance over the actual processing costs, as a surrogate for return on plant investment. We note it was the Department’s position that the comparable value statute says nothing about a return on investment, and does not require the Department to adjust the comparables chosen to reflect some actual, imaginary or hypothetical return on investment. [Bolles Rebuttal, p. 3; Grenvik Rebuttal, p. 2].

67.      In order to provide a context for the evidence of the parties and for our calculations, we need to first discuss the netback approach to valuation the witnesses have discussed, but have ascribed various meanings to.

68.      The Wyoming Supreme Court has quoted this Board as describing the netback method in this way: “a cost approach to value which relies on the following formula: Sales value - (minus) value added by processing and transportation after the point at which mining is completed = Fair cash market value of the mineral at the mine mouth.” Amoco Production Company v. State Board of Equalization, 12 P.3d 668, 673, n. 2 (Wyo. 2000); see also Department of Revenue v. Amoco Production Company, 7 P.3d 35, 39 (Wyo. 2000); Amax Coal Company v. State Board of Equalization, 819 P.2d 825, 827 n. 4 (Wyo. 1991). Since that decision, we have had occasion to consider both the history of the netback method since 1988, and practical limitations on its application. Whitney Canyon 2000, ¶¶ 151-159; In the Matter of Sublette County, Docket No. 2000-142 et. al., 2004 WL 1174651 (Wyo. St. Bd. Eq.), ¶¶41-47, 49, 67, 86, 112-119, 272 (netback method a version of comparison approach in pre-1990 regulations). The Legislature enacted the current statutory definition in 1990. 1990 Wyo. Sess. Laws, Chapter 54. Since then, the statute has defined the netback method as: “[n]etback – 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).

69.      Petitioner’s witness Lisa Adair described a netback that begins with a visible market trading center or hub downstream of the gas processing plant. [Trans. Vol. II, pp. 225-227]. She suggested looking at what the prices are for purchases and sales at that location, then net that price back to the tailgate of the plant based on a transportation differential. [Trans. Vol. II, p. 226]. For natural gas liquids she identified Mount Belview, Texas, Conway, Kansas, and sometimes Hobbs, New Mexico, as market centers. [Trans. Vol. II, p. 669]. We find that her concept of market center is inconsistent with the valuation methods available to the Department under the statute. [Bolles Direct, pp. 5-8].

70.      Petitioner’s witness, Mr. Wilkinson, used a “net back” method that begins with a gross revenue figure, and then deducts a return on capital costs and annual operating charges. [Confidential Revised Exhibit 214, Exh. C]. He suggested capital costs be calculated based on a pre-tax return of 24% applied against the gross capital investment, with no depreciation. [Confidential Revised Exhibit 214, p. 12, & Exh. C]. We find the concept of applying a pre-tax rate of return against the gross capital investment, overstates the capital costs because a portion of the gross capital costs are recovered through depreciation (return of capital). However, Mr. Wilkinson also performed a cash flow analysis and ultimately concluded there was a positive cash flow (another surrogate for return on investment) at the Carter Creek Gas Plant for 2001. [Trans. Vol. I, p. 71].

71.      Mr. Chambers, Petitioner’s Tax Representative, described two methods for calculating a return on investment. He first suggested taking net income, less depreciation and dividing by the un-depreciated asset balance. As an alternative, he suggested the use of a component of Chevron’s economic viability study where gross investment was used, rather than the un-depreciated asset balance, because the investments are required to generate a return on investment above Chevron’s general hurdle rate on gross investment each year. He further indicated that in order to get an accurate picture of the profit one would have to consider the enterprise as a whole. [Chambers Supplemental Direct, Answer to Question 6]. Mr. Chambers did not present evidence of what the results of the application of Chevron’s economic viability method would be.

72.      For the Department, Mr. Grenvik performed an analysis by which he derived a return on investment on Chevron’s un-depreciated asset balance. Grenvik multiplied the reported gross revenue times the 25% processing deduction allowed by the Department, and then divided the result of that calculation by the un-depreciated asset balance provided by Chevron. [Grenvik Direct, p. 14; Confidential Exhibit 511, ROI on Assessed Processing]. He also performed a net back analysis very similar to the method suggested by Ms. Adair but employed a return on investment calculated using the Mineral Management Service rate of 8.81%. [Grenvik Direct, pp. 9-10; Trans. Vol. III, pp. 523-524; Confidential Exhibit 511, TV Netback].

73.      The focus of every netback analysis made by any witness in this case was ultimately on return on invested capital, also known as return on investment. Return on investment has a particular function in this case. It is a measure that goes beyond the comparison of plant revenues and plant costs, to determine whether any excess of revenues over costs occurred to a degree that can usefully be characterized in the context of the Department’s use of the comparable value method.

74.      By simply evaluating return on investment, we are not making a finding that any particular return on investment was contemplated by the 25% processing fee. [Bolles Rebuttal, p. 3]. Nor are we making a finding that the application of the 25% processing fee requires that any profit must be made on processing. [Grenvik Direct, p. 9].

75.      In the context of this case, the un-depreciated asset balance means Chevron’s capital investment in the Carter Creek Gas Plant that has been reduced annually to eliminate return of investment through depreciation. Stated another way, the un-depreciated asset balance is the amount of capital investment that Chevron has not yet recovered through its accounting for depreciation. For purposes of our analysis, we accept the un-depreciated asset balance provided by Chevron to the Department. [Confidential Exhibit 530]. Supra ¶ 63.

76.      We have chosen for our analysis to derive a rate of return from the revenue and cost data available to us. We recognize this is inherently backward looking. However, since we are interested in answering a question about what occurred in production year 2001, and taking into account the information at our disposal, we find it useful to focus our attention on deriving a rate of return.

77.       If we subtract Chevron’s claimed processing expense deduction from the Department’s allowed processing expense deduction, and divide that amount by Chevron’s un-depreciated asset balance, we obtain a return on investment for 2001.

78.      The result of the above calculation show a return on Chevron’s un-depreciated asset balance (a surrogate for return on investment) in 2001 of approximately 86%. [Confidential Exhibits 209, 530; Confidential Exhibit 531, line M]. The calculation was performed by subtracting the Carter Creek Plant Expense Total [Confidential Exhibit 209, p.2; Confidential Exhibit 531, line B] from the Department Processing Allowance [Confidential Exhibit 531, line H], and dividing the difference by the Undepreciated Plant Asset Balance [Confidential Exhibit 531, line D]. In reviewing Chevron’s processing expense figures, we noted Chevron made a revenue offset related to the processing of Exxon and WCGP gas. [Confidential Exhibit 209, p. 2, line “Cost of Processing Exxon & WCGP”]. For purposes of our analysis we have accepted the offset, although we do not know from the testimony how the offset amount was calculated.

79.      Based on the evidence presented, we find that the processing deduction allowed by the Department using the comparable value method provided Chevron a significant return on its un-depreciated asset balance (a surrogate for return on investment) for 2001.

Historical perspective

80.      Chevron asks that we ignore our findings for 2001 and, rather, focus on the effect of the hypothetical application of the comparable value method for prior years. [Petitioner’s Proposed Findings of Fact and Conclusions of Law, p. 38; Chambers Supplemental Rebuttal, pp. 1, 2; Confidential Exhibits 223, 224]. To carry its burden of going forward, Chevron relied on evidence produced by Mr. Chambers and by Mr. Wilkinson. Mr. Chambers offered a graphic depiction, with supporting spreadsheet, of the effects of the application of various valuation methods from 1983 through 2002. However, he did not include information on the actual valuation of Chevron’s production for 1983 through 1990. [Confidential Exhibits 223, 224]. Mr. Wilkinson offered his cash flow analysis. [Confidential Revised Exhibit 214, Exh. F].

81.      The evaluation of this evidence requires that it be placed in historical context. With the exception of 2000 and 2001, the Department did not utilize the comparable value method to value Chevron’s production processed through the Carter Creek Gas Plant. In the 1980's a netback method was used for determining taxable value. [Grenvik Direct, p. 12]. Chevron’s 1991, 1992, and 1993 production was valued using a mutually agreed upon approach. [Confidential Exhibit 223]. Chevron’s 1994 through 1999 production was valued using the proportionate profits method. [Chambers Direct, pp. 9, 11-12; Confidential Exhibit 223].

82.      Our evaluation also requires an examination of the figures offered by Chevron’s witnesses to determine what, if any, reliance we should place on them. For purposes of our analysis we compared the revenue and cost figures presented by the Department with the figures used by Mr. Chambers and Mr. Wilkinson for 2001. Supra ¶¶ 54-63. We found that Mr. Chambers utilized the same cost figures, but overstated the proportionate profits processing deduction and understated the processing deduction allowed by the Department. [Compare Confidential Exhibit 224 with Confidential Exhibit 510]. When we compared the figures used by Mr. Wilkinson with the Department’s figures, we found Mr. Wilkinson understated the gross revenue while overstating the depreciation taken by Chevron. Supra ¶¶ 55, 62. Mr. Wilkinson’s revenue figures for years prior to 2001 were calculated using publically available information rather than actual revenue figures from Chevron. [Trans. Vol. II, p. 70]. Additionally, Mr. Tysse, a Chevron employee, was unable to explain the discrepancy between the volumes used by Mr. Wilkinson and those he provided to the Board. [Trans. Vol. I, pp. 179-180].

83.      Because the historical perspective offered by Chevron varies from what actually occurred, we decline to draw any inferences for production year 2001 based on Chevron’s data. We also decline to give Mr. Wilkinson’s analysis any weight because of the discrepancies we have noted. Supra ¶¶ 55, 62. The only significant finding for 1990 through 2001 that may be drawn from the evidence presented is that the processing deduction allowed Chevron by the Department, utilizing the proportionate profits method for 1991 through 1999 and the comparable value method for 2000 and 2001, was equal to or greater than Chevron’s actual costs of processing and depreciation. [Confidential Exhibits 223, 224]. We find Petitioner has failed to meet its burden of proof.

84.      Finally, we note both Mr. Chambers, on behalf of Chevron, and Mr. Grenvik, on behalf of the Department, pointed out limitations of the analyses presented to us. Mr. Chambers acknowledged that the only bottom line impact of the valuation method applied would be a difference in tax. He then suggested that in order to get an accurate picture of profit, the enterprise as a whole must be considered. [Chambers Supplemental Direct, Answer to Question 6]. Mr. Grenvik suggested that a cash flow analysis would be a more appropriate measure. [Trans. Vol. III, pp. 464-465]. However, the information necessary to perform further analysis was not made available to the Board.

Did the Petitioner demonstrate that the Department improperly applied the comparable value method by its selection of sources of comparable value?

85.      Chevron asks the Board to view each of the Department’s selected comparable contracts in light of numerous criticisms. For purposes of our review, we have relied on Petitioner’s Proposed Findings of Fact and Conclusions of Law as a guide to the specific matters on which Chevron relies for its position that the Department misapplied the comparable value method.

Exhibit F to the Whitney Canyon C&O Agreement

86.      During the same time frame Chevron drilled its first well in the Carter Creek field, an exploratory well, ACG-1, was drilled in the Whitney Canyon field. [Stipulations of the Parties, ¶¶ 3, 7-9]. Because of the high concentrations of hydrogen sulfide, the gas produced from both fields required processing to make it marketable. [Stipulations of the Parties, ¶¶ 2, 9-10, 17]. The composition of Carter Creek field gas and the Whitney Canyon field gas is essentially the same. [Trans. Vol. I, p. 107; Stipulations of the Parties, ¶¶ 2, 12, 27].

87.      Because of differences of opinion between Amoco and Chevron on what processes would work better, Chevron chose to construct the Carter Creek Gas Plant. [Trans. Vol. II, pp. 266-267]. During the same time frame, four working interest owners in the Whitney Canyon field, Amoco Production Company, Champlin Production Company, Apache Petroleum Company and Gulf Oil Corporation, agreed to construct the Whitney Canyon Gas Plant and entered into an Agreement for the Construction, Operation and Ownership of the Whitney Canyon Gas Processing Plant (Whitney Canyon C&O Agreement). [Exhibit 927; Stipulations of the Parties, ¶ 34]. In 1985, Chevron acquired Gulf’s interest in the Whitney Canyon Gas Plant as part of its merger with Gulf. [Chambers Direct, p. 22]. The current owners of the Whitney Canyon Gas Plant are BP America, RME, Chevron, and Forest. [Stipulations of the Parties, ¶ 36]. See Whitney Canyon 2001, ¶¶ 2-4, for background on ownership changes in the Whitney Canyon Gas Plant since its construction.

88.      The Carter Creek Gas Plant is located approximately 10 miles north of the Whitney Canyon Gas Plant. [Exhibit 923, p. 0050]. The two plants were a few months apart in their construction schedules. Both plants were completed in 1983. [Trans. Vol. II, p. 266; Stipulations of the Parties, ¶¶ 4, 22]. Both plants are readily capable of processing the gas from either the Carter Creek field or the Whitney Canyon field. [Trans. Vol. II, p. 262]. Both plants are capable of processing gas of the same quality. [Trans. Vol. I, p. 196].

89.      There are differences between the Carter Creek Gas Plant and the Whitney Canyon Gas Plant. The Whitney Canyon Gas Plant enjoys a less stringent air quality permit than the Carter Creek Gas Plant. [Chambers Supplemental Direct, p. 2; Brannan Direct p. 15]. As a result, the Carter Creek Gas Plant had, in 2001, a processing unit known as a Stretford unit, the sole purpose of which is to meet the higher air emission requirements for sulfur. [Stipulations of the Parties, ¶ 51; Brannon Direct pp. 10, 16; Trans. Vol. I, pp. 49-50].

90.      The two plants have different systems for recovering natural gas liquids (NGLs). The Carter Creek Gas Plant uses a chiller system while the Whitney Canyon Gas Plant uses a turbo expander. [Adair Direct, pp. 10-11; Brannon Direct p. 15]. As a result of the differing NGL recoveries, the Carter Creek Gas Plant is able to recover about half the propane that the Whitney Canyon Gas Plant recovers but about the same amount of heavier products like butane and natural gasoline. [Stipulations of the Parties, ¶ 52].

91.      There are other differences between the plants. The Carter Creek Gas Plant has one sulfur plant while the Whitney Canyon Gas Plant has two. The Carter Creek Gas Plant transports the sulfur it recovers by pipeline, while the Whitney Canyon Gas Plant transports the sulfur it recovers by truck. [Stipulations of the Parties, ¶ 54].

92.      Ms. Adair and Mr. Chambers, on behalf of Chevron, each expressed an opinion that the different cost structures and operating costs between the Carter Creek Gas Plant and the Whitney Canyon Gas Plant rendered the use of any Whitney Canyon gas processing contracts as a comparable inappropriate. [Adair Direct, pp. 12-13; Chambers Supplemental Direct, Answer to Question 2]. In support of that position, Mr. Chambers offered a chart showing the processing costs for the Whitney Canyon Gas Plant and the Carter Creek Gas Plant for 1997 through 2003. [Confidential Exhibit 216]. However, the chart includes the extraordinary costs experienced at the Carter Creek Gas Plant in 2000 due to an unscheduled maintenance outage and at the Whitney Canyon Gas Plant in 2001 because of a record expense level turnaround. [Chamber’s Supplemental Direct, Answer to Question 4]. Notwithstanding these extraordinary costs, the seven year average cost comparison reflects the costs of the two plants to be essentially the same. [Confidential Exhibit 216]. We find the seven year average to be a better reflection of the costs of the two plants, costs which we find to be very similar over time.

93.      The differences between the two plants do not affect the ability of either plant to process gas production from the Whitney Canyon field, the Carter Creek field, or the Yellow Creek field; all such gas production was processed at the Carter Creek Gas Plant in 2001. Supra ¶¶ 9-12, 88.

