Judith M. Matlock, Davis, Graham & Stubbs, LLP, and Randall B. Reed, Dray, Thomson & Dyekman, PC, for Petitioner Petro-Canada Resources (USA), Inc. (Petro-Canada).

Karl D. Anderson, Senior Assistant Attorney General, Wyoming Attorney General’s Office, for the Department of Revenue (Department).

The State Board of Equalization (Board) must review final decisions of the Department on application of any interested person adversely affected. Wyo. Stat. Ann. § 39-11-102.1©). Taxpayers are specifically authorized to appeal final decisions of the Department. Wyo. Stat. Ann. § 39-14-209(b); Rules, Wyoming State Board of Equalization, Chapter 2 § 5(a). By letter dated June 25, 2007, the Department notified Petro-Canada of its final determination regarding a production tax audit of Petro-Canada’s coal bed methane production for the period October 1, 2000, through December 31, 2003. Petro-Canada filed a timely appeal of the Department’s determination on July 24, 2007. The Board has jurisdiction to hear this appeal.

A hearing was held January 14 and 15, 2008, before the Board, consisting of Alan B. Minier, Chairman, Thomas R. Satterfield, Vice Chairman, and Thomas D. Roberts, Board Member.

On February 19, 2008, Petro-Canada received a Notice of Valuation change certifying the increase in value of its production to the Campbell County Assessor, and appealed that notice on March 10, 2008. Since that production was the same as in the first proceeding, the parties stipulated to Consolidation of the two cases.

When the Department determines the taxable value of coal bed methane, it does so by reference to a statutory point of valuation defined in Wyo. Stat. Ann. § 39-14-203(b)(iv). Petro-Canada reported the value of its coal bed methane production using points upstream of the statutory point of valuation; it reported value at the point where it delivered gas to a third party for transportation. Petro-Canada relies on Wyo. Stat. Ann. § 39-14-203(b)(v) to justify reporting in this manner. Following an audit, the Department revalued Petro-Canada’s production using the statutory point of valuation. The Department contended its determination was supported by Wyo. Stat. Ann. § 39-14-203(b)(v); Williams Production RMT Co. v. State Dep’t of Revenue, 2005 WY 28, 107 P.3d 179 (Wyo. 2005); and this Board’s decision in Kennedy Oil, Docket 2006-104, September 4, 2007, 2007 WL 2509669 (Wyo. St. Bd. Eq.).

1. Did any of Petro-Canada’s coal bed methane production flow through any dehydrators prior to the point where Petro-Canada sold the production?

3. Did Petro-Canada sell its coal bed methane production during the audit period to third parties at or prior to the point of valuation?

4. Did Petro-Canada pay its severance and ad valorem taxes on the basis of the proceeds it received from its third-party purchasers?

5. Did Petro-Canada deduct any of the expenses it incurred prior to its points of sale?

6. Did Petro-Canada repurchase any of its coal bed methane production during the audit period downstream of its points of sale?

7. Subsequent to the audit period, did Petro-Canada receive corrections to its statements from one of its third-party purchasers, Western Gas Resources, Inc., covering Western’s purchases from July 2002 through January 2004?

8. Has Petro-Canada calculated the additional amount of taxes owed as a result of the Western corrected statements described in paragraph 7 above and as a result of minor variations between the proceeds it received from its third-party purchasers and its originally reported taxable value?

9. Do the final audit findings assess additional severance taxes and additional ad valorem taxes based upon the value of Petro-Canada’s production at the outlet of the dehydrator located on pipeline systems owned or used by Petro-Canada’s third-party purchasers downstream of the points of sale?

10. Did Petro-Canada know, or have reason to know, that the total tax liability was not paid when due?

In an updated statement of issues of fact filed the same day as the original statement, January 7, 2007, Petro-Canada asserted there were no issues of fact. [Updated Petitioner’s Issues of Fact and Law and Exhibit Index, p. 1]. The Department agreed there were no contested issues of fact. [Wyoming Department of Revenue’s Issues of Fact and Law and Exhibit Index, p. 1]. The parties filed a Stipulated Updated Summary of Uncontroverted Facts on the same day as the other pleadings, January 7, 2007.

Despite the mutual assertion there were no contested issues of fact, Petro-Canada called four witnesses to testify and introduced thirty-two exhibits. Findings drawn from this evidence will supplement the stipulated facts.

1. Did Petro-Canada properly report the value of its coal bed methane production for the time covered by the audit period?

2. Did the Department of Revenue correctly interpret and apply the oil and gas valuation statutes, Wyoming Statute §39-14-203 and its subparts?