94.      We find the similarities between the Carter Creek Gas Plant and the Whitney Canyon Gas 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 finding because both plants process the same composition high sulfur gas. In fact, before the gas is produced it would be impossible to predetermine which plant would process the gas. While the plants have some slight differences, each serves the same producers from the same fields with the same ultimate goal, to process gas for sale of NGLs and residue gas. Therefore, we find the processing fee charged to producers who have gas processed at the Whitney Canyon Gas Plant is a comparable fee with respect to producers who process gas at the Carter Creek Gas Plant.

95.      The Whitney Canyon C&O Agreement includes, as Exhibit F, a Gas Processing Agreement (hereinafter Exhibit F Gas Processing Agreement). [Exhibit 927, pp. 0170-0193]. The Department selected the Exhibit F Gas Processing Agreement as a comparable which the Department could use to determine the processing deduction for valuing Chevron’s production processed at the Carter Creek Gas Plant. Supra ¶¶ 22, 39. Chevron argues the Exhibit F Gas Processing Agreement cannot be used as a comparable to determine the processing deduction for valuing Chevron’s production processed at the Carter Creek Gas Plant. Because of Chevron’s partial ownership interest in the Whitney Canyon Gas Plant, Chevron argues there is no “other party” for which a processing fee may be inferred. [Petitioner’s Proposed Findings of Fact and Conclusions of Law, ¶ 66; Chambers Direct, p. 24].

96.      The Exhibit F Gas Processing Agreement obliges each producer to pay the Whitney Canyon Gas Plant owners an in-kind processing fee of 25% of the plant products recovered during each settlement period which are attributable to the producer. [Exhibit 927, pp. 0170-0193, Exh. F, Section 12.1, p. 185.1]. The plant owners are responsible for all operating costs of the Whitney Canyon Gas Plant. [Exhibit 927 p. 0170, Exh. F, Section 12.2, p. 185.1]. The Exhibit F Gas Processing Agreement further recites the in-kind processing fee percentage “. . . 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 more than $336 million is exceeded.” [Exhibit 927, Exh. F, Section 12.3, pp. 185.1-186]. The 25% in-kind fee has never been changed. [Exhibit 927, Exh. F]. It continues to govern the fees paid for processing by the original producers and their successors in interest.

97.      In Whitney Canyon 2000 and Carter Creek 2000, we found the Whitney Canyon C&O agreement was a third party contract between four taxpayers, including Chevron; and the Whitney Canyon C&O Agreement created a business entity we characterized as a partnership comprised of the four taxpayers. Whitney Canyon 2000, ¶ 8; Carter Creek 2000, ¶ 49. However, the Department was not concerned with defining a legal entity, much less a partnership, but simply viewed the plant owners collectively as separate and distinct from each individual producer. [Trans. Vol. II, pp. 338-341].

98.      Petitioner generally criticizes the Department’s use of the Exhibit F Gas Processing Agreement, asserting that it is not an arms-length agreement, or a third party agreement. [Chambers Direct, p. 24; Wilkinson Corrected Direct, Answers to Questions 28-30]. We find Petitioner’s reliance on the mutual desire of the parties to construct the Whitney Canyon Gas Plant misplaced. There is no evidence in the record that the parties to the Whitney Canyon C&O Agreement did not negotiate to protect their individual interests. Since the Exhibit F Gas Processing Agreement was an element of the Whitney Canyon C&O Agreement, we find it was also an arms-length agreement. Petitioner’s opinions to the contrary are merely statements of Petitioner’s legal position, and are not credible. See Whitney Canyon 2001, ¶ 176.

99.      The Department had sound reasons for considering the co-owners of the Whitney Canyon Gas plant to be arms-length parties. Supra ¶ 46. No co-owner was an affiliate of another co-owner. [Bolles Direct, p. 29]. The co-owners negotiated the Whitney Canyon C&O Agreement when it was first written, and must continue to do so for amendments. [Bolles Direct, p. 29]. The Whitney Canyon C&O Agreement contains language that indicates the parties acted in an arms-length manner. [Bolles Direct, pp. 29-32]. (For an in depth discussion of the contract provisions see Carter Creek 2000, ¶¶ 50-59.) The co-owners generally competed with one another for supply, production, transportation and marketing of gas. [Bolles Direct, p. 29].

100.    Petitioner suggests the fee charged to a producer does not reflect the true processing costs because, as a plant owner, Petitioner is also obligated to pay its proportionate ownership share of the costs and expenses of the Whitney Canyon Gas Plant. This simplistic view would have the Board ignore the fact that each plant owner receives as compensation a portion of all plant products in proportion to its plant ownership share. (25% of total plant products times its ownership interest). In Whitney Canyon 2001, we found this redistribution of the processing fees to the plant owners to be significant, indicating the plant owners received more plant revenue than just the 25% fee each owner paid for processing its own production. Whitney Canyon 2001 ¶¶ 90-96. The obligation of Chevron to pay its share of the plant costs based on its ownership interest in the plant is an obligation of plant ownership, not a fee charged to a producer for the processing of its gas.

Carter Creek - Exxon Road Hollow Agreement

101.    Petitioner contends the Department erred in relying on the Exxon Road Hollow Agreement as a comparable for numerous reasons including: the age of the contract, the composition of the Road Hollow gas, the contractual quantity limit in the contract, the priority of the gas, and Chevron’s motivations for entering into the contract.

102.    In 1992, Chevron entered into an agreement with Exxon Company, U.S.A. (Exxon) to process gas produced by Exxon from the Road Hollow, Bridger Fork and Collette Creek Areas located in Lincoln County, Wyoming. [Confidential Exhibit 200]. It replaced an earlier processing agreement between the parties dated November 17, 1983. [Confidential Exhibit 200, ¶ 21.2, p. 0309]. The initial term of the Exxon Road Hollow Agreement was a minimum period of 10 years, with a provision that it would continue thereafter until terminated by either party on 12 months prior written notice. [Confidential Exhibit 200, ¶ 21.1, p. 0309]. It contained a maximum limit of the Exxon gas that could be sent to the Carter Creek Gas Plant of 25 million standard cubic feet per day, approximately 15% of plant capacity. [Confidential Exhibit 200, ¶ 6.1, p. 0299]. No one contends this is not an arms-length agreement between unrelated parties.

103.    On behalf of Chevron, Ms. Adair expressed an opinion that the Exxon Road Hollow Agreement could not be used as a comparable because it was executed in 1992. The opinion was based in part on her assumption that it was entered into several years after the Carter Creek Gas Plant was constructed and in part on the age of the contract. [Confidential Adair Direct, pp. 1-2]. However, her opinion failed to take into consideration the fact that the 1992 Exxon Road Hollow Agreement replaced an earlier agreement entered into at the time the plant began operations. [Confidential Exhibit 200, ¶ 21.2, p. 0309]. Her opinion was also contradicted by Mr. Tysse, a Chevron employee, who indicated Chevron, in looking at whether or not to continue the current Exxon Road Hollow Agreement beyond its term, concluded it would be making some money and wanted to continue the Agreement. [Trans. Vol. I, p. 179]. We give Ms. Adair’s opinion no weight in light of the continuing viability of the contract in 2001.

104.    The gas processed under the Exxon Road Hollow Agreement contains a small amount of hydrogen sulfide, approximately .1%, as compared to Carter Creek gas which contains a larger percentage of hydrogen sulfide, between 16% and 17%. [Tysse Direct, p. 5]. Still, even this small quantity of hydrogen sulfide prevents Exxon’s Road Hollow gas from being marketed without processing. [Tysse Direct, p. 5].

105.    The fee charged to Exxon under the Exxon Road Hollow Agreement is a sliding scale based on volume with a maximum of 25%, plus 100% of the sulfur. 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 was 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. [Confidential Exhibit 200, Section 11.1]. 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 200, Section 11.1].

106.    In 2001, approximately 3.73% of the gas processed at the Carter Creek Gas Plant came from the Road Hollow field. [Trans. Vol. I, p. 154; Confidential Exhibit 212]. No gas was processed from the other two formations listed in the Agreement. [Trans. Vol. I, p. 170]. During 2001, the Carter Creek Gas Plant had excess design capacity of approximately 59 million standard cubic feet per day, except for 45 days when it processed gas from the Whitney Canyon Gas Plant. [Brannon Direct, p. 11; Tysse Direct, p. 4; Confidential Exhibit 212]. This excess capacity is well above the Exxon Road Hollow Agreement maximum of 25 million standard cubic feet of gas per day, and the 4 million standard cubic feet per day volume of Exxon Road Hollow gas processed in 2001. [Tysse Direct, p. 6]. We find the production limitation did not affect the commercial viability of the Exxon Road Hollow Agreement.

107.    The Exxon Road Hollow Agreement does not contain a specific priority for processing Exxon’s gas. [Confidential Exhibit 200]. Mr. Tysse indicated it would be treated as third priority gas and would be shut in before Chevron volumes and mutual process volumes. [Trans. Vol. I, p. 162]. However, because of the hydrogen sulfide content of the Exxon gas, it is the last gas curtailed when the Carter Creek Gas Plant is shut down and the first gas brought in when the plant is brought on line. [Trans. Vol. I, pp. 148, 162-163]. The Department did not consider priority to be a concern because there is no taxable event until the gas is processed and sold. [Bolles Direct, p. 44; see Trans. Vol. II, p. 221]. We find priority does not affect the viability of the Exxon Road Hollow Agreement as a comparable.

108.    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. [Tysse Direct, pp. 7-8; Confidential Exhibit 211]. However, Chevron offered no evidence about how far along the plant is in its life span. Chevron also realized a financial gain from the Exxon Road Hollow Agreement. [Trans. Vol. I, p. 179].

109.    Petitioner contends the difference in the make-up of the gas streams renders the Exxon Road Hollow Agreement inappropriate to use as a comparable because a given inlet volume of Exxon Road Hollow gas would generate a higher value than an equal inlet volume of Carter Creek field gas. [Confidential Adair Direct, pp. 4-5]. A hypothetical example was provided to support Chevron’s position. [Confidential Adair Direct, pp. 4-5; Confidential Exhibit 226]. Chevron did offset its processing costs in 2001 for the Exxon Road Hollow and Whitney Canyon gas processed in 2001. [Confidential Exhibit 209, p. 557; Confidential Exhibit 530]. However, we were not provided with an explanation of how the offset was calculated, what portion of the offset was related to the processing of Exxon Road Hollow gas, or what revenue was received from the sale of the Exxon Road Hollow gas taken in-kind from which we could verify the claim. Therefore, we find that Chevron has failed to meet its burden of proof on this issue.

Whitney Canyon-Carter Creek Mutual Backup Agreement

110.    The Whitney Canyon-Carter Creek Mutual Back-up Agreement provides for short term processing during plant shutdowns, on a third priority basis. [Exhibit 516]. In 2001, the Carter Creek Gas Plant processed gas from the Whitney Canyon Gas Plant during its turnaround. [Stipulations of the Parties, ¶ 96; Tysse Direct, p. 12; Confidential Exhibit 213]. The fee for processing was 20% in-kind if no inlet compression was used, and 22% if inlet compression was used. [Exhibit 516].

111.    Petitioner’s witnesses testified to a number of factors they say distinguish the Mutual Back-up Agreement from the other gas processing agreements. Ms. Adair was critical of the use of the Mutual Back-up agreement as a comparable because of its intermittent use, its age, and its negotiation after Chevron had acquired an ownership interest in the Whitney Canyon Gas Plant. [Adair Direct, pp. 26-27]. Mr. Tysse criticized its use because of the temporary time, 45 cumulative days in any calendar year, that gas can be processed pursuant to the agreement, and his opinion that the motivations for entering into the agreement were other than to make a profit. [Tysse Direct, pp. 11-13].

112.    Although there are elements of truth in that testimony, we did not find the items listed to be impediments to use of the Mutual Back-up Agreement as a source of comparable value. Generally speaking, we find the terms and conditions of the Mutual Back-up Agreement differ from those of the other processing agreements, but these differences are reflected in the lower processing fee. The Department recognized these differences by determining that the appropriate processing fee for Carter Creek production was 25%, rather than the lower fee established by the Mutual Back-up Agreement.

113.    However, we are not prepared to accept the Mutual Back-up Agreement as a comparable because we do not have adequate evidence of the contractual obligations that support the Department’s position. The parties to the Mutual Back-up Agreement were Amoco, as operator of the Whitney Canyon Gas Plant, and Chevron, as operator of the Carter Creek Gas Plant. [Exhibit 516]. The plant processing gas supplied by the producer is defined as the processor. [Exhibit 516]. However, the producer is defined as the well operator that produces gas to the other plant. [Exhibit 516]. In this respect, the Mutual Back-up Agreement is unlike any of the other gas processing agreements that the Department identified as a comparable.

114.    While we know that Chevron accounts for the gas processed pursuant to the Mutual Back-up Agreement by well, we do not know how the processing fee is billed, whether to the Whitney Canyon Gas Plant or the well operator. [Confidential Exhibit 213]. Without this final link to the producer, we are uncertain about what party is actually paying a processing fee, a fact which we believe to be a prerequisite for application of the comparable value method.

115.    We find the Mutual Back-up Agreement lends support to the Department’s general position, but cannot agree that it is a comparable.

Carter Creek - Anschutz Back-up Agreement

116.    In 2001, Chevron, as operator of the Carter Creek Gas Plant, and Anschutz Marketing and Transportation, Inc., as producer, entered into a processing agreement to provide for processing Anschutz’s Yellow Creek gas during the 2001 Whitney Canyon turnaround. [Tysse Direct, p. 14; Confidential Exhibit 201; Exhibit 520]. The initial term of the agreement was for the period from May 1, 2001, through July 31, 2001, with a provision that the agreement would continue until terminated by either party. [Confidential Exhibit 201]. In order to process its gas at the Carter Creek Gas Plant, Anschutz is required to obtain a release from its contract with the Whitney Canyon Gas Plant, the Wahsatch Gathering System Processing Agreement. [Confidential Exhibit 201, ¶ 1; Exhibit 943]. The Carter Creek Gas Plant had the capacity to process additional volumes, but retained the right to curtail the processing of the gas. [Confidential Exhibit 201, ¶ 5]. In 2001, approximately 8.6 million standard cubic feet of gas per day was processed at the Carter Creek Gas Plant over a period of 25 days. [Tysse Direct, p. 15].

117.    The Anschutz Back-up Agreement provides for a percentage fee for the processing of the Anschutz gas and for an additional fee for services provided after the tailgate of the plant. [Tysse Direct, p. 16; Tysse Confidential Direct, Answers to Questions 67, 70; Confidential Exhibit 201].

118.    Petitioner’s witnesses testified to a number of factors that they say distinguish the Carter Creek-Anschutz Back-up Agreement from the other gas processing agreements. Ms. Adair was critical of the use of the agreement as a comparable because of its temporary nature. [Adair Confidential Direct, p. 6]. Among Mr. Tysse’s criticisms were the temporary nature of the processing, Chevron’s right to curtail processing at any time, Chevron’s knowledge of the fee being charged by the Whitney Canyon Gas Plant for processing of the Anschutz gas, and the absence of inlet compression services. [Tysse Confidential Direct, p. 2; Tysse Direct, pp. 16,17, 18]. Mr. Tysse also expressed his opinion that the motivations for entering into the agreement were other than to make a profit. [Tysse Direct pp. 14-15].

119.    While there are elements of truth in that testimony, we did not find the items listed to be impediments to use of the Carter Creek-Anschutz Back-up Agreement as a source of comparable value. Generally speaking, we find the terms and conditions of the Carter Creek-Anschutz Back-up Agreement differ from those of the other processing agreements, but these differences did not result in a processing fee different than that reflected in other contracts selected by the Department as comparables.