3. Was the Department of Revenue’s use of the netback method to value Petro-Canada’s coal bed methane production in accordance with Wyoming law?

4. Is the Department of Revenue’s failure to use Petro-Canada’s proceeds from its bona fide arms-length sales of coal bed methane gas prior to the point of valuation as the basis for establishing the value of that production in error?

5. Was the Department of Revenue’s assessment of value at the outlet of the dehydrators arbitrary and capricious?

[Updated Petitioner’s Issues of Fact and Law and Exhibit Index, pp. 1-2]. We note that the Department is not seeking interest in this case.

Under Wyo. Stat. § 39-14-203(b)(v), Williams Production RMT Co. v. State Dep’t of Revenue, 2005 WY 28, 107 P.3d 179 (Wyo. 2005), and In the Matter of the Appeal of Kennedy Oil, SBOE Docket 2006-104 (September 4, 2007), is the Petitioner’s point of valuation for its CBM production located at the outlet of the initial dehydrator?

[Wyoming Department of Revenue’s Issues of Fact and Law and Exhibit Index, p. 1].

1. Petro-Canada produces coal bed methane. [Trans. Vol. I, pp. 27-31]. Petro-Canada is owned by a Canadian company. [Trans. Vol. I, p. 33]. The Canadian company acquired the stock of Prima Oil & Gas on August 1, 2004, and changed Prima’s name to Petro-Canada (USA). [Trans. Vol. I, p. 33].

2. The Department of Audit audited Petro-Canada’s production years 2000 through 2003. [Stipulated Facts, ¶ 3; Exhibits 100, 103, 105]. The audit covered production from three Petro-Canada fields: Stones Throw Field, Kingsbury Field, and Porcupine Tuit Field. [Stipulated Facts, ¶ 4]. Petro-Canada sold Stones Throw Field effective January, 2002, but paid taxes and royalties through March, 2002. [Trans. Vol. I, pp. 42-43].

3. The production from the three fields flowed through the following facilities:

- Wellhead to pod (a/k/a central delivery point for flow lines from individual wellheads)

- First stage (screw) compressor and custody transfer meter at the pod (in either order)

- Movement from the pod to reciprocating compressor/dehydrator stations through low pressure pipelines

- Further movement from recip compressor/dehydrator stations to Glenrock, Cheyenne or other locations through high pressure pipelines

[Stipulated Facts, ¶ 5; Trans. Vol. I, p. 28]. Generally, one pod connects to twelve to twenty-four wells. [Trans. Vol. I, p. 28].

4. During the audit period, Petro-Canada sold its coal bed methane production from the three fields to third parties in arm’s-length transactions at the pods. There were no dehydrators located before or at these points of sale. Petro-Canada incurred expenses prior to the points of sale. [Stipulated Facts, ¶ 6].

5. The sale of production from the Stones Throw Field was governed by a Gas Purchase Contract between CMS Field Services, Inc. (“Buyer”), and Prima Oil & Gas Company (“Seller”) dated August 1, 2000. [Confidential Exhibit 109; Trans. Vol. I, p. 49]. Generally speaking, the sale price under the contract was determined by reference to Buyer’s arm’s length weighted average resale price, less certain deductions related to transportation after the point of sale, and deductions for other charges including fuel related to transportation. [Id., ¶¶ 5.1, 7.1, 7.2, 7.3].

6. The sale of production from the Porcupine Tuit Field was governed by a Gas Purchase Contract between Western Gas Resources, Inc., and Prima Oil and Gas Company dated April 9, 2002. [Confidential Exhibit 124]. Generally speaking, the sale price under the contract was based on an Index representative of the gas market at Glenrock, Wyoming. [Id., ¶ 4b; Trans. Vol. I, p. 44]. A fee for transportation was deducted from the Index price. [Confidential Exhibit 124, ¶ 4b; Trans. Vol. I, p. 44]. Prima received no compensation for Retained Fuel, which generally meant the fuel necessary for Western Gas Resources to transport the gas to the vicinity of Glenrock, Wyoming. [Confidential Exhibit 124, ¶¶ 4a, 4b, 4c].

7. The sale of production from the Kingsbury Field was governed by a Gas Purchase Contract between CMS Field Services, Inc.(“Buyer”), and Prima Oil & Gas Company (“Seller”) dated November 1, 2000. [Confidential Exhibit 116]. Generally speaking, the sale price under the contract was determined by reference to Buyer’s arm’s length weighted average resale price, less certain deductions related to transportation after the point of sale, and deductions for other charges including fuel related to transportation. [Id., ¶¶ 5.1, 7.1, 7.2, 7.3].

8. Petro-Canada’s purchasers moved the purchased gas on low pressure pipelines to reciprocating compressor/dehydration stations. From there, the purchasers moved the gas on high pressure pipelines to their own unknown points of sale. During the audit period, Petro-Canada did not exercise contractual options to repurchase any of the gas. [Stipulated Facts, ¶ 7].

9. Petro-Canada paid its severance and ad valorem taxes on the basis of the proceeds it received from its purchasers, “without any deductions.” [Stipulated Facts, ¶ 8]. However, the dispute between Petro-Canada and the Department is not over the deductions from gross receipts for expenses between the wellhead and the pod. The dispute is about the treatment of expenses between the pod and the location of second stage (recip) compression and dehydration.

10. Under the terms of each Gas Purchase Agreement, the purchase price for Petro-Canada’s gas was based on sales of the gas in locations beyond the point at which the gas was dehydrated and compressed for transportation on a high pressure pipeline. [Supra, ¶¶ 3,8]; see schematic depictions in Confidential Exhibits 114, 123]. In all instances Petro-Canada’s compensation reflected a price at a downstream market point. That price was reduced by fees related to transportation and transportation-related fuel all the way back to the pod at which Petro-Canada’s gas was delivered to its purchaser. [Id.]. The Department and the auditors rejected any allowance for the portion of the fees for transportation, and transportation-related fuel, attributable to activity from the pod to the outlet of the dehydrator located with the reciprocal compressor. The Department did so because it considered the outlet of the dehydrator to be the correct point of valuation for Petro-Canada’s gas under each of the three Gas Purchase Agreements. [Trans. Vol. I, p. 76].

11. In its closing brief, Petro-Canada argued factual points about the reasons for the structure of its contracts, and about common contracting practices in the natural gas industry, including a point about policies of the Minerals Management Service. [Petitioner’s Brief, pp. 46-48]. In marked contrast to taxpayers in earlier coal bed methane litigation (infra, ¶ 82), Petro-Canada did not support these points with testimony, exhibits, or other evidence admitted to the record. We find Petro-Canada failed to carry its burdens of proof and persuasion with respect to these matters, which have accordingly played no part in our decision.

12. There is no evidence to indicate Petro-Canada and its predecessor, Prima Oil & Gas, ever gave any thought to the appropriate application of the statute when reporting for tax purposes. The company produced only two employee witnesses. Charles W. Pollard, vice president of engineering and operations for Petro-Canada’s U. S. operations, started his employment with Petro-Canada on September 13, 2004, well after the close of the audit period. [Trans. Vol. I, p. 27]. Pollard testified only about the configuration of Petro-Canada’s facilities, including his lack of knowledge about the Stones Throw facilities, which Petro-Canada no longer owned. [Trans. Vol. I, pp. 27-31].

13. Janice Stenbuck became manager of United States accounting for Petro-Canada on July 1, 2007. [Trans. Vol. I, pp. 32-33]. She was first employed by Petro-Canada on January 1, 2005, but contracted with Petro-Canada for conversion of accounting systems before then. [Trans. Vol. I, pp. 33-34]. Stenbuck did not have any responsibilities concerning the original payment of severance and ad valorem taxes prior to 2004. [Trans. Vol. I, p. 35]. Sherry Goodall, a revenue accountant, was responsible for the original reporting and payment of taxes. [Trans. Vol. I, p. 35]. Petro-Canada did not call Goodall to testify.

14. In the course of responding to audit findings, Stenbuck learned that Petro-Canada paid severance tax based on the gross proceeds it received from its purchaser, and that it sold its gas at the sales meter. [Trans. Vol. I, p. 36]. She generally asserted Petro-Canada’s position: “we calculated [the taxes] correctly based on the gross proceeds that we received from the purchaser and the point of sale was the purchaser’s sales meter.” [Trans. Vol. I, pp. 37-38].

15. Petro-Canada offered no evidence that its revenue accountant or any other person either consulted Wyoming tax statutes or consulted with the Department of Revenue prior to the audit, for the purpose of determining the correct reporting of its taxable value. Nor did Petro-Canada offer any evidence that its revenue accountant considered decisions of the Wyoming Supreme Court or legislative history associated with the statute. Further, Petro-Canada offered no evidence that Prima’s revenue accountant, or any other employee of Prima or Petro-Canada, had any specific understanding or expectations regarding the proper calculation of value for its reporting for tax purposes.