Wahsatch Gathering System Processing Agreement

120.    The Wahsatch Gathering System Processing Agreement, entered into in 1994, provides for the processing of the Anschutz gas from the Yellow Creek field, commonly referred to as the Wahsatch Gathering System, by the Whitney Canyon Gas Plant. [Stipulations of the Parties, ¶ 79; Exhibit 943]. This is the same gas processed in 2001 at the Carter Creek Gas Plant pursuant to the Carter Creek - Anschutz Back-up Agreement. Supra ¶¶ 12, 116-119. The agreement was entered into by Union Pacific Resource Company (UPRC) and the Whitney Canyon Gas Plant operator, on behalf of the Whitney Canyon Gas Plant owners, as part of a larger transaction involving UPRC’s purchase of Amoco Production Company’s interests in the Yellow Creek field. [Stipulations of the Parties, ¶¶ 87-88; Adair Direct, p. 12]; see Whitney Canyon 2001, ¶ 180. Anschutz subsequently acquired UPRC’s interest in late 2000. [Stipulations of the Parties, ¶ 79; Adair Direct, p. 12].

121.    The Wahsatch Gathering System Processing Agreement provides that the gas, condensate, and water be separated and delivered to the Whitney Canyon Gas Plant. [Exhibit 943, Sections 4.5, 4.7, p. 252; Tysse Supplemental Direct, Answer to Question 6]. The processing fee has a range of 14.17% to 25% depending upon the volume delivered for processing per day. [Trans. Vol. II, p. 353]. Thus, regardless of the volume produced and processed in 2001, Anschutz never paid more than a 25% processing fee. Nearly all of the fee is profit because the Whitney Canyon Gas Plant is not required to provide compression and separation services. [Stipulations of the Parties, ¶ 82]. The gas is third priority gas. [Stipulations of the Parties, ¶ 84; Tysse Supplemental Direct, Answer to Question 8].

122.    Ms. Adair, on behalf of Chevron, expressed her opinion that the Wahsatch Gathering System Processing Agreement was not a comparable because the agreement was entered into in 1994, and because both parties had ownership interests in the Whitney Canyon Gas Plant when the field was sold by Amoco to UPRC. [Adair Direct, p. 19]. She also characterized the agreement as unique because gathering, compression, and separation services are performed by the producer prior to delivery to the Whitney Canyon Gas Plant for processing. [Adair Direct, pp. 20-21]. Mr. Chambers offered his opinion that it could not be used as a comparable because UPRC was an interest owner in the Whitney Canyon Gas Plant when the agreement was entered into. [Chambers Direct , p. 25]. Mr. Tysse offered his opinions on the motivations of the parties at the time the agreement was entered into. [Tysse Supplemental Direct, Answer to Question 5].

123.    Taking the history into account, we nonetheless find that the Wahsatch Gathering System Processing Agreement is a suitable source for determining comparable value. We doubt the contention that the contract was unduly favorable, particularly in view of Chevron’s testimony that the costs associated with processing the Wahsatch gas are less than for other gas. Supra ¶ 121. To the extent that the original processing fee was in some way preferential, that preference must be viewed in the context of the Whitney Canyon Gas Plant owners’ common interest in securing processing revenue from the Wahsatch production, and in light of the costs of transporting the Wahsatch gas to Whitney Canyon. As important, this history has generally ceased to be of interest. In 2001, the producer, Anschutz, did not have any ownership interest in the Whitney Canyon Gas Plant.

124.    Despite the continued processing of gas under the Wahsatch Gathering System Processing Agreement, Chevron’s witness Adair opined that the Agreement was too old to be representative of current market conditions. [Adair Direct, Answer to Question 33]. We find the delivery and processing of gas in 2001 indicative of present market value, contrary to Adair’s speculation about the motivations of the parties in 1982. [Adair Direct, Answer to Question 73]. We find it more significant that the Whitney Canyon Plant operator has not availed itself of its right to cancel the agreement if the processing becomes uneconomical. [Exhibit 943, Section 25, p. 269].

125.    We accept the general proposition that the Wahsatch producer received less service for its fee than other producers. Even if the Wahsatch producer received less service for its fee than other producers, Petitioner did not persuade us that the Wahsatch Gathering System Processing Agreement cannot be a source of comparable value. A purchaser of services commonly cannot avail itself of the full range of services included in a package of services that has a set fee, even though another purchaser may be able to enjoy all of the benefits of the package. Similarly no one testified that the Wahsatch producer needed these additional services, but was deprived of them. For the purposes of applying the comparable value method, it is enough that gas has been processed in the same plant without substantial special adjustment to the plant operations.

126.    While there are differences in the services provided to Anschutz, we did not find the items listed to be impediments to use of the Wahsatch Gathering System Processing Agreement as a source of comparable value. Generally speaking, we find the terms and conditions of the Wahsatch Gathering System Processing Agreement differ from those of the other processing agreements, but these differences did not result in a processing fee different than that reflected in other contracts selected by the Department as comparables.

Merit Agreement

127.    The Whitney Canyon Gas Plant processes gas for Merit produced from the Champlin 505B1 well. [Stipulations of the Parties, ¶ 68]. The well is located in the Session Mountain field, approximately three to four miles west of the central part of the Whitney Canyon field. In 2001, the owners of the production from the well were BP America and RME, two of the owners of the Whitney Canyon Gas Plant, and Merit. [Stipulations of the Parties, ¶ 31]. Merit’s portion of the gas production is processed at the Whitney Canyon Gas Plant pursuant to a gas processing agreement (hereinafter Merit Agreement) entered into between the Whitney Canyon Gas Plant operator, acting on behalf of its owners, and Merit’s predecessor in interest, Texaco. [Exhibit 944]. In 2001, the volume of gas processed at the Whitney Canyon Gas Plant pursuant to the Merit Agreement was less than .2% of the total inlet volume of the Whitney Canyon Gas Plant. [Stipulations of the Parties ¶ 72]. The processing fee was 25% of the residue gas, condensate and NGLs, and 100% of the sulfur. [Exhibit 944, Section 12.1].

128.    Ms. Adair testified there is a slightly different situation with the Merit gas because Merit has a very small working interest in one well, and had little choice in what happened to its gas. Because Merit’s interest was combined with gas owned by parties who had large volumes of gas being processed at the Whitney Canyon Gas Plant, it was tied into the gathering system and sent to the Whitney Canyon Gas Plant. [Adair Direct, p. 23]. We find, however, the fact that one or both parties to an agreement were, and still remain, under practical negotiating constraints does not make the contract any less valid and enforceable.

129.    Ms Adair also expressed an opinion that Merit’s predecessor in interest, Texaco, was a large player, and was able to negotiate a lower fee due to contracts with the Whitney Canyon Gas Plant owners in other areas of the United States. [Adair Direct, pp. 23-24]. We find no discernable factual basis for accepting this opinion. Rather, we find it an indication of the relatively equal bargaining position of the major oil companies when the Merit Agreement was negotiated.

130.    We note that the volume of gas sent by Merit to the Whitney Canyon Gas Plant for processing is small. We nonetheless agree with the Department that quantity did not affect pricing terms. Supra ¶ 127.

1995 Chevron Agreement

131.    Chevron has a working ownership interest in wells located in or adjacent to the Whitney Canyon field: Cummings Federal Well No. 1, ACG Well No. 1, ACG Well No. 2, ACG Well No. 5, and ACG Well No. 6A. [Chambers Direct pp. 22-23; Exhibit 529; Confidential Exhibit 217]. In 1992, it entered into an agreement with the Whitney Canyon Gas Plant to process its gas from these wells. [Confidential Exhibit 217, p. 7]. The initial fee charged by the Whitney Canyon Plant Owners, which did not include Chevron at that time, was 50% of the plant products. [Confidential Exhibit 217, Section 12.1, pp. 17-18]. The fee was subsequently reduced to 35%, then 25%, and ultimately to a sliding scale with a maximum fee of 25%. [Chambers Direct, p. 23; Confidential Exhibit 529, Attachment 1].

132.    The first reduction in the fee occurred shortly after Chevron’s merger with Gulf and thereby its acquisition of an ownership interest in the Whitney Canyon Gas Plant. [Chambers Direct, p. 23]. The 1995 Chevron Agreement allows Chevron to process gas at Whitney Canyon at a processing fee between 14.17% and 25% of the product. [Confidential Exhibit 529, Attachment 1]. Chevron also gained the option of sending its gas to Carter Creek Gas Plant. [Stipulations of the Parties, ¶ 77; Confidential Exhibit 529, pp. 388, 409].

133.    Chevron exercised its option of sending gas to the Carter Creek Gas Plant by taking the production from one well, the ACG Well No. 6A, to the Carter Creek Gas Plant for processing because its production mirrors Chevron’s working interest in its wells. [Trans. Vol. II, p. 253]. For the production from wells dedicated to and processed through the Whitney Canyon Gas Plant, Chevron deducts the 25% charged for processing. [Trans. Vol. II, p. 210]. Chevron characterizes the methodology used for reporting that production as “essentially a netback” method. [Trans. Vol. II, p. 263]. In effect, Chevron uses the 1995 Chevron Agreement with the owners of the Whitney Canyon Gas Plant to calculate the processing deduction for those wells.

134.    Because the 1995 Chevron Agreement is an agreement under which Chevron is a producer, it is not a comparable with Chevron as a producer at the Carter Creek field. However, Chevron’s use of the 1995 Chevron Agreement as a third-party processing fee is significant as an indication of Chevron’s understanding of the application of the comparable value method. Infra ¶¶ 231-234.

General findings regarding contracts

135.    Three themes run through Chevron’s witnesses’ criticisms of the comparable contracts selected by the Department. First, Chevron contends that the “motivations” of the parties at the time the contract is entered into must be analyzed and taken into consideration by the Department in its selection process. [E.g., Trans. Vol. I, pp. 158-160]. Second, Chevron contends any contract selected as a comparable must be executed at or near the year in which it is being used as a comparable. [E.g., Trans. Vol. II, pp. 217-218]. Third, Chevron contends the volumes and composition of the gas streams must be identical or nearly identical to the total gas stream owned by Chevron and processed through the Carter Creek Gas Plant. [E.g., Trans. Vol. I, p. 53].

136.    No witness with first hand knowledge of the negotiations of the contracts testified, with the exception of Mr. Tysse who participated on behalf of Chevron in the negotiations surrounding the execution of the Carter Creek-Anschutz Back-up Agreement. [Tysse Direct, p. 14]. We find testimony of witnesses not involved in the negotiations to be an unreliable source of the information concerning the motivations of the parties at the time the contracts were negotiated. We further find such evidence to be of little, if any, value unless we were to hear from all parties to a contract. When we have not been presented with evidence from competent witnesses for all parties who participated in a contract’s negotiation, we can give no weight to the limited evidence offered. Further, we accept the Department’s testimony that it is probably virtually impossible to gather all the information on external factors that may have surrounded the negotiation of a contract. [Trans. Vol. III, p. 443].

137.    The criticism of the execution dates of the contracts used by the Department as comparables ignores the overriding fact that all of the contracts remained in effect in 2001, with the Carter Creek Anschutz Back-up Agreement actually being executed in 2001. Supra ¶¶ 106, 110, 116, 124, 127. In particular, we note the testimony of Chevron’s witness that Chevron recently decided to continue the Exxon Road Hollow agreement, indicating the continued viability of that contract. Supra ¶ 103.

138.    Petitioner has emphasized the differences between the volumes processed under the various agreements and the aggregate volumes of gas processed through the Whitney Canyon Gas Plant and the Carter Creek Gas Plant. [E.g., Confidential Exhibits 212, 213]. In doing so, Petitioner has assumed, but not demonstrated, that comparisons of processing agreements must be based on aggregated plant volumes.

139.    The question of like quantity takes on a different complexion when viewed in the context of the unit by which Petitioner actually reports its production, the Mineral Group. The Mineral Group is often associated with individual wells, and is likewise the pertinent unit for appeal purposes. [Notice of Appeal; Confidential Exhibit 509]. If we focus on individual Mineral Groups rather than on an aggregation of Mineral Groups associated with the plant, the Department’s point about the consistency of the 25% fee becomes stronger. It is clear that the fee is a constant despite wide variations in the quantity and quality of gas produced from individual Mineral Groups.

140.    The Department’s summary of Petitioner’s annual reports, the best information available to us, demonstrated the wide variation in quantities produced from Mineral Groups processed at both the Carter Creek Gas Plant and the Whitney Canyon Gas Plant. [Exhibit 510]. For example, the volume Chevron reported for its Mineral Group with the largest volume processed at the Carter Creek Gas Plant was over 150 times larger than the volume reported for its smallest Mineral Group processed at the Carter Creek Gas Plant. [Confidential Exhibit 510 (comparison of “G. Sales Vol” for each “Group” and “Plant”)]. The same summaries also demonstrate wide variation in quality, as reflected by gross sales value reported per unit of gross sales volume. [Confidential Exhibit 510 (comparison of columns entitled “G Sales Vol.” and “G Sales Val.”)]. For example, Chevron’s reported unit value (“G. Sales Val.” divided by “G. Sales Vol.”) for Mineral Group 1051 was more than six times the unit value it reported for production from Mineral Group 4732, with unit values for Chevron’s other Mineral Groups being well distributed between these two extremes. [Confidential Exhibit 510].

141.    Using the percentage of reported Mineral Group gross sales volume (“G. Sales Vol.”) to the Total gross sales volume (“Total CC, G Sales Vol.”) for each Mineral Group processed at the Carter Creek Gas Plant, we can make a rough comparison of the percentage of total volumes by Mineral Group to the percentage of total Carter Creek Gas Plant volume that Exxon Road Hollow gas represents. Of the fourteen Chevron Mineral Groups with reported gas production processed though the Carter Creek Gas Plant (Plant “CC”), eight exceeded the Exxon Road Hollow percentage, while six were less than the Exxon Road Hollow percentage. [Confidential Exhibit 510; Tysse Direct, p. 6].

142.    We find Petitioner’s criticism based on the differing quality of the gas streams outweighed by the fact that gas from the Carter Creek field, the Road Hollow field, the Yellow Creek field, and the Whitney Canyon field can be and was processed at the Carter Creek Gas Plant in 2001. Supra ¶¶ 9-12.

143.    Under the Gas Processing Agreement attached to the C&O Agreement as Exhibit F, Chevron is a Producer separate and distinct from the Plant Owners identified in the same Gas Processing Agreement. [Exhibit 927]. The Plant Owners are separate and distinct from Chevron as a Producer. Chevron’s rights and responsibilities as Producer, with respect to the business entity of Plant Owners, are established by the Gas Processing Agreement.

144.    We find that the Exhibit F Gas Processing Agreement of BP, as a Producer, is a reliable source of information, or a comparable, from which the Department could infer and impute a reasonable processing fee which would be paid by an other party for processing of gas of like quantity, taking into consideration the quality, terms and conditions under which the gas was processed. The same is true of the Exhibit F Gas Processing Agreements of RME, as a Producer, and Forest Oil, as a Producer. The fee is an in-kind 25% of the residue gas and plant products recovered during each settlement period, and attributable to the Producer in question. Sufficient similarity in quantity is assured by the fact that the fee provided in the comparable Exhibit F Gas Processing Agreements does not vary with respect to production. Sufficient similarity in quality is assured by the fact the gas comes from the same formation and has been processed at both plants, and the measure of the fee is the product(s) recovered after processing. Sufficient similarity of terms and conditions is assured by the identical terms and conditions of the Exhibit F Gas Processing Agreements. 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.