16. Subsequent to the audit period, Petro-Canada received corrections to its statements from Western Gas Resources, Inc., the purchaser of the production from the Procupine Tuit Field, covering purchases from July, 2002, to January, 2004. [Stipulated Facts, ¶ 9].

17. The final audit findings assessed additional severance tax and additional ad valorem taxable value based upon the value of Petro-Canada’s production at the outlet of the dehydrators located after the contractual points of sale. [Stipulated Facts, ¶ 10]. Stated another way, the audit findings were based on a point of valuation at the outlet of the dehydrator located in each of Petro-Canada’s diagrams near the words “Reciprocating compressor/dehydrator.” [Confidential Exhibits 107, 114, 123]. Petro-Canada argues for a point of valuation identified in each of the same diagrams as “Petro-Canada’s point of sale.”

18. There is no material dispute between Petro-Canada and the Department regarding the amount of additional severance tax owed based on the value of the gas at the outlet of the dehydrators located after the points of sale. [Stipulated Facts, ¶ 11].

19. Due to the corrected statements from Western [supra, ¶ 16] and minor variances in volumes and pricing, Petro-Canada agrees that it owes additional severance tax of $3,469.80 on the proceeds received by Petro-Canada from its purchasers. Petro-Canada disputes the balance of the Department’s final determination, i.e., the difference in value arising from the dispute over the correct point of valuation. [Stipulated Facts, ¶ 12].

20. Based on the audit, the Department assessed additional severance tax in the amount of $439,363. The Department also increased Petro-Canada’s ad valorem taxable value in the amount of $7,321,791. [Stipulated Facts, ¶ 2; Exhibits 105, 106]. The Department has expressly waived interest associated with the point of valuation issue. [Stipulated Facts, ¶ 13].

21. Craig Grenvik is Administrator of the Mineral Tax Division of the Department. [Trans. Vol. I, p. 67]. Grenvik gave a detailed explanation of the Department’s reading of Wyo. Stat. Ann. § 39-14-203(b) (statute quoted infra, ¶ 55; explanation is infra, ¶¶ 22-24, 26, 29-33, 35-37, 42-46). Crude oil, lease condensate, and natural gas must be valued as provided by that subsection. [Trans. Vol. I, p. 75].

22. In Wyoming, the fair market value of natural gas must be determined after the production process is complete, i.e., at the point of valuation. [Trans. Vol. I, pp. 75-76]. The point of valuation is accordingly the location for determining the fair market value of a taxpayer’s production. [Trans. Vol. I, p. 76]. The single statutory exception to this rule concerns enhancing crude oil prior to the point of valuation; expenses for doing so are deductible from the determination of value. [Trans. Vol. I, pp. 75-76]; Wyo. Stat. Ann. § 39-14-203(b)(x).

23. Costs incurred prior to the point of valuation are not deductible in determining fair market value. [Trans. Vol. I, p. 76]. They accordingly become a component of fair market value insofar as they are not removed from the value determined at the point of valuation. [Trans. Vol. I, p. 76].

24. Subsection 203(b)(iv) states where the production process is completed for natural gas. [Trans. Vol. I, p. 77]. The statute makes no distinction between conventional natural gas production and coal bed methane. Subsection 203(b)(iv) applies to all natural gas. [Trans. Vol. I, pp. 68, 73, 77].

25. Grenvik agreed with Petro-Canada’s counsel that, to his knowledge, there was no coal bed methane production in Wyoming when the statute was first adopted in 1990. [Trans. Vol. I, p. 71; also, p. 131]. Production of coal bed methane in Wyoming generally began in the late 1990's. [Trans. Vol. I, p. 72].

26. Subsection 203(b)(iv) provides an overriding concept for determining the end of the production process for natural gas, which is the first point of dehydration. [Trans. Vol. I, p. 78]. Only the first sentence of subsection 203(b)(iv) applies in this case; it provides 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. [Trans. Vol. I, p. 78]. The list of activities is open-ended, meaning there might be some other type of event occurring before the initial dehydrator that would still be considered part of the production process. [Trans. Vol. I, pp. 78-79].

27. For conventional gas, a dehydrator was “typically, but not exclusively,” located near the well. [Trans. Vol. I, p. 69].

28. Specifications for high pressure pipelines are the main reason to dehydrate natural gas. [Trans. Vol. I, p. 99].

29. The activities listed in the first sentence of subsection 203(b)(iv) deal with physical activities and processes which occur in the field. [Trans. Vol. I, p. 79]. The statutes identify the point of valuation by reference to a physical activity to determine where the production process is complete. [Trans. Vol. I, p. 79]. The specified activities are well known, being common in the industry. [Trans. Vol. I, p. 79].