145.    The Exxon Road Hollow Agreement is a reliable source of information, or a comparable, from which the Department could infer and impute a reasonable processing fee which would be paid by an other party for processing of gas of like quantity, taking into consideration the quality, terms and conditions under which the gas was processed. [Confidential Exhibit 200]. Exxon is not related to Chevron and is an other party. The contractual fee is a percentage in-kind processing fee which does not exceed 25% of the residue gas and plant products attributable the Exxon Road Hollow interests. Sufficient similarity in quantity is assured by the fact that the processing fee required (except with regard to sulfur) during 2001, under any known gas processing agreement selected by the Department, was a maximum of 25%. Sufficient similarity in quality is assured by the fact the gas processed in the plant is commingled, and the measure of the fee is the product(s) recovered after processing. Sufficient similarity of terms and conditions is assured by comparison of the terms and conditions of the Exhibit F Gas Processing Agreements of the producers, and the terms and conditions of the Exxon Road Hollow Agreement. [Confidential Exhibit 200, Exhibit 927].

146.    The Wahsatch Gathering System Processing Agreement is a reliable source of information, or a comparable, from which the Department could infer and impute a reasonable processing fee which would be paid by an other party for processing of gas of like quantity, taking into consideration the quality, terms and conditions under which the gas was processed. [Exhibit 943]. The fee is an in-kind 25% of the residue gas and plant products recovered during each settlement period, and attributable the Wahsatch Gathering System interests. Sufficient similarity in quantity is assured by the fact that the processing fee required (except with regard to sulfur) during 2001, under any known gas processing agreement selected by the Department, was a maximum of 25%. Sufficient similarity in quality is assured by the fact the gas processed in the plant is commingled, and the measure of the fee is the product(s) recovered after processing. 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. Sufficient similarity of terms and conditions is assured by comparison of the terms and conditions of the other processing agreements.

147.    The Merit Agreement is a reliable source of information, or a comparable, from which the Department could infer and impute a reasonable processing fee which would be paid by an other party for processing of gas of like quantity, taking into consideration the quality, terms and conditions under which the gas was processed. The fee is an in-kind 25% of the residue gas and plant products recovered during each settlement period, and attributable to Merit. [Exhibit 944]. Sufficient similarity in quantity is assured by the fact that the processing fee required (except with regard to sulfur) during 2001, under any known gas processing agreement related to Whitney Canyon, was a maximum of 25%. Sufficient similarity in quality is assured by the fact the gas processed in the plant is commingled, and the measure of the fee is the product(s) recovered after processing. 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. Sufficient similarity of terms and conditions is assured by comparison of the terms and conditions of the other processing agreements.

148.    The Carter Creek - Anschutz Back-up Agreement is a reliable source of information, or a comparable, from which the Department could infer and impute a reasonable processing fee which would be paid by an other party for processing of gas of like quantity, taking into consideration the quality, terms and conditions under which the gas was processed. [Confidential Exhibit 201]. The fee is an in-kind 25% of the residue gas and plant products attributable to Anschutz’s interests. Sufficient similarity in quantity is assured by the fact that the maximum processing fee required (except with regard to sulfur) during 2001, under any known gas processing agreement selected by the Department, was a maximum of 25%. Sufficient similarity in quality is assured by the fact the gas processed in the plant is commingled, and the measure of the fee is the product(s) recovered after processing. Sufficient similarity of terms and conditions is assured by comparison of the terms and conditions of the other processing agreements.

Did the Petitioner demonstrate that the Department erred by not applying general appraisal principles when determining the value of Petitioner’s production using the comparable value method?

149.    In determining the value of Petitioner’s minerals processed through the Carter Creek Gas Plant, the Department did not consider itself to be an appraiser, and did not apply professional appraisal standards. [Trans. Vol. II, pp. 308, 351]. Taking this fact as a key premise, Petitioner challenges the Department’s application of the comparable value method.

150.    In discussing his understanding of the terms of the comparable value statute, Mr. Chambers expressed his personal opinion that he considered the statutory words to be terms of art in the appraisal industry. [Chambers Direct, p. 20]. Mr. Chambers is not certified as an appraiser or otherwise qualified as an expert in the appraisal industry. From this testimony, we understand Chevron to argue that the Department must overlay its valuation process with professional valuation standards. [Petitioner’s Proposed Findings of Fact and Conclusions of Law, ¶ 202].

151.    Chevron called two industry witnesses, Lisa Adair and Joseph Wilkinson, neither of whom claimed to be a professional appraiser. [Trans. Vol. I, pp. 56, 202]. Both witnesses merely offered an “industry perspective.” [Trans. Vol. I, pp. 51, 202]. In addition to specific points that we have already considered, e.g., supra ¶¶ 103, 109, 111-112, 118-119, each generally criticized the Department’s application of the comparable value method. For example, both Adair and Wilkinson would have looked for contracts negotiated in 2001. [Trans. Vol. I, pp. 58, 16, Vol. II, p. 217]. Ms. Adair would also have looked at market gas prices in 2001. [Trans. Vol. II, p. 217]. By these general views, neither witness did more than offer a perspective that differed from the perspective of the Department. From our detailed review of their testimony, neither Adair nor Wilkinson persuaded us that the Department’s approach was invalid, or that the Department had misapplied the comparable value method.

Did the Petitioner demonstrate that the values determined by the Department did not reach fair market value?

152.    Petitioner claims the comparable value method did not reach fair market value, but offered no evidence to measure the proportionate profits method against the same standard. Rather, Petitioner only advocated for the use of the proportionate profits method as the only statutory method available to the Department if the comparable value method could not be used. Mr. Wilkinson was retained to give an opinion on whether fair cash market value can be achieved using the comparable value method, applying a 25% processing deduction. [Wilkinson Direct, Answer to Question 12]. Ms. Adair was asked to determine the market value, but only offered a general opinion on how her netback method would work. [Confidential Exhibit 207, pp. 513, 523-527]. Neither witness was asked to evaluate the results of the proportionate profits method.

153.    Mr. Chambers testified that the proportionate profits method, without the inclusion of taxes and royalties in the direct cost ratio, reached fair market value for production year 2001. [Trans. Vol. II, p. 263]. However, the premises for that opinion were not given, leaving us with no means of evaluating it. The logic of this concession casts doubt on whether, exclusive of the results of a valuation method authorized by statute, fair market value can be demonstrated by opinion testimony, whether lay or expert. Chevron appears to concede that any authorized method, if properly applied, reaches fair market value, although the results of the authorized methods may differ. The taxpayer nonetheless presented two separate studies intended to demonstrate that the comparable value method did not reach fair market value.

154.    Mr. Chambers presented a study comparing the results of the processing deduction allowed under several different valuation methods. [Confidential Exhibit 223]. As a threshold matter, a comparison of the costs allowed under the different methods is a hypothetical exercise, because the Department did not use comparable value prior to production year 2000. Supra ¶ 81. Our concern is principally with what actually occurred in production year 2001, because production year 2001 is the subject of this appeal.

155.    To the extent Mr. Chamber’s comparison of the plant costs and deductions allowed under different methods is intended to substantiate Chevron’s position regarding the use of the comparable value method or the proportionate profits method, we have already found the analysis to be unpersuasive for production year 2001. E.g., supra ¶¶ 82-83. The comparison of costs to allowed deductions raises, but does not resolve, the question of whether any baseline or benchmark can be used for all years in the life of a plant.

156.    Mr. Wilkinson testified to his opinion that fair cash market value at the wellhead of the Carter Creek production in 2001 cannot be achieved by using the 25% processing deduction allowed by the Department. [Wilkinson Revised Direct, Answers to Questions 19, 20]. The principal grounds for this opinion were that a 25% processing allowance would have equaled a negative 13% internal rate of return on investment through 2001. [Wilkinson Revised Direct, Answer to Question 20]. He further testified that a comparison with other methods – including his own netback calculation and the Canadian Jumping Pound formula – shows that the 25% failed to achieve fair cash market value “of the production at the wellhead.” [Wilkinson Rev. Direct, Answer to Question 20]. We find that neither the opinion, nor the grounds for the opinion, are persuasive.

157.    We do not find Wilkinson’s calculations of the plant’s implied rate of return to be a reliable standard of measurement, principally because of the many ways in which his calculations diverge from our own comparison of plant costs and revenues, but for additional reasons as well.

Wilkinson failed to account for the revenue paid to Chevron under the Exxon Road Hollow, Anschutz Back-up Agreement and Carter Creek-Whitney Canyon Mutual Back-up agreements. [Confidential Revised Exhibit 214, attached Exh. F; Trans. Vol. I, pp. 73-74].

Wilkinson included an annual working capital charge of 15%, calculated against incremental revenue; the charge was not identified as an operating cost by the individual taxpayers, or the Department. [Confidential Revised Exhibit 214, attached Exh. F]. The Department correctly points out that this is not an actual cost.

Most of Wilkinson’s historical data was extrapolated from publicly available information, rather than being actual data, and he acknowledged that years before 2000 and 2001 are “theoretical.” [Trans. Vol. I, pp. 74, 76].

Wilkinson’s depreciation estimate was taken on a straight line basis over twenty years, although Chevron actually used a units of production method, and used a theoretical plant life. [Trans. Vol. I, p. 74, Vol. II, p. 275; Confidential Revised Exhibit 214, attached Exh. F].

Wilkinson’s calculations deducted depreciation twice, once by using Chevron’s O&M expenses which included depreciation as an expense and once by deducting a calculated straight line depreciation. [Confidential Exhibit 209, p. 557, DD&A; Confidential Revised Exhibit 214, attached Exh. F].

Wilkinson’s 2001 revenue figures were not the same as reported by Chevron to the Department, and Chevron’s tax representative was unable to adequately explain the discrepancy. [Confidential Revised Exhibit 214, attached Exh. F; Trans. Vol. II, p. 272].

Wilkinson’s gas volume numbers were different than the volumes provided by Chevron at the hearing. [Confidential Revised Exhibit 214, attached Exh. F; Exhibit 212; Trans. Vol. I, pp. 180-181].

Wilkinson added an arbitrary annual cost of $1,500,000 for additional capital expenditures. [Confidential Revised Exhibit 214, attached Exh. F].

Wilkinson revised his exhibits prior to the hearing. He did so in a way that markedly favored the Petitioner. Despite his explanations of the revisions, we found his role to be primarily that of an advocate, rather than a witness called to assist us as trier of fact.

158.    We have accorded no weight to Wilkinson’s other standards of comparison. The Jumping Pound method is not authorized by Wyoming statutes. Wilkinson’s netback calculation assumed a rate of return of 24%; un-depreciated investment; aggregate expenses as provided by Chevron; and a hidden subsidy in the form of an assumed federal tax rate of 38%. [Confidential Revised Exhibit 214, attached Exh. B; Grenvik Rebuttal, p. 2]. In the end, Wilkinson’s netback calculation was – like Jumping Pound – merely another perspective, not well grounded in either the details of the case or the requirements of Wyoming statute.

Did the Petitioner demonstrate that the Department violated prescribed procedures when determining the value of Petitioner’s gas production?

159.    The Department’s approach to the administration of the comparable value method has changed over time. In 1990, the Administrator of the Mineral Tax Division selected the comparable value method for 1991 through 1993, and notified taxpayers who process or transport their own production to “consider the amounts they charge unrelated parties for these services in similar circumstances when determining the processing and/or transportation deductions for their own production.” [Exhibit 928]. In 1992, the Administrator of the Mineral Tax Division issued a formula for determining comparable value. [Exhibit 929]. The approach of that formula was challenged by Amoco and rejected by the Wyoming Supreme Court. Amoco Production Company v. State Board of Equalization, 882 P.2d 866 (Wyo. 1994). The record does not show that the formula in Exhibit 929 was ever successfully used to determine the value of any taxpayer’s oil and gas production, nor does the record show that the formula was ever adopted by rulemaking.

160.    For production years 1994, 1995, and 1996, the Department again selected the comparable value method. [Exhibit 930]. However, on November 30, 1995, the Department issued a Memorandum to all oil and gas producers, entitled “Valuation of Gas for 1995 production year/Severance and Ad Valorem Tax – Non Arms-Length Transactions.” [Exhibit 934]. The Memorandum referred to the Department’s choice of the comparable value method for production years 1991-1993, and 1994-1996. [Exhibit 934, p. 1]. For taxpayers who attested to the fact that no comparable values existed for their production, the Department authorized the use of the proportionate profits method. [Exhibit 934, p. 1]. Chevron responded to the Department’s memorandum, requesting the use of the proportionate profits method, attesting “to the best of its knowledge, no appropriate comparables exist for the listed properties.” [Exhibit 936]. The Department’s response to Chevron’s letter, dated January 31, 1996, underscored the condition that the taxpayer was attesting to the fact that no comparable values existed. [Exhibit 937]. A subsequent letter agreement between the Department and Chevron refers to the Memorandum of November 30, 1995, as “describing how the valuation procedure for the 1995 and 1996 production years would be carried out.” [Exhibit 938].

161.    When the Department notified oil and gas producers of its selection of the comparable value method for production years 1997-1999, the Department expressed a similar policy for allowing taxpayers to report using the proportionate profits method. [Exhibit 939]. If the taxpayer attested that no comparable values existed in an “exception letter,” the Department notified the taxpayer that the proportionate profits method was to be used. [Exhibit 939, p. 226]. A letter to Chevron dated December 21, 1996, looking forward to valuing production year 1997 as the first year of a three year valuation cycle, underscored the condition that the taxpayer was attesting to the fact that no comparable values existed. [Exhibit 940].

162.    Chevron’s tax representative testified that the valuation directive for 1997-1999, Chevron’s response to that directive, and the Department’s confirmation letter was sent in compliance with the Department’s November 30, 1995 Policy. [Chambers Direct, Answers to Questions 34-37; Exhibits 914, 939, 940]. The characterization of the 1995 Memorandum as a policy of the Department is not supported by the Memorandum itself, by contemporary documents, or by witnesses from the Department. We note that Petitioner’s tax representative frequently claimed to speak for the Department, when at most he was competent to speak of his perceptions of Department policy. We have placed little weight on such testimony when it was not supported by contemporaneous documentation, and by the testimony of officials charged with administering the Department.

163.    When the Department notified oil and gas producers of its selection of the comparable value method for production years 2000-2002, it did not reiterate the attestation/exception letter policy that had been in place for the preceding years. [Exhibit 912]. Instead, the Department’s revised policy was as follows:

In the event the taxpayer has made a determination that a representative Comparable Value does not exist for a specific mineral property the taxpayer shall notify the Department in writing by October 30, 1999. This notification shall include specific justification for that determination. It shall also include the identification, with statutory citation, of the method that the taxpayer proposes to use. The department will respond in writing to the taxpayer on or before December 15, 1999 stating acceptance or rejection of the requested method.

[Exhibit 912 (emphasis in the original)].

164.    Chevron complains that the Department did not continue to use the policy articulated in 1995, or notify Chevron that the policy was no longer in effect. [Chambers Direct, Answers to Questions 69-70]. From our review of the pertinent documents, we find that the November 30, 1995, Memorandum was not, and did not purport to be of indefinite duration. We find that the policy expressed in the November 30, 1995, Memorandum was never adopted by rule making. The Department’s policy for each separate three-year cycle of valuation method was adequately expressed in contemporaneous documents. We find that the Petitioner’s various complaints to the contrary are groundless.

Did the Petitioner demonstrate that there were similarly situated taxpayers who were allowed to report taxable value using the proportionate profits method?