30. Nothing in subsection 203(b)(iv) or any other tax statute generally indicate that the way a contract is structured can change or manipulate the point of valuation. [Trans. Vol. I, p. 79]. This applies to other minerals as well. Specifically, the statutes applying to hard-mining minerals talk about the mouth-of-mine concept. [Trans. Vol. I, p. 80]. The mouth of the mine is a physical point that cannot be changed by contractual arrangements. [Trans. Vol. I, p. 80]. There is no reference anywhere in the Wyoming mineral tax code to a point of sale or transfer ending the production process. [Trans. Vol. I, p. 84].

31. Grenvik explained that a value can be ascribed to natural gas at many points along its movement after the wellhead, but the Department is required to value natural gas only at the point of valuation. [Trans. Vol. I, p. 80]. For example, the first arms’ length sale of gas might occur in Kansas, but the Department is still required to determine value where the production process is completed as specified in subsection 203(b)(iv). [Trans. Vol. I, p. 81].

32. Generally, subsections 203(b)(iii) and (iv) are the point of valuation statutes, and subsections 203(b)(v) and (vi) are the valuation statutes. [Trans. Vol. I, p. 81].

33. Subsection 203(b)(vi) specifies four different methods to determine value if a mineral is not sold at or prior to the point of valuation by bona fide arm’s length sale. [Trans. Vol. I, p. 81].

34. Typically, the Department has seen transfers or sales of gas downstream of the point of valuation. [Trans. Vol. I, pp. 82, 98]. In those cases, one is typically using contract information to deduct processing or transportation cost that has occurred after the point of valuation. [Trans. Vol. I, p. 82]. The Department has rarely seen sales at the outlet of the dehydrator. [Trans. Vol. I, pp. 102-103].

35. Subsection 203(b)(v) applies when the natural gas is sold to a third party, or processed or transported by a third party, at or prior to the point of valuation. [Trans. Vol. I, p. 83]. Subsection 203(b)(v) refers to subsection (b)(iv); Grenvik notes that without subsection (b)(iv) to determine the point of valuation, you wouldn’t know when subsection (b)(v) applies. [Trans. Vol. I, p. 83]. References in subsections (b)(v) and (vi) to subsections (b)(iii) and (iv) give credence to the fact that the valuation statutes refer to a fixed physical point that must be known before either valuation provision can be applied. [Trans. Vol. I, pp. 83-84].

36. When natural gas is processed or transported at or prior to the point of valuation, the processing or transportation agreement will not include a value for the gas in the form of a sale price. [Trans. Vol. I, p. 84]. Because these contracts do not give an indication of overall value, other factors must be considered. [Trans. Vol. I, pp. 84, 86]. Grenvik considers that significant for interpretation of the words “bona fide arms’ length transaction” which appear in subsection 203(b)(v). [Trans. Vol. I, p. 85]. Even for a sales contract which occurs before the point of valuation, you will need other indicators of value in the transaction to determine fair market value at the point of valuation. [Trans. Vol. I, pp. 85, 101-102].

37. Grenvik accords significance to the fact that subsection 203(b)(v) does not employ a “the” before the words “bona fide arms’ length transaction.” [Trans. Vol. I, p. 85]. This indicates the transaction can consist of more than one applicable contract or approach to value. [Trans. Vol. I, p. 85]. The Department’s determination of value is not limited to the sale contract, nor is it limited to the processing or transportation transaction. [Trans. Vol. I, p. 85]. For any contract prior to the point of valuation, more information is necessary to determine fair market value at the point of valuation. [Trans. Vol. I, p. 86].

38. Wyoming is a state in which mineral taxpayers have a responsibility to report and correctly pay their taxes. [Trans. Vol. I, p. 67]. The Department has run in to situations in which it has been necessary to perform some type of allocation or otherwise split up the component of transportation to determine fair market value at the point of valuation. [Trans. Vol. I, p. 87]. This has been accomplished by fuel usage in various compressors; by looking at the components within a pricing contract; and by a breakout from the transporter. [Trans. Vol. I, p. 87]. Where the transporter has been uncooperative, the Department has commonly relied on an allocation based on fuel usage at various points in the path of transportation. [Trans. Vol. I, pp. 93-94]. Fuel usage is an amount commonly known by the producer due to contractual charges. [Trans. Vol. I, p. 94; but see p. 113]. The only explicit guidance which the Department provides taxpayers for reporting is included in reporting packets issued every year. [Trans. Vol. I, p. 74].