165.    Petitioner bases one or more of its constitutional claims on the premise that it is similarly situated to other mineral taxpayers who (1) sent their gas to processing plants prior to sale, and (2) requested and were granted the right to report on a proportionate profits basis, as an exception to the comparable value method. In 2001, five taxpayers requested the use of the proportionate profits method: Chevron, BP America, Anadarko, Marathon Oil Company, and Burlington Resources. [Trans. Vol. II, pp. 349-350]. Of these, Burlington Resources and Marathon Oil company were permitted to use the proportionate profits method. [Bolles Rebuttal, p. 6]. Four contracts, related to processing at the Lost Cabin Gas Plant, the Garland Gas Plant, the Oregon Basin Gas Plant, and the JT Separation Facility, were introduced by Chevron in support of its position. [Confidential Exhibits 206, 219, 220, 221].

166.    Chevron stated four general points of similarity between and among these mineral taxpayers:

(1)They were producers of production that was processed at plants in which they owned an interest;

(2)Each charges a fee for processing;

(3)The fee charged did not vary on the basis of volume or quality of gas; and

(4)Several parties, who were not affiliated, signed the contracts.

[Petitioner’s Proposed Findings of Fact and Conclusions of Law, ¶¶ 154-156]. Petitioner has not carried its burden of demonstrating these four points, for at least three reasons.

167.    First, Petitioner did not call witnesses with first hand knowledge of the other plants and the operations of those plants, or of the revenues, costs, and tax reporting of producers serviced by the other plants. Petitioner was content to make broad and generally unsupported points. The Department found there were significant differences between and among plants, and made an effort to take those differences into account when it authorized use of the proportionate profits method, subject to audit. [Bolles Rebuttal, pp. 6-7]. We find only the Department’s position to be credible.

168.    Second, Petitioner’s points of similarity highlighted potential differences more than they established actual similarities. For example, the Carter Creek Gas Plant processed gas for parties who own no interest in the plant, but Petitioner provided no evidence that the other plants provided similar services. We also know both the Carter Creek Gas Plant and the Whitney Canyon Gas Plant charge a fee for processing, but Petitioner presented nothing more about the fees of other plants than what we could discern from contracts in the record.

169.    While the Lost Cabin C&O Agreement contains a Gas Processing Agreement, that agreement does not contain a general provision charging a fee to the producer for all production. [Confidential Exhibit 206, attached Exh. H]. A fee is only charged to underprocessed producers whose cumulative balance exceeds their interest in plant capacity. The Garland Agreement provides that the operator shall charge a fee to third parties for processing of non-unitized gas. [Confidential Exhibit 219, pp. 4-5]. However, no evidence was provided that it had ever processed third party gas. The JT Gas Separation Agreement does contain a processing fee similar to the Whitney Canyon Exhibit F Gas Processing Agreement. [Confidential Exhibit 220, p. 6]. However, the best information available to the Department indicates that only Marathon processes its gas through the facility. [Bolles Rebuttal, p. 7]. The Oregon Basin C&O Agreement provides only for a rental-in-lieu charge for over or under utilization based on the participating unit. [Confidential Exhibit 221, pp. 8-9]. We find more differences than similarity in these agreements. Because of these differences, we find Petitioner has failed to meet its burden of proof with respect to its second and third points.

170.    The Department’s rebuttal case confirmed our concerns about the differences latent in Petitioner’s first three points, regarding production from processing plants where the Department was unable to use the comparable value method. For example, the construction and operation agreement for the Lost Cabin Plant (associated with Burlington Resources) provides for sharing of plant expenses in proportion to ownership, with no processing fee added. [Bolles Rebuttal, p. 7; Confidential Exhibit 206]. The Department found that the Lost Cabin plant processed only gas from dedicated wells. [Bolles Rebuttal, p. 7]. For the Garland/Oregon Basin property (associated with Marathon), the Department found a processing fee for undedicated gas that was a floor set by settlement of a dispute related to processing of gas previously reinjected and stored without any commitment from the owners to a specific fee. [Bolles Rebuttal, p. 7]. The Department made similar findings that distinguish the circumstances of the Garland facility, the Oregon Basin plant, and the JT Gas Separation Facility. [Bolles Rebuttal, pp. 7-8].

171.    The premise of the Petitioner’s fourth point is incorrect. The parties to the Whitney Canyon C&O Agreement are plant owners, while each taxpayer is only a producer with respect to the processing agreement which is Exhibit F to the C&O Agreement. [Exhibit 927]. BP America is Operator of the Whitney Canyon Gas Plant by virtue of its position as majority plant owner, not as a producer. [Exhibit 927]. Similarly, any right to audit the Operator is the right of a plant owner, not a producer. [Exhibit 927]. We find these distinctions to be significant. We note that by the time of the hearing in this matter, the Department was in the process of reviewing the contracts for the other plants to determine whether any of them could be used as a comparable value based on the Board’s ruling in Whitney Canyon 2000, but had not yet completed its analysis. [Bolles Rebuttal, p. 7].

172.    In this case, the parties stipulated that the Whitney Canyon Gas Plant and the Carter Creek Gas Plant are the only two plants capable of processing gas with the levels of hydrogen sulfide present in the gas from the Whitney Canyon field. [Stipulations of the Parties, ¶ 98]. We take this to also mean that these two plants are also the only plants capable of processing gas from the Carter Creek field based on the similarities of the gas streams and the fact that the two plants have a Mutual Back-up agreement. Supra ¶¶ 7, 11, 110.

173.    Chevron identified two plants as similar to the Carter Creek Gas Plant, the Lost Cabin Plant and the LaBarge Plant. [Chambers Direct, Answers to Questions 100-113]. Chevron identified similar producers as Burlington Resources, Marathon, and Exxon Mobil. [Chambers Direct, Answer to Question 99].

174.    We exclude Exxon Mobil from the potential universe of similarly situated taxpayers. Exxon Mobil reported in 2001 under a settlement agreement, rather than using the proportionate profits method. [Chambers Direct, Answer to Question 112].

175.    Chevron introduced three letters for the purpose of documenting the similarity of the Lost Cabin Plant. Anthony Fasone, identified as Specialist, Royalty Compliance, was the author of the letters, all of which are on Burlington Resources letterhead. [Confidential Exhibits 203, 204, 205]. Two letters are dated July 18, 2002, and the third is dated August 23, 2003. [Confidential Exhibits 203, 204, 205]. No Petitioner listed or called Mr. Fasone as a witness.

176.    Chevron’s cost information for the Lost Cabin Plant is limited to a one-page summary in the letter of August 23, 2003. [Confidential Exhibit 205]. The figures purport to be a summary of unaudited cost information provided by the operators of the Madden Deep Unit to the Department. [Confidential Exhibit 205]. The letter discloses nothing about accounting policies with regard to such items as gathering costs or depreciation policies. [Confidential Exhibit 205]. Nor does the letter describe the operations of the Lost Cabin Plant, or its age or gas stream. [Confidential Exhibit 205]. The cost information is not supplemented by information regarding an un-depreciated asset balance, return on investment, or other information that might enable us to evaluate whether its cost structure truly resembles that of Whitney Canyon, or other plants. All of the aforementioned information has proven significant for our understanding of the merits of Petitioner’s case. The exhibits are inadequate to support a claim that Lost Cabin expenses are similar to those of Whitney Canyon. Petitioner failed to provide enough information to show that the expenses of these other plants were similar, and failed to carry its burden of demonstrating that the other plants are similar in any way other than being gas processing plants.

177.    The Department authorized Burlington Resources to use the proportionate profits method, and Burlington Resources claimed a processing allowance of 67.97 % for production year 2001. [Chambers Direct, Answers to Questions 108-109; Confidential Exhibit 203]. We note that Chevron’s Exhibit 203 treated this fact as confidential, but Chevron’s witness did not seek that protection.

178.    In rebuttal, the Department explained that it will continue to investigate the existence of sources of comparable value for those producers authorized to use the proportionate profits method. [Bolles Rebuttal, p. 7]. If the comparable value method can be used, the proportionate profits method will be disallowed. [Bolles Rebuttal, p. 7]. Petitioner presented no evidence that comparable values exist for the Burlington Resources or Marathon production reported using the proportionate profits method.

179.    We find Chevron has failed to establish that there were other similarly situated taxpayers who were permitted to use the proportionate profits method.

Miscellaneous

180.    At various points, Chevron has relied on testimony from other proceedings or statements contained in its filings with the Board to support a position. [E.g., Petitioner’s Proposed Findings of Fact and Conclusions of Law, ¶¶ 54, 55, 187]. Such representations are not evidence, and were not considered by the Board.

181.    Any portion of the Conclusions of Law: Principles of Law or the Conclusions of Law: Application of Principles of law set forth below which includes a finding of fact may also be considered a finding of fact and, therefore, is incorporated herein by reference.

CONCLUSIONS OF LAW: PRINCIPLES OF LAW

182.    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. Further, “All taxation shall be equal and uniform within each class of property. The legislature shall prescribe such regulations as shall secure a just valuation for taxation of all property, real and personal.” Wyo. Const. art. 15, § 11(d).

183.    For oil and gas, the “‘[v]alue of the gross product’ means fair market value as prescribed by W. S. 39-14-203(b) less any deductions and exemption allowed by Wyoming law or rules.” Wyo. Stat. Ann. § 39-14-201(a)(xxix).

184.    The fair market value for natural gas must be determined “after the production process is completed.” Wyo. Stat. Ann. § 39-14-203(b)(ii). Expenses “incurred by the producer prior to the point of valuation are not deductible in determining the fair market value of the mineral.” Wyo. Stat. Ann. § 39-14-203(b)(ii).

185.    “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.” Wyo. Stat. Ann. § 39-14-203(b)(iv). “When no dehydration is performed, other than within a processing facility, the production process is completed at the inlet of the initial transportation related compressor, custody transfer meter or processing facility, whichever occurs first.” Wyo. Stat. Ann. § 39-14-203(b)(iv).

186.    If the producer does not sell its natural gas prior to the point of valuation “by a bona fide arms-length sale,” the Department must identify the method it intends to apply to determine 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.” Wyo. Stat. Ann. § 39-14-203(b)(vi).

187.    If the Department determines fair market value using one of the four methods found in Wyoming Statutes section 39-14-203(b)(vi), it must use the same method “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.” Wyo. Stat. Ann. § 39-14-203(b)(viii).

188.    The Department may unilaterally employ only one of four methods to determine fair market value of natural gas not sold prior to the point of valuation. Wyo. Stat. Ann. § 39-14-203(b)(vi). All four methods have been discussed in the record:

(A) Comparable sales – The fair market value is the representative arms-length market price for minerals of like quality and quantity used or sold at the point of valuation provided in paragraphs (iii) and (iv) of this subsection taking into consideration the location, terms and conditions under which the minerals are being used or sold;

(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;

(C) Netback – 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. The netback method shall not be utilized in determining the value of natural gas which is processed by the producer of the natural gas;

(D) Proportionate profits – The fair market value is:

(I) The total amount received from the sale of the minerals minus exempt royalties, nonexempt royalties and production taxes times the quotient of the direct cost of producing the minerals divided by the direct cost of producing, processing and transporting the minerals; plus

(II) Nonexempt royalties and production taxes.

Wyo. Stat. Ann. § 39-14-203(b)(vi). The Legislature prescribed these methods in 1990. 1990 Wyo. Sess. Laws, Ch. 54.

189.    “[T]he objective of the comparable value statute is for the Department to find reliable information about processing fees paid by other taxpayers in similar situations, from which the Department can make reasonable inferences as to a particular taxpayer’s processing costs.” BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 19.

190.    General appraisal principles must be applied sparingly, if at all, in the context of Wyoming Statutes section 39-14-203(b)(vi) and the specific methods the Wyoming State Legislature has chosen to define fair market value. Whitney Canyon 2000, ¶¶173-182.

191.    The Department has not issued rules interpreting the comparable value, netback, or proportionate profits methods. However, rule making 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). As the Wyoming Supreme Court recently observed:

We find no requirement for rulemaking to resolve any statutory ambiguity at issue in this case. Taxpayers believe that, in the absence of rulemaking, the Department is empowered with unfettered discretion to determine comparable value on an ad hoc basis. This argument goes too far. It is probably impossible to draft statutes with sufficient precision and foresight to resolve each of the hundreds of issues that are likely to arise during the life of a statute. This does not, however, make a statute void for vagueness or unenforceable barring rulemaking.

BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 23.

192.    The Wyoming Supreme Court and this Board have interpreted the words and phrases employed in the definition of the comparable value method. Whitney Canyon 2000. The words “other parties” mean simply an entity separate and distinct from the individual taxpayer as a producer. Whitney Canyon 2000, ¶ 127. See BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 25. The words are unambiguous. Whitney Canyon 2000, ¶ 128. The Wyoming Supreme Court has held that “. . . the legislature did not intend for comparable processing fee contracts to necessarily be arms-length, third-party contracts in order to achieve the ultimate statutory goal of taxation based upon accurate fair market value.” BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 22.

193.    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 applies the comparable value methodology to determine fair market value. The 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 utilizing the services of a gas processing plant. Whitney Canyon 2000, ¶¶ 130-135.

194.    The phrase “taking into consideration the quality, terms and conditions under which the minerals are being processed or transported” is likewise a test. Under this test, the Department must reasonably assure itself of the reliability of any comparison upon which it bases inferences regarding processing fees. The Department must consider at least the quality of the minerals, and the terms and conditions under which the minerals are being processed. Whitney Canyon 2000, ¶ 140.

195.    The Board previously interpreted a key phrase employed in the proportionate profits method. “Direct cost of producing the minerals” includes production taxes, and includes royalties. In the Matter of the Appeals of Chevron U.S.A., Inc., Docket Nos. 2002-50, et al., 2004 WL 1294512 (Wyo. St. Bd. Eq.); In the Matter of the Appeal of Burlington Resources Oil & Gas Co., Docket No. 2002-49, In the Matter of the Appeals of Louisiana Land & Exploration Co., Docket Nos. 2002-123, et al., 2004 WL 1174649 (Wyo. St. Bd. Eq.); In the Matter of the Appeal of RME Petroleum Company, Docket No. 2002-52, 2003 WL 22814612 (Wyo. St. Bd. Eq.); In the Matter of the Appeal of Fremont County, Docket No. 2000-203, 2003 WL 21774604 (Wyo. St. Bd. Eq.).

196.    The Wyoming Supreme Court recently set out the process used to value mineral production:

The process of “valuing” mineral production for tax purposes is lengthy, involving these steps:

1.The taxpayer files monthly severance tax returns. Wyo. Stat. Ann. § 39-14-207(a)(v) (LexisNexis 2001).

2.The taxpayer files an ad valorem tax return by February 25 in the year following production, and certifies its accuracy under oath. Wyo. Stat. Ann. § 39-14-207(a)(i) (LexisNexis 2001).

3.The Department of Revenue values the production at its fair market value based on the taxpayer’s ad valorem return. Wyo. Stat. Ann. § 39-14-202(a)(ii) (LexisNexis 2001).

4.The Department of Revenue then certifies the valuation to the county assessor of the county the minerals were produced in to be entered on the assessment rolls of the county. Wyo. Stat. Ann. § 39-14-202(a)(iii) (LexisNexis 2001).

5.The taxpayer then has one year to file an amended ad valorem return requesting a refund. Wyo. Stat. Ann. § 39-14-209(c)(i) (LexisNexis 2001).

6.The Department of Audit has five years from the date the return is filed to begin an audit, and must complete the audit within two years. Wyo. Stat. Ann. § 39-14-208(b)(iii), (v)(D), (vii) (LexisNexis 2001).

7.Any assessment resulting from the audit must be issued within one year after the audit is complete. Wyo. Stat. Ann. § 39-14-208(b)(v)(E) (LexisNexis 2001).