39. Grenvik acknowledged that the information necessary for an allocation may not be readily available to the Department of Audit until provided by the producer. [Trans. Vol. I, p. 110].

40. In this case, Petro-Canada provided a breakout which was ultimately used by the Department of Audit and the Department of Revenue. [Trans. Vol. I, p. 87]. That breakout was generally based on an index price less a transportation component accounting for fees and fuel. [Trans. Vol. I, pp. 54-64].

41. In every instance where there has been a need to split up the component of transportation to come up with a reasonable estimate, the Department has been able to do so. [Trans. Vol. I, p. 88]. When a taxpayer is uncertain, it may request the Department’s ruling on how to report value. [Trans. Vol. I, p. 68].

42. The Department objects to Petro-Canada’s reading of subsection 203(b)(v) out of concern for constitutional uniformity requirements. Grenvik explained that two producers of gas may both receive sale proceeds based on a sale price at a specified location, such as the Cheyenne hub, and in both instances be responsible for transportation costs from the pod to the Cheyenne hub. [Trans. Vol. I, pp. 88-89]. One producer would sell at the pod, yet receive proceeds which deducted transportation costs back to the pod from the sale at the Cheyenne hub. The other would sell at the Cheyenne hub, yet incur the same transportation costs internally. Petro-Canada does not contest that the second producer would pay taxes based on a point of valuation at the outlet of the initial dehydrator, downstream from the pod; yet it insists that its own point of valuation should be the pod. In the end, both producers are receiving identical amounts of gross proceeds, yet the point of valuation would be different and the tax burden would be different. [Trans. Vol. I, p. 89]. The Department views this as a uniformity problem because the Department would not be uniformly taxing two separate taxpayers with identical receipts in gross revenues and expenses. [Trans. Vol. I, p. 89].

43. The Department also views Petro-Canada’s interpretation as creating an internal conflict in the statutes. Petro-Canada would effectively change the point of valuation for some taxpayers. For only those taxpayers, expenses incurred prior to the outlet of the initial dehydrator would cease to be gathering expenses as defined by subsection 203(b)(iv). For all other oil and gas taxpayers, the same expenses would continue to be non-deductible gathering activity. [Trans. Vol. I, p. 90].

44. The Department interprets the primary message of the Wyoming Supreme Court’s ruling in Williams Production RMT Company v. Department of Revenue, 2005 WY 28, 107 P.3d 179 (Wyo. 2005)(“Williams I”) as supporting the Department’s interpretation. [Trans. Vol. I, p. 91]. Grenvik characterized that message as: the point of valuation is a physical location under the production, transportation, and gathering scenario common to coal bed methane, and that physical location is the outlet of the initial dehydrator. [Trans. Vol. I, p. 91]. In this case, the Department sees nothing in the set-up or design of the flow of gas from wellhead to market that differs from the circumstances considered by the Wyoming Supreme Court. [Trans. Vol. I, p. 91].

45. Grenvik is familiar with this Board’s rulings in Kennedy Oil, Docket No. 2006-104, September 4, 2007, 2007 WL 2509669 (Wyo. St. Bd. of Eq.) and Williams Production RMT Company, Docket 2006-107, January 11, 2008, 2008 WL 165435 (Wyo. St. Bd. Eq.)(“Williams II”), both of which involved coal bed methane valuation under subsection 203(b)(v). [Trans. Vol. I, p. 92]. In Williams II, the taxpayer had third party transportation prior to the point of valuation, but no sales; in Kennedy Oil, there were some sales at the pod, as in this case. [Trans. Vol. I, p. 92]. The overall outcome was not any different with respect to the point of valuation, which did not move from the outlet of the initial dehydrator. [Trans. Vol. I, p. 92]. The Department agrees with the Board’s logic and rationale as expressed in those rulings. [Trans. Vol. I, p. 92]. The Department views Petro-Canada as making the same general argument addressed by the Board in the previous cases. [Trans. Vol. I, p. 93].

46. A common feature of the Wyoming Supreme Court’s decision in Williams I, the Board’s more recent decisions in Kennedy Oil and Williams II, and this case is that all four arose from audits. [Trans. Vol. I, p. 115]. Grenvik acknowledged that most previous natural gas litigation had arisen under paragraph (vi); that sales at a dehydrator had not previously been typical, as demonstrated by the absence of valuations under paragraph (vi)(A), pertaining to comparable sales; that Williams I and Williams II are relatively recent cases which have brought the issue of paragraph (v) forward; and that the consequences of a point of valuation under paragraph (v) have in that sense been a relatively new idea. [Trans. Vol. I, pp. 102, 107].

47. Dan Sullivan is sole proprietor of a government relations lobbying business. [Trans. Vol. II, p. 125]. Since 1990, he has represented clients in the telecommunications, oil and gas, healthcare, and tobacco industries. [Trans. Vol. II, p. 125]. He was elected a member of the Wyoming State Senate in 1984, and participated in the legislature through its 1990 session. [Trans. Vol. II, p. 126]. He was one of the co-chairman of the Joint Interim Revenue Committee in 1989 and 1990. [Trans. Vol. II, p. 127].

48. Sullivan recalled that in the late 1980's, prices for natural resources were very low. [Trans. Vol. II, p. 129]. One major mineral taxpayer reported a zero tax liability using the netback methodology – the method used primarily to value oil and gas – for payment of severance and ad valorem tax. [Trans. Vol. II, p. 129]. There were a lot of appeals and litigation for coal valuations because the methodologies were not understandable, or at least predictable, from the taxpayer’s point of view. [Trans. Vol. II, p. 130]. Counties were concerned about the ups and downs of revenue streams. [Trans. Vol. II, p. 130]. The statutes were in some ways antiquated. [Trans. Vol. II, p. 131]. We find these general observations to be of no use in resolving the issues before us.

49. Sullivan identified a series of diagrams he used to present the work of his committee to the members of the House and Senate. [Trans. Vol. II, p. 137; Exhibit 129]. The slides were based on testimony heard by his committee. [Trans. Vol. II, p. 137].

50. Sullivan identified a committee report which he prepared in conjunction with staff of the Legislative Service Office, and which appears on Legislative Service Office letterhead. [Trans. Vol. II, pp. 137-139; Exhibit 130]. By statute, the report was delivered to the Governor and members of both houses of the legislature. [Trans. Vol. II, pp. 137-138]. House Bill 149 was attached to the report. [Trans. Vol. II, p. 141; Exhibit 131].

51. The Board refuses to make findings based on Sullivan’s personal recollections of the legislative process, and his personal characterization of the documents. See Conclusions, infra, ¶¶ 68, 102-103; [see also Trans. Vol. II, pp. 143-152].

52. 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.

(i) “Arm’s-length market or sales price” means the transaction price determined in connection with a bona fide arm’s length sale;

(ii) “Bona fide arm’s-length sale” means a transaction in cash or terms equivalent to cash for specified property rights after reasonable exposure in a competitive market between a willing, well informed and prudent buyer and seller with adverse economic interests and assuming neither party is acting under undue compulsion or duress;

(ix) “Gathering” means the transportation of crude oil, lease condensate or natural gas from multiple wells by separate and individual pipelines to a central point of accumulation, dehydration, compression, separation, heating and treating or storage;

(xi) “Lease” means the area encompassed in the leasehold granting the right to explore for or produce crude oil or natural gas, which may include a single tract or multiple tracts of land described in the instrument granting the leasehold;

(xv) “Natural gas” means all gases, both hydrocarbon and nonhydrocarbon, that occur naturally beneath the earth’s crust and are produced from an oil or gas well. For the purposes of taxation, the term natural gas includes products separated for sale or distribution during processing of the natural gas stream including, but not limited to plant condensate, natural gas liquids and sulfur;

(xix) “Property” means lease or unit. The term “property” is synonymous with the term “mining claim”;

(xxvii) “Unit” means the total area incorporated in a unitization agreement providing for a consolidated development and operational plan to recover oil or gas from the lease areas incorporated in the unit. Participating areas of units as designated by the Wyoming oil and gas conservation commission may be designated as separate units for production tax purposes …

(i) The department shall annually value and assess crude oil, lease condensate or natural gas production at its fair market value for taxation;

(ii) Based upon the information received or procured pursuant to W.S. 39-14-207(a) or 39-14-208(a), the department shall annually value crude oil, lease condensate and natural gas for the preceding calendar year in appropriate unit measures at the fair market value of the product, after the mining or production process is completed;

(i) Crude oil, lease condensate and natural gas shall be valued for taxation as provided in this subsection;

(ii) The fair market value for crude oil, lease condensate and natural gas shall be determined after the production process is completed. Notwithstanding paragraph (x) of this subsection, expenses incurred by the producer prior to the point of valuation are not deductible in determining the fair market value of the mineral;