Board of County Commissioners of Sublette County v. Exxon Mobil Corporation, 2002 WY 151, ¶11, 55 P.3d 714 (Wyo. 2002). (Commencing January 1, 2003, the time frame for audits was reduced. See Wyo. Stat. Ann. § 39-14-208(b)(vii)).

197.    A taxpayer “aggrieved by any final administrative decision of the Department may appeal to the state board of equalization.” Wyo. Stat. Ann. § 39-14-209(b)(i),(vi). Oil and gas taxpayers are entitled to this remedy:

Following [the Department’s] determination of the fair market value of . . . natural gas production the department shall notify the taxpayer by mail of the assessed value. The person assessed may file written objections to the assessment with the state board of equalization within thirty (30) days of the date of postmark and appear before the board at a time specified by the board . . ..

Wyo. Stat. Ann. § 39-14-209(b)(iv). This provision is found in Title 39, Chapter 14, of the Wyoming Statutes, pertaining to Mine Products Taxes on Oil and Gas.

198.    From Title 39, Chapter 13 of the Wyoming Statutes, one subsection addresses ad valorem tax appeals:

Following the determination of the fair market value of property the department shall notify the taxpayer by mail of the assessed value. The person assessed may file written objections to the assessment with the [state] board [of equalization] within thirty (30) days of the date of the postmark and appear before the board at a time specified by the board. The person assessed shall also file a copy of the written objections with the county treasurer of the county in which the property is located, who shall notify the county assessor and the board of county commissioners, with an estimate of the tax amount under appeal based upon the previous year’s tax levy.

Wyo. Stat. Ann. § 39-13-102(n).

199.    The Board shall “review final decisions of the department [of revenue] upon application of any interested person adversely affected . . . under the contested case procedures of the Wyoming Administrative Procedure Act . . .. In addition, the board shall:

(i) Manage its internal affairs and prescribe rules of practice and procedure;

* * *

(iv) Decide 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:

(A) Upon application of any person adversely affected ...

* * *

(viii) Hold hearings after due notice in the manner and form prescribed by the Wyoming Administrative Procedure Act and its own rules and regulation of practice and procedure . . ..

Wyo. Stat. Ann. § 39-11-102.1(c).

200.    Among other requirements for contested case procedures, the Wyoming Administrative Procedure Act states, “[o]pportunity shall be afforded all parties to respond and present evidence and argument on all issues involved.” Wyo. Stat. Ann. § 16-3-107(j).

201.    The Board may adjudicate a dispute between a taxpayer and the Department only by “approving the determination of the Department, or by disapproving the determination and remanding the matter to the Department.” Amoco Production Company v. Wyoming State Board of Equalization, 12 P.3d 668, 674 (Wyo. 2000).

202.    The Supreme Court recently summarized the procedure the Board must follow when an oil and gas taxpayer challenges the fair market value determined by the Department of Revenue:

The Department’s valuations for state-assessed property are presumed valid, accurate, and correct. Chicago, Burlington & Quincy R.R. Co. v. Bruch, 400 P.2d 494, 498-99 (Wyo. 1965). This presumption can only be overcome by credible evidence to the contrary. Id. 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. Id.

The petitioner has the initial burden to present sufficient credible evidence to overcome the presumption, and a mere difference of opinion as to value is not sufficient. Teton Valley Ranch v. State Board of Equalization, 735 P.2d 107, 113 (Wyo. 1987); Chicago, Burlington & Quincy R.R., 400 P.2d at 499. If the petitioner successfully overcomes the presumption, then the Board is required to equally weigh the evidence of all parties and measure it against the appropriate burden of proof. Basin [Electric Power Coop. Inc. v. Dep’t of Revenue], 970 P.2d [841] at 851 [(Wyo. 1998)]. Once the presumption is successfully overcome, the burden of going forward shifts to the Department to defend its valuation. Id. The petitioner, however, by challenging the valuation, bears the ultimate burden of persuasion to prove by a preponderance of the evidence that the valuation was not derived in accordance with the required constitutional and statutory requirements for valuing state-assessed property. Id.

BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 26, quoting Amoco Production Company v. Department of Revenue et al., 2004 WY 89, ¶¶7-8, 94 P.3d 430; accord, Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, ¶12, 76 P.3d 342, ¶12 (2003); Colorado Interstate Gas Company v. Wyoming Department of Revenue, 2001 WY 34, ¶¶9-11, 20 P.3d 528, ¶¶9-11. The presumption that the Department correctly performed the assessment rests in part on the complex nature of taxation. Airtouch Communications, Inc., 2003 WY 114, ¶13, 76 P.3d 342, ¶13 (2003).

203.    The Board’s Rules describe a petitioner’s burden of going forward, and its burden of persuasion:

Except as specifically provided by law or in this section, 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, Chapter 2, §20.

204.    The initial step in arriving at a correct interpretation of a statute is an enquiry respecting the ordinary and obvious meaning of the words employed according to their arrangement and connection. A statute must be construed as a whole in order to ascertain its intent and general purpose and also the meaning of each part. We give effect to every word, clause, and sentence and construe all components of a statute in pari materia. Parker Land & Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo. 1993).

205.    “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” U. S. Const. amend. XIV, § 1, second sentence.

206.    “No person shall be deprived of life, liberty or property without due process of law.” Wyo. Const. art. 1, § 6.

207.    “All laws of a general nature shall have a uniform operation.” Wyo. Const. art. 1, § 34. (Petitioner misquotes Article 1, §34 in its proposed conclusions of law. [Petitioner’s Proposed Conclusions of Law, ¶ 248].)

208.    “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).

209.    A valuation method may yield a deduction so low that the valuation method is constitutionally impermissible. If:

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 ‘the 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).

210.    “Many types of property are included within each of the three constitutional classes of property . . .. For example, it has long been recognized that, even though mineral products are one class of property, different valuation methods should be applied to different types of minerals. Oil is not valued by using the same method as is used in valuing coal or uranium. See, e.g., Pathfinder Mines v. State Board of Equalization, 766 P.2d 531 (Wyo. 1988) (recognizing that uranium is valued by using a different method than is used in valuing other mineral products).” Amoco Production Company v. Wyoming State Board of Equalization, 899 P.2d 855, 860 (Wyo. 1995).

211.    “Uniformity of assessment requires only that the method of appraisal be consistently applied . . .. It is an intrinsic fact in mineral valuation that differences in values result from the application of an appraisal method.” In re Monolith Portland Midwest Company, Inc., 574 P.2d 757, 761 (Wyo. 1978). “[U]niformity achieving taxation based upon accurate fair market value may well require application of different methodologies to similarly situated mineral taxpayers if comparable values differ in processing agreements or different cost structures exist.” BP America Production co. v. Department of Revenue, 2005 WY 60, ¶ 30.

212.    Procedural due process is satisfied “if a person is afforded adequate notice and an opportunity to be heard at a meaningful time and in a meaningful manner.” BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 27, quoting Robbins v. South Cheyenne Water and Sewage Dist., 792 P.2d 1380, 1385 (Wyo. 1990); see Higgins v. State ex rel. Workers’s Compensation Div., 739 P.2d 129 (Wyo. 1987), cert. den. 484 U. S. 988 (1987).

213.    Collateral estoppel and res judicata are generally stated, and distinguished, as follows:

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 these doctrines 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)(citations omitted).

214.    Collateral estoppel bars relitigation of previously litigated issues:

Generally, four factors are considered when determining application of collateral estoppel:

(1) whether the issue 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 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 a prior proceeding.

Tenorio v. State ex rel. Wyoming Workers’ Compensation Division, 931 P.2d 234, 238-239 (Wyo. 1997).

215.    Res judicata bars relitigation of previously litigated claims. Tenorio, 931 P.2d at 238. Res judicata applies if: (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 identical in reference to the subject matter and the issues between them. Livingston v. Vanderdiet, 861 P.2d 549, 551-552 (Wyo. 1993).

216.    “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, and 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. Workers’ Compensation Division, 968 P.2d 41, 45 (Wyo.1998). “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 (7^th Cir. 1987). However, a party is not bound to maintain a position it unsuccessfully maintained in the original claim. Matter of Cassidy, 892 F.2d 637, 641 (7^th Cir. 1990); 74 Am. Jur. 2d Estoppel and Waiver §73, p. 498.

CONCLUSIONS OF LAW: APPLICATION OF PRINCIPLES OF LAW

217.    Petitioner’s Proposed Conclusions of Law broadly discuss prior interpretations regarding the comparable value statute [Petitioner’s Proposed Conclusions of Law, ¶¶ 168-187, 245-246], notice concerning the use of the comparable value method [Petitioner’s Proposed Conclusions of Law, ¶¶ 193-197], and the application of the comparable value method to other taxpayers [Petitioner’s Proposed Conclusions of Law, ¶¶ 247-253]. Much of that discussion has been considered by the Board in the Findings of Fact, supra.

Did the Department correctly apply the comparable value method to determine the value of Petitioner’s production?

218.     Chevron brought this appeal under Wyoming Statutes sections 39-14-209(b)(iv) and 39-13-102(n). [Notice of Appeal]. Petitioner thereby challenges the Department’s value determination for its gas production, a value used to levy state severance taxes and county ad valorem taxes. [Notice of Appeal]. As a practical matter, a successful challenge to the valuation used for severance tax purposes also affects ad valorem taxes.

219.    Petitioner attempts to contest the Department’s selection of the comparable value method for 2000-2002. [Petitioner’s Proposed Conclusions of Law, ¶¶ 163, 197]. Petitioner, however, can not contest the Department’s selection of a method pursuant to Wyoming Statutes section § 39-14-203(b)(viii) in this case. Production year 2001 was the second year of a three year cycle during which one valuation method selected by the Department remains in effect. As important, we fully addressed the issue of the selection of the method when it was properly before the Board. See Carter Creek 2000, ¶¶ 108-143. Wyoming Statutes section 39-14-203(b)(viii) has its own standard for adjudication, i.e., whether the selected method accurately reflects the fair market value of the taxpayer’s production. Since this case was not brought pursuant to Wyoming Statutes section 39-14-203(b)(viii), that standard does not apply. However, this distinction is of limited significance because we found Petitioner did not demonstrate that the Department’s comparable value determination did not meet fair market value. Findings, ¶¶ 152-158.

220.    Since the selection of the method is not at issue, we concern ourselves only with whether the comparable value method was properly applied, and with Petitioner’s procedural and constitutional claims.

221.    Petitioner has appealed under statutes which do not establish any specific standard to guide the Board’s review. Wyo. Stat. Ann. § 39-14-209(b). The Board must judge the Department’s valuation by the general standard that the valuation must be in accordance with constitutional and statutory requirements for valuing state-assessed property. Amoco Production Company v. Department of Revenue et al, 2004 WY 89, ¶¶ 7-8, 94 P.3d 430; Wyo. Stat. Ann. § 39-14-209(b)(vi). In doing so, we must take into account “the rules, regulations, orders and instructions prescribed by the department,” and our own Rule governing the burdens of going forward and of persuasion. Rules, Wyoming State Board of Equalization, Chapter 2, §20. The ultimate burden of persuasion rests with Petitioner in this case.

222.    Chevron contends that the contracts used by the Department do not establish fair market value for a variety of reasons. [Petitioner’s Proposed Findings of Fact and Conclusions of Law, ¶¶ 205-244]. See Findings, ¶¶ 86-148.

223.    Chevron first argues that we must overlay the statutory definition of “comparable value” contained in Wyoming Statutes section 39-14-203(b)(vi)(B) with a definition of “comparable.” [Petitioner’s Proposed Findings of Fact and Conclusions of Law ¶¶ 198-201]. The argument takes the name given a defined valuation method, “comparable value;” selects one word from that name, “comparable”; defines that term; and then asks the Board to apply that definition to a method already defined. The argument is fallacious. The method described by the term “comparable value” is defined by the statute. Further, the case cited by Petitioner, Adams v. State ex rel. Workers Safety and Compensation Division, 975 P.2d 17 (Wyo.1999) is not on point. In Adams, the Court was attempting to define a term, “comparable,” used but not defined in the Wyoming Workers’ Compensation Act. Id. at 19. Here, the term “comparable value” is used to describe a method of valuation which has been defined by the Legislature.

224.    Petitioner next argues the Department erred in not using guidelines which an appraiser would use based on the Department’s concession that it did not use appraisal standards. Findings, ¶¶ 149-151. To support its position, Petitioner relies primarily on a “quote” cobbled together from the last sentence of the third paragraph and the last sentence of the fifth paragraph of a concurring opinion issued in conjunction with the Board’s Decision in Amoco Production Company and Amoco Rocmount, Board Docket No. 91-174 (May 26, 1992), 1992 WL 126533 (Wyo. St. Bd. Eq.). The case is factually different than the case before us. In that case, the Board found “. . . there is no evidence as to the actual processing fees or fee arrangements charged to such parties in circumstances similar to those of the natural gas production and processing at issue.” Id. at Findings of Fact ¶ 1. In this case, such evidence has been presented. We have considered the opinion of the Board and both concurring opinions filed in that case and conclude it has no precedential value.

225.    Chevron called two industry witnesses, Lisa Adair and Joseph Wilkinson, neither of whom claimed to be a professional appraiser. Findings, ¶ 151. Both witnesses merely offered an “industry perspective.” Findings, ¶ 151. In addition to specific points that we have already considered, e.g., Findings, ¶¶ 103, 111-112, each generally criticized the Department’s application of the comparable value method. For example, Adair would have looked for contracts negotiated in 2001, and at market gas prices in 2001. Findings, ¶ 137. By these general views, nothing more was offered than a perspective that differed from the perspective of the Department. From our detailed review of the testimony, we are not persuaded that the Department’s approach was invalid, or that the Department had misapplied the comparable value method.

226.    While we have dealt with the factual basis of Chevron’s complaints in our Findings above, that discussion must be placed in the context of the meaning of the terms contained in the applicable statute, Wyoming Statutes section 39-14-203(b)(vi)(B), even though Chevron advanced only limited legal arguments concerning the language of the statute.

Other parties

227.     As we did for production year 2000, we begin with the phrase “other parties.” Carter Creek 2000, ¶¶ 116-117. This term is significant primarily because of the Department’s use of the Exhibit F Processing Agreement contained within the Whitney Canyon C&O Agreement as one of the comparables used to value Chevron’s production. Findings, ¶¶ 39, 95-99. Chevron makes no argument that Exxon or Anschutz are not “other parties” with respect to their agreements for processing at the Carter Creek Gas Plant.

228.    We previously concluded that this phrase means persons or groups distinct from the individual taxpayer, and is unambiguous. Whitney Canyon 2000, ¶¶ 127-128; Carter Creek 2000, ¶¶ 116-117. Petitioner has offered no new arguments which cause us to reconsider this conclusion. However, in Whitney Canyon 2000, we applied that principle to the facts in this way:

… the Plant Owners are an other party with respect to each of the Producers. Each of the taxpayers is before us in its capacity as a Producer. We conclude that the Plant Owners are a business entity separate from each Producer. We have characterized that entity as a partnership based on the evidence in the record, including the C&O Agreement with its attachments, and testimony regarding the conduct of the business of the Whitney Canyon gas processing plant …

Whitney Canyon 2000, ¶ 129.

229.    Chevron emphasizes our prior characterization of the Whitney Canyon Gas Plant owners as a partnership. Citing Hayes v. State ex rel Workers Compensation Division, 768 P.2d 11 (Wyo. 1989), Chevron argues that since a partnership is not a separate entity from its partners, the owners of the Whitney Canyon Gas Plant are not other parties vis-à-vis Chevron. In this case, the Department was simply satisfied that the plant owners were separate and distinct from each producer, and made it clear that this had been its position in the proceedings for production year 2000. Findings, ¶ 39, 99. We take the Department’s position as the starting point for our analysis.

230.    We conclude the owners of the Whitney Canyon Gas Plant are an other party with respect to each of the producers. In doing so we are not concluding that the plant owners are a partnership. Rather, it is the distinction between an individual producer and a multiparty processor that is central to the processing fee that the plant owners charge and collect under Exhibit F to the C&O Agreement, the Wahsatch Gathering System Agreement, the Merit Agreement, and the 1995 Chevron Agreement. The plant owners are not distinct just from the individual producers who are party of Exhibit F to the C&O Agreement. The multiparty ownership established by the C&O Agreement is central to the structure of all contract relationships by which the Whitney Canyon plant processes natural gas for producers. The plant owners, acting through the plant operator, enforce the collection of the processing fee and account for its disposition. In another proceeding we found the disposition of the fee has a substantial redistributive effect. See Whitney Canyon 2001, Findings, ¶¶ 90-96.

231.    Chevron’s longstanding practice of using the statutory netback method to report production under the 1995 Chevron Agreement reinforces our conclusion that the plant owners are an other party with respect to each producer. Findings, ¶¶ 32, 133. Chevron relies on the 25% processing fee as the measure of its processing allowance under the 1995 Chevron Agreement. Chevron could only report using the netback method if it complied with the statutory requirement that has been in place since 1990:

(C) Netback – 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. The netback method shall not be utilized in determining the value of natural gas which is processed by the producer of the natural gas;

Wyo. Stat. Ann. §39-14-203(b)(vi)(C).

232.    To report using the statutory netback method, Chevron deducted expenses it incurred, as a producer, for “third party processing fees.” Chevron treated the plant owners – itself among their number since 1985 – as a third party. If the plant owners are a third party for purposes of the statutory netback method, we must conclude that they are other parties for purposes of the comparable value method.

233.    Chevron’s netback reporting is also significant because the netback method is not available to determine the value of natural gas “which is processed by the producer of the natural gas.” Wyo. Stat. Ann. §39-14-203(b)(vi)(C). By its actions, Chevron conceded that under the 1995 Chevron Agreement, Chevron did not process the natural gas. Chevron’s reporting could only be lawful if the Whitney Canyon Gas Plant owners – Chevron among their number since 1985 – were viewed as distinct from Chevron in its capacity as a producer. Chevron’s netback reporting is consistent with the Department’s view that the plant owners are other parties for purposes of the comparable value method.

234.    We conclude there is no distinction between Chevron in its capacity as a producer under its two different sets of interests. The Chevron which produced gas acquired through its Gulf interests, and the Chevron which produced gas under the 1995 Chevron agreement, was one and the same.

235.    Chevron’s netback reporting under the 1995 Chevron Agreement cannot be squared with the Department’s stated position that the netback method was not available to Petitioner because it is a producer-processor. Findings, ¶ 47. As we indicated in Whitney Canyon 2000, the better view is that none of the parties to the Whitney Canyon C&O Agreement are producer-processors, because the plant owners are the processor and the individual taxpayers are producers. Whitney Canyon 2000, ¶ 155.

236.    In this case, the taxable value determined by the comparable value and netback methods was the same, because processing cost was measured by the same contractual processing fee of 25%. Because two of the four statutorily authorized valuation methods reached the same result, we are confident that neither result is an anomaly. In passing, we note this result contradicts the view that the Legislature necessarily intended a positive rate of return on investment. The third party processing fee in the statutory netback method is not disaggregated into current operating costs, depreciation, and return on investment, and therefore differs from the pre-1990 netback method. Findings, ¶ 68.

237.    Under our view of the producer-processor limitation in the statutory netback method, the netback method would not be available where the producer and processor are one and the same for all production processed in a plant, as with Exxon Mobil’s LaBarge facility. Appeal of Sublette County Board of County Commissioners, Docket Nos. 2000-142, et. al., 2004 WL 1174651 (Wyo. St. Bd. Eq.). The Department, not the taxpayer, controls the selection of method. The use of sham processing fees can be detected on audit.

238.    Of course, the Department revalued Chevron’s production using the comparable value method. Our interest in the producer-processor limitation is principally due to the divergent wording of the comparable value and netback methods, which must be read in harmony. Parker Land & Cattle Company, 845 P.2d at 1042. Specifically, we must make sense of the distinction between “other parties” in the comparable value method, and “third parties” in the netback method. See Whitney Canyon 2000, ¶ 159.

239.    The Petitioner has presented testimony on the motivations behind various contracts, testimony intended to establish that the processing contracts do not reflect an arms-length relationship between third parties. E.g., Findings, ¶¶ 98, 111-112. From its plain language, the comparable value statute does not require the Department to concern itself with either an arms-length or a third party standard, despite the fact that both phrases are used elsewhere in Wyoming Statutes section 39-14-203(b)(vi). Parker Land & Cattle Company, 845 P.2d at 1042. We conclude that there is no reason to read either an arms-length test or a third party test into the comparable value method, let alone a “motivations” test.

240.    Petitioner lays the rationale for a third party test at the feet of the Board. We concluded long ago that the Department may “reasonably infer or estimate a just and fair processing fee…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, 1992 WL 126533 (Wyo. St. Bd. Eq.); quoted in Amoco Production Company, 882 P.2d at 870 (Wyo. 1994); Whitney Canyon 2000, ¶ 134. Under this principle, the Department must only concern itself with the position of Petitioner and the fees paid by the producers on which the estimated fee is based, not on whether the Petitioner or comparable producers are in fact third parties with respect to the processing plant. In this case, Petitioner is at least in a third party producer position vis-à-vis the Whitney Canyon Gas Plant. See Whitney Canyon 2000, ¶ 159. The more restrictive third party test is confined to the netback method. Our conclusion resolves an issue that had concerned us in the previous case. See Whitney Canyon 2000, ¶ 159.

241.    Finally, by a plain reading of the language of the comparable value method, Petitioner’s view that “other parties” means “third parties” must be rejected. [Petitioner’s Proposed Conclusions of Law, ¶ 207]. Petitioner’s position was specifically addressed and rejected by the Wyoming Supreme Court:

We find no support for Taxpayers' argument on the term "other parties" as used in the statute. We find that the legislature did not intend that an "other party" has to be a "third party engaged in arms-length negotiations." The legislature uses the term "third party" several times within subsection (b), for instance in (b)(v). Most importantly for our current purpose, the legislature uses the term in (b)(vi)(C) in establishing the netback method of valuation. The statutory language specifically states that "third party processing fees" are to be deducted from the sales price in using the netback method. The legislature did not add such a provision to the comparable value method. The legislature's omission of the term "third party" must be given effect. Merrill v. Jansma, 2004 WY 26, ¶ 29, 86 P.3d 270, ¶ 29 (Wyo.2004) ("[O]mission of words from a statute is considered to be an intentional act by the legislature, and this court will not read words into a statute when the legislature has chosen not to include them."). Construing all parts of the statute in pari materia, paying particular attention to the statutory language used, and more specifically the statutory language not used, we find the legislature did not intend for comparable processing fee contracts to necessarily be arms-length, third-party contracts in order to achieve the ultimate statutory goal of taxation based upon accurate fair market value.

BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 22. Perhaps as important, the Whitney Canyon Gas Plant has the further problem that it processes gas for three producers who were, for all intents and purposes, customers of a merchant plant – Anschutz, Merit, and Chevron under the 1995 Chevron Agreement. The Carter Creek Gas Plant, in addition to processing gas for the Whitney Canyon producers, processes gas for two producers who were, for all intents and purposes, customers of a merchant plant – Exxon and Anschutz.

Like quantity

242.    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. Whitney Canyon 2000, ¶¶ 130-135. Chevron disagrees with our conclusion regarding this principle, but has made no arguments that would cause us to reconsider our prior ruling.

243.    Chevron urges us to conclude that the words “like quantity” are not met by the various comparables identified by the Department. [Petitioner’s Proposed Conclusions of Law, ¶¶ 217, 219-220, 229, 232, 240]. Chevron’s arguments were considered in our Findings of Fact. Findings, ¶¶ 138-141.

244.    As a general proposition, we considered and rejected a similar general argument for production year 2000. Carter Creek 2000, ¶¶ 119, 120. In this case, we note further that our conclusion regarding the words “like quantity” takes those words in the context of the complete phrase, “processing fees . . . charged to other parties for minerals of like quantity.” Carter Creek 2000, ¶¶ 124-125. There is no merit in reading the words in isolation.

245.    As a proposition of fact, Petitioner has merely presented us an industry perspective through its witnesses, which we found to be unpersuasive. Findings, ¶ 151. Petitioner has failed to carry its burden of persuasion on this point.

Quality, terms and conditions

246.    The phrase “taking into consideration the quality, terms and conditions under which the minerals are being processed or transported” is a test under which the Department must reasonably assure itself of the reliability of any comparison upon which it bases inferences regarding processing fees. Whitney Canyon 2000, ¶ 140.

247.    Chevron argues the Department has failed to consider the quality of the gas processed under the various gas processing contracts, and hence has failed to consider “quality” 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, ¶¶ 85-148. We conclude that the Department has met the requirements of the statute with respect to considering the quality of the gas being processed. Petitioner has failed to carry its burden of persuasion.

248.    Chevron did raise one issue that prompts us to recant the words of a conclusion stated in Whitney Canyon 2000. We concluded the Department considered the terms and conditions under which the minerals were being processed, and went on to conclude that “the terms and conditions to which the taxpayers have directed our attention are not commercially significant.” Whitney Canyon 2000, ¶ 130. “Commercially significant” was a poor choice of words, entirely our own. We were then referring to a fact also established in this case: a high processing priority was more desirable than a low processing priority, but contractual priority had no discernible effect on the processing fee. Further, for production from the Road Hollow field, contract priority seemed to have no role in field operation decisions. Findings, ¶ 107. Similarly, curtailment was not desirable, and did have an effect on processed volumes of Anschutz in 2001, but vulnerability to curtailments had no discernible effect on the processing fee. Findings, ¶¶ 119, 126.

249.    Chevron argues the Department has failed to consider a large number of 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 also 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, ¶¶ 85-148. 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. Petitioner has failed to carry its burden of persuasion.

250.    For Chevron, the fees charged to other parties include:

•Processing fees charged by the Whitney Canyon Gas Plant owners to producers BP, RME, and Forest Oil under the Exhibit F Gas Processing Agreements;

•Processing fees charged to Exxon under the Exxon Road Hollow Agreement;

•Processing fees charged by the Whitney Canyon Gas Plant owners to Anschutz under the Wahsatch Gathering System Agreement;

•Processing fees charged by the Whitney Canyon Gas Plant owners to Merit under the Merit Agreement;

•Processing fees charged to Anschutz under the Carter Creek Anschutz Back-up Agreement.

251.    We conclude that, with respect to the 25% in-kind processing fee charged under all of the agreements referenced in Conclusions of Law, ¶ 250, 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 2001. Findings, ¶¶ 36, 144-148. Mr. Chambers conceded this point. [Trans. Vol. II, p. 259]. As a further and separate ground for our decision in this regard, we find Petitioner failed to carry its burden of persuasion.

252.    We conclude the Department, in the course of satisfying itself that the inferences being drawn from the agreements referenced above were based on valid comparisons, 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. In all instances, the terms and conditions were sufficiently similar to conclude that the comparison was valid. Findings, ¶¶ 85-148. We conclude the Department met the requirements of the statute. As a further and separate ground for our decision in this regard, we find Petitioner failed to carry its burden of persuasion.

253.    Petitioner makes an argument that use of the Whitney Canyon C&O Agreement as a comparable is a “netback” methodology, citing the Supreme Court’s discussion of the valuation of Amoco’s production during 1980-1989 processed through the Whitney Canyon Gas Plant. [Petitioner’s Proposed Conclusions of Law, ¶¶ 245-246]. See Amoco Production Co. v. Wyo. State. Bd. of Equalization, 12 P.3d 668. (Wyo. 2000). The argument, however, is based on the premise that the Court was referring to “the twenty-five percent allowance.” However, the Court’s reference to the “initial valuation method,” was to the use of “actual costs.” Id. at 673. We, therefore, find Petitioner’s argument without merit.

254.    We conclude Petitioner did not correctly apply the proportionate profits method when it reported taxable value. Findings, ¶¶ 26, 28. In the Matter of the Appeals of Chevron U.S.A., Inc., Docket Nos. 2002-50, et al., 2004 WL 1294512.

255.    Petitioner did not dispute the mathematical calculation performed by the Department and reflected in the 2001 Notice of Valuation. Findings, ¶ 33.

Did the Department violate prescribed requirements by the procedures it used to determine Petitioner’s production?

256.    Evidence was introduced at the hearing of the Department’s efforts, more than ten years ago, to determine comparable value by an entirely different approach. [Exhibits 929, 931, 932, 933, 935]. We previously considered the significance of the litigation surrounding that failed approach, and find neither new evidence or new argument that would cause us to change our prior assessment of Amoco Production Company v. Wyoming State Board of Equalization, 882 P.2d 866 (Wyo. 1994), or this Board’s related opinion, Appeal of Amoco Production Company, Board Docket 91-174, 1992 WL 126533 (Wyo. St. Bd. Eq.). Whitney Canyon 2000, ¶¶ 161-168. We accordingly reaffirm that discussion and its related rulings. In doing so, we generally reject Petitioner’s characterization of those cases. It remains to supplement our prior discussion with a number of specific points.

257.    As in Whitney Canyon 2000, Chevron criticized the Department’s refusal to pursue rule making to more fully define the comparable value method. [E.g., Petitioner’s Proposed Conclusions of Law, ¶ 191]. Chevron relies on a suggestion made by the Wyoming Supreme 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.” This suggestion was made in the context of different facts than those presented in this case, see Whitney Canyon 2000, ¶¶165-166, and has been specifically rejected by the Court:

Taxpayers begin their argument by claiming that this Court has already determined that the language of § 39-14-203(b)(vi)(B) is ambiguous and rulemaking is required before the Department can apply the method. Taxpayers rely upon certain language in Amoco Production v. State Bd. of Equalization, 882 P .2d 866 (Wyo.1994) (Amoco I ), to support their argument. The issue in Amoco I was whether the Department could use confidential processing fee agreements as comparables pursuant to § 39-14-203(b)(vi)(B). The Amoco I court determined the Department could not use facts unavailable to the instant taxpayer to determine the fair market value of that taxpayer's product as such would deprive the taxpayer of due process of law.

In the process of presenting its opinion in Amoco I, the Amoco I court stated, "We note in passing that some of the statutory factors are amorphous to a degree. The comparable value method is to be used for minerals of 'like quantity,' and it is to take into consideration 'the quality' and 'terms and conditions' under which the minerals are being processed or transported." 882 P.2d at 871. After explaining that rules might help alleviate any existing ambiguity, that court went on to say, "We simply suggest, given the language of the statute, there might be some wisdom in pursuing [rulemaking]." Id. This language in Amoco I, relied upon by Taxpayers in this appeal, is the purest form of dicta. The language of the statute was not at issue in that appeal. The only issue was the Department's use of confidential information in determining fair market value. The Amoco I court qualified the discussion Taxpayers cite from beginning to end. The Amoco I court begins the discussion by stating, "we note in passing" and ended the discussion with "we simply suggest" and "there might be some wisdom." These equivocal statements in the context of dicta have no precedential value.

BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶¶ 17-18.

258.    Rule making 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). We have afforded Petitioner those rights.

259.    We have also rejected the factual premises of Chevron’s complaint about the absence of rule making. On the record made in this case, we found no reason to believe Chevron was in need of guidance regarding the Department’s requirements. Findings, ¶ 26. Our conclusion is buttressed by the ease and consistency with which Chevron has used the 25% processing fee to report its production under the 1995 Chevron Agreement using the netback method. Findings, ¶¶ 133-134.

260.    Petitioner appears to argue the Department’s Memorandum of November 30, 1995, [Exhibit 934] obligated the Department to accept its attestations of the absence of sources of comparable value, and obligated the Department to authorize use of the proportionate profits method. [Petitioner’s Proposed Conclusions of Law, ¶183]. We reject this argument for two main reasons. First, we did not find that the Memorandum was either of indefinite duration, or the basis of the Department’s decision to allow reporting under the proportionate profits method after 1996. The Memorandum was supplanted by memoranda memorializing the Department’s selection of method for the cycles beginning in 1997 and 2000. Findings, ¶¶ 159-173. Second, Petitioner has not referred to any authority which supports its view of the Memorandum. The Memorandum is not a statute; it is not a rule, regulation, or order of the Department. Wyo. Stat. Ann. § 39-11-102.1(c)(iv). At most, the Memorandum was a superceded instruction. Findings, ¶ 173.

261.    In substantial measure, the Department’s changing policy was a product of Petitioner’s ill-founded attestations to the absence of comparables. The Department relied on these attestations to accept Petitioner’s proportionate profits reporting. Findings, ¶¶ 169-171. When the Department learned of the doubtful quality of these attestations, it found further support for use of the comparable value method in the form of the Wahsatch Gathering System Agreement, the Merit Agreement, and the 1995 Chevron Agreement. Findings, ¶¶ 120-134. With new information in hand, the Department was obliged to change its view of the availability of the comparable value method for Petitioner, and to vigorously pursue enforcement of the tax laws.

Did the Department violate any constitutional standard?

262.    Petitioner makes two different constitutional claims. One claim arises from the Department’s inability to apply the comparable value method to Burlington Resources and Marathon, due to the absence of sources of comparable value. Findings, ¶¶ 174-179. One claims arises from the procedures used by the Department to determine Petitioner’s taxable value. Findings, ¶¶ 159-173; Conclusions, ¶¶ 256-261.

Equal Protection

263.    Petitioner claims the Department deprived it of a right to fair and uniform treatment under the Equal Protection Clauses of the United States and Wyoming Constitutions. U. S. Const. amend. XIV, § 1, second sentence; Wyo. Const. art. 1, § 34. The core of this claim is that other similarly situated taxpayers were allowed to use the proportionate profits method, while the Petitioner was not. [Petitioner’s Proposed Conclusions of Law, ¶¶ 250-253].

264.    In Whitney Canyon 2000, we disposed of Petitioner’s constitutional claims without having to reach a broad view of Wyoming Statutes section 39-14-203(b)(vi). Petitioner’s renewed constitutional claims, coupled with the more extensive record made for production year 2001, make it important to do so now. We intend to accomplish three tasks: to explain why we view the heart of this matter as being the structure of the legislation, not the exercise of administrative discretion; to explain why we consider the legislative structure to be sound; and to facilitate judicial resolution in the event of appeal.

265.    The Wyoming Constitution assigns the role of defining full value, or fair market value, to the Legislature. Wyo. Const. art. 15, § 11. The Legislature has considerable constitutional latitude to prescribe the method by which the Department may determine fair market value. Amoco Production Company, 899 P.2d at 860. For the circumstances of this case, the Legislature has done so through Wyoming Statutes section 39-14-203(b)(vi), which authorizes the Department to choose among four specified methods to determine the value of natural gas sold away from the point of valuation.

266.    The four statutory methods cannot be used simultaneously to value any producer’s gas; they are mutually exclusive. Whitney Canyon 2000, ¶¶ 173-182. The proportionate profits method, if properly applied, reaches fair market value as do all four methods.

267.    It is also true that all four methods cannot be used for all taxpayers. The Legislature forbade the use of the netback method for gas processed by a producer, thereby generally limiting one of the methods that might be available for producers who do not sell their natural gas production prior to the point of valuation by a bona fide arms-length sale. We note in passing that the parties tend to assume that Wyoming Statutes section § 39-14-203(b)(vi) was enacted to address valuation problems associated with large natural gas processing plants, but this assumption is not supported by the language of the statute. The language of the statute is of broader application.

268.    The Legislature also implicitly recognized that one or more of the methods might not be available to the Department because the information necessary to apply that method was unavailable. In this case, no one disputes that the comparable sales method cannot be applied because there is no information that would enable to Department to do so. Findings, ¶ 47. The Legislature went further, and recognized that there may be circumstances in which none of the four methods reaches a representative fair market value. For those circumstances, the Legislature authorized the Department and an affected taxpayer to employ a mutually acceptable alternative method. Wyo. Stat. Ann. § 39-14-203(b)(vii); see generally Appeal of Sublette County Board of County Commissioners, Docket Nos. 2000-142, et al., May 20, 2004, 2004 WL 1174651 (Wyo. St. Bd. Eq.).

269.    The Department has testified that no sources of comparable value were available to determine the value of gas processed for Burlington Resources at the Lost Cabin plant and Marathon at other facilities. Findings, ¶¶ 170, 178. Petitioner has produced no evidence to the contrary. Like the comparable sales method, the Department could not apply the comparable value method the 2001 production of Burlington Resources and Marathon because, at the time, there was no information which would enable to Department to do so. Findings, ¶¶ 170, 178. Faced with this situation, the Department authorized Burlington Resources and Marathon to use the proportionate profits method, subject to audit and to continued review of information based on this Board’s decision in Whitney Canyon 2000. Findings, ¶ 178.

270.    Petitioner’s argument assumes that if sources of comparable value are not available for two taxpayers whose gas must be processed, the Department loses control over the method to be applied to other taxpayers whose gas must be processed. The argument is contrary to law. See Wyo. Stat. Ann § 39-14-203(b)(ix).

271.    The Legislature has given the Department by statute exclusive authority to select a method. The Department’s authority is constrained by a requirement that the method be selected for three-year periods. The taxpayer can only force a change of method by successful appeal within one year from when the method is first selected. Wyo. Stat. Ann. § 39-14-203(b)(viii).

272.    Nothing in the statute vests the taxpayer with the discretion to select a method when one or more of the methods are unavailable due to lack of information. We presume the Petitioner agrees. Petitioner requests here, as it did in Carter Creek 2000, that we require the Department to accept its proportionate profits reporting by default.

273.    Under the Wyoming Constitution, if the Department or this Board were to allow this taxpayer the right to select the method of its choice, the proportionate profits method, the result would be constitutionally impermissible. Petitioner would enjoy a lower tax than other operators subject to the comparable value method, due to an “excessive deduction.” Wyodak Resources Development Corporation, 2002 WY 181, ¶ 34, 60 P.3d at142. We conclude that the Department’s designated method is the key to determining whether the Department has complied with the Wyoming Constitution, and to determining which other taxpayers are similarly situated to the Petitioner. The factual enquiry must be directed to whether the Department has applied its designated method to every taxpayer for whom the designated method is available.

274.    As a corollary, we conclude that Department is constitutionally required to apply the comparable value method to Petitioner’s production if information is available to do so. We do not start by asking whether other taxpayers who process gas are allowed to use the proportionate profits method. We start instead by asking whether the Department has applied its designated method to every taxpayer for whom the method is available.

275.    Although Petitioner has no valid equal protection claim based on the Department’s inability to apply its selected method to another taxpayer, it remains open to Petitioner to question whether the Department has correctly determined that sources of comparable value information are available for it, just as it has done in this case.

276.    We reach a different conclusion than Petitioner about what it means to be similarly situated as a matter of law. “[U]niformly achieving taxation based upon accurate fair market value may well require application of different methodologies to similarly situated mineral taxpayers if comparable values differ in processing agreements of different cost structures exist.” BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 30. We also found Petitioner did not demonstrate that other taxpayers were similarly situated under Petitioner’s own view. Findings, ¶¶ 165-179.

277.    The Department stated its intention to investigate the existence of sources of comparable value when Burlington Resources and Marathon are audited, and if such sources are found, to require a redetermination of value under the comparable value method. Findings,¶ 178. The Department’s intention to apply the comparable value method assures that the Department has done its best to use comparable value to determine the value of production of all taxpayers for which the method is available. This is consistent with what the Department elected to do for all oil and gas taxpayers, including Petitioner. Findings, ¶¶ 15-16, 163.

Procedural and Substantive Due Process

278.    Petitioner generally claims its rights to procedural due process were violated because it was not afforded an opportunity to be heard in a meaningful time and a meaningful manner. U. S. Const. amend. XIV, § 1, second sentence; Wyo. Const. art. 1, §6. In the main, this argument is merely a constitutional extension of complaints about the Department’s procedures: the absence of regulations or other guidance, the absence of a comparable value study, etc. [Petitioner’s Proposed Conclusions of Law, ¶¶ 189, 191, 193-197]. We have already concluded that those complaints are baseless. Conclusions, ¶¶ 256-261.

279.    In support of its procedural due process claim, Petitioner also argues that the Department’s valuation has lost its presumption of validity because the valuation was determined without the benefit of clear statutory authority, citing Basin Electric Power Cooperative, Inc., v. Department of Revenue, 970 P.2d 841, 851 (Wyo. 1998). [Petitioner’s Proposed Conclusions of Law ¶¶ 188-192]. We have concluded, to the contrary, that the Department acted under clear statutory authority. Conclusions, ¶¶ 227, 242, 246. We also conclude that Basin Electric Power Cooperative does not apply. We have decided this case principally based upon Petitioner’s failure to carry its burden of persuasion, i.e., to demonstrate that the Department has violated constitutional and statutory requirements for valuing state-assessed property. Our decision does not generally rest on the presumption of validity.

280.    While not clearly articulated, Petitioner’s reliance on Kelsey v. Taft, 263 P.2d 125, 136 (Wyo. 1953); Chevron U. S. A., Inc., v. State, 918 P.2d 980, 984-985 (Wyo. 1996), and Scott Realty Co. v. State Bd. of Equalization, 395 P.2d 289 (Wyo. 1964), appears to raise a somewhat different constitutional claim under Article 15, § 3, based on the principle that the Legislature cannot give the Department the authority to arbitrarily select a valuation method that generates the highest taxable value. [Petitioner’s Proposed Conclusions of Law, ¶¶ 197, 204 fn. 3]. The cases noted are not directly on point. Kelsey held that Wyoming could not collect inheritance taxes on property transferred in contemplation of death, because the statute failed to say so directly and positively. Chevron U. S. A., Inc., held that the expense of compressing gas was not a taxable production expense, but rather was a deductible processing expense. Scott Realty held that the Board’s adoption of a replacement cost theory was not shown to be contrary to the Wyoming Constitution or applicable statutes. We take Petitioner’s claim to generally relate to the issues that we address in the context of its other constitutional claims. We conclude the claim is baseless.

281.    Chevron presented all of its objections at a contested case hearing before this Board and we have thoroughly examined the facts, arguments, rules and law. “The law requires no more to satisfy procedural due process.” BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 29.

282.    Any substantive due process claim stems from Petitioner’s allegation that the Department’s failure to provide guidance on how the statutory terms are defined was arbitrary. In rejecting an identical claim the Wyoming Supreme Court stated:

We have already stated that it is impossible to draft statutes to anticipate every scenario. We believe that to also be true of regulations. The record shows that the Department has a long history of reviewing contracts because contracts between taxpayers impact determinations of fair market value. We have rejected the notion that the legislature intended such a restrictive definition of the statutory terms that these processing contracts cannot establish a comparable value for taxation purposes. Taxpayers used the processing contracts to establish the processing fee. Their having used the contracts to establish the processing fee market, we do not accept the premise that agency use of those contracts violates Taxpayers' due process rights.

BP America Production Co. v. Department of Revenue, 2005 WY 60, ¶ 29. We reject Chevron’s claim for the same reasons.

283.    We conclude Petitioner has not carried its burden of persuasion with respect to any of the constitutional claims.

Was the Department barred from use of the comparable value method by collateral estoppel or judicial estoppel?

284.    Petitioner included a discussion of historical interpretations and decisions regarding the comparable value method in its Proposed Conclusions of Law. [Petitioner’s Proposed Conclusions of Law, ¶¶ 168-187]. While Petitioner did not advance any specific argument or cite us to any relevant cases, we understand the core of Petitioner’s claim to be that the same parties, the same property, and the same issues were previously decided by the Wyoming Supreme Court in Amoco Production Company v. Wyoming State Board of Equalization, 882 P.2d 866 (Wyo. 1994), or by this Board in Appeal of Amoco Production Company, SBOE Docket 91-174, 1992 WL 126533 (Wyo. St. Bd. Eq.). Whitney Canyon 2000, ¶ 193. We have concluded to the contrary. Conclusions, ¶ 256. To the extent Petitioner’s historical discussion may generally relate to issues collateral estoppel, res judicata, or judicial estoppel, it remains for us to address those issues.

Collateral estoppel

285.    The principal issue in this case is whether the Department’s valuation is in accordance with constitutional and statutory requirements for valuing state-assessed property for production year 2001. Conclusions, ¶ 221. This issue was not and could not have been decided in a previous proceeding. Tenorio, supra 931 P.2d at 238-239. Neither this Board nor the Court previously had jurisdiction to rule on anything related to the matter of Carter Creek production in 2001. Production year 2001 valuations were not identified as issues by the parties in the previous proceedings. No such issue was decided by the Board as a fact finder. The Board did not purport in earlier proceedings to determine any questions related to Carter Creek production year 2001. The earlier judgments of the Court and the Board were not dependent upon determination of any issues with regard to production year 2001. On this basis alone, we conclude that the doctrine of collateral estoppel does not apply. We do not deem it necessary to list the many issues that were decided in this case, but were not previously advanced and decided. Any concern for relitigation is groundless.

Res judicata

286.    The subject matter of this case is the Department’s application of the comparable value method to value Petitioner’s Carter Creek gas production for production year 2001, and a variety of specific claims regarding application of that method. Findings, ¶¶ 34-164. This factor alone is enough for us to conclude that the doctrine of res judicata does not apply, although further analysis would show a general failure to meet the criteria for res judicata. Livingston, supra 861 P.2d at 551-552.

Judicial estoppel

287.    Based upon our rulings in Whitney Canyon 2000 and Carter Creek 2000 (we refer to these decisions because Petitioner did not advance specific argument on this issue), we understand taxpayer to argue 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. Since the Department did not succeed in employing the method advanced in 1992, we conclude that judicial estoppel does not apply. Eagle Foundation, Inc., v. Dole, 813 F.2d at 810; Matter of Cassidy, 892 F.2d at 641; 74 Am. Jr. 2d Estoppel and Waiver § 73, p. 498. 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). See generally Whitney Canyon 2000, ¶¶ 201-203; Carter Creek 2000, ¶¶ 189-191.

General

288.    Petitioner did not carry its burden of persuasion. It failed to show that the Department’s valuation was not in accordance with constitutional and statutory requirements for valuing state-assessed property, or to show that the Department’s valuation was contrary to its rules, regulations, orders or instructions.

ORDER

           IT IS THEREFORE HEREBY ORDERED: the Department of Revenue application of the comparable value method for production year 2001 is affirmed.

           DATED this _____ day of June, 2005.

                              STATE BOARD OF EQUALIZATION

_____________________________________

                              Alan B. Minier, Chairman

_____________________________________

                                    Thomas R. Satterfield, Vice-Chairman

_____________________________________

                                    Thomas D. Roberts, Board Member

ATTEST:

________________________________

Wendy J. Soto, Executive Secretary