(iii) The production process for crude oil or lease condensate is completed after extracting from the well, gathering, heating and treating, separating, injecting for enhanced recovery, and any other activity which occurs before the outlet of the initial storage facility or lease automatic custody transfer (LACT) unit;

(iv) The production process for natural gas is completed after extracting from the well, gathering, separating, injecting and any other activity which occurs before the outlet of the initial dehydrator. When no dehydration is performed, other than within a processing facility, the production process is completed at the inlet to the initial transportation related compressor, custody transfer meter or processing facility, whichever occurs first;

(v) If the crude oil, lease condensate or natural gas production as provided by paragraphs (iii) and (iv) of this subsection are sold to a third party, or processed or transported by a third party at or prior to the point of valuation provided in paragraphs (iii) and (iv) of this subsection, the fair market value shall be the value established by bona fide arms-length transaction;

(vi) In the event the crude oil, lease condensate or natural gas production as provided by paragraphs (iii) and (iv) of this subsection is not sold at or prior to the point of valuation by bona fide arms-length sale, or, except as otherwise provided, if the production is used without sale, the department shall identify the method it intends to apply under this paragraph to determine the fair market value and notify the taxpayer of that method on or before September 1 of the year preceding the year for which the method shall be employed. The department shall determine the fair market value by application of one (1) of the following methods:

(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 taxable value of natural gas which is processed by the producer of the natural gas;

(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

(vii) When the taxpayer and department jointly agree, that the application of one (1) of the methods listed in paragraph (vi) of this subsection does not produce a representative fair market value for the crude oil, lease condensate or natural gas production, a mutually acceptable alternative method may be applied;

(viii) If the fair market value of the crude oil, lease condensate or natural gas production as provided by paragraphs (iii) and (iv) of this subsection is determined pursuant to paragraph (vi) of this subsection, the method employed shall be used in computing taxes for three (3) years including the year in which it is first applied or until changed by mutual agreement between the department and taxpayer. If the taxpayer believes the valuation method selected by the department does not accurately reflect the fair market value of the crude oil, lease condensate or natural gas, the taxpayer may appeal to the board of equalization for a change of methods within one (1) year from the date the department notified the taxpayer of the method selected;

(ix) If the department fails to notify the taxpayer of the method selected pursuant to paragraph (vi) of this subsection, the taxpayer shall select a method and inform the department. The method selected by the taxpayer shall be used in computing taxes for three (3) years including the year in which it is first applied or until changed by mutual agreement between the taxpayer and the department. If the department believes the valuation technique selected by the taxpayer does not accurately reflect the fair market value of the crude oil, lease condensate or natural gas, the department may appeal to the board of equalization for a change of methods within one (1) year from the date the taxpayer notified the department of the method selected;

(x) If crude oil is enhanced prior to the point of valuation as defined in paragraph (iii) of this subsection by either a blending process with a higher grade hydrocarbon or through a refining process such as cracking, then the fair market value shall be the fair market value of the crude oil absent the blending or refining process;

(xi) For natural gas, the total of all actual transportation costs from the point where the production process is completed to the inlet of the processing facility or main transmission line shall not exceed fifty percent (50%) of the value of the gross product without approval of the department based on documentation that the costs are due to environmental, public health or safety considerations, or other unusual circumstances.

(j) Natural gas which is vented or flared under the authority of the Wyoming oil and gas conservation commission and natural gas which is reinjected or consumed prior to sale for the purpose of maintaining, stimulating, treating, transporting or producing crude oil or natural gas on the same lease or unit from which it was produced has no value and is exempt from taxation.

(i) Annually, on or before February 25 of the year following the year of production any person whose crude oil, lease condensate or natural gas production is subject to W.S. 39-14-202(a) shall sign under oath and submit a statement listing the information relative to the production and affairs of the company as the department may require to assess the production....

(vii) Audits provided by this article shall commence within three (3) years and six (6) months immediately following the reporting date for ad valorem taxes and taxpayers shall keep accurate books and records of all production subject to severance taxes imposed by this article and determinations of taxable value as prescribed by W.S. 39-14-103(b) for a period of seven (7) years and make them available to department examiners for audit purposes. Amended returns filed with the department during the conduct of an audit prior to the issuance of the final audit findings may be made available by the taxpayer to the audit examiners. If the examination discloses evidence of gross negligence by the taxpayer in reporting and paying the tax, the department may examine all pertinent records for any reporting period without regard to the limitations set forth in paragraphs (vii) and (viii) of this subsection…

(i) The taxpayer may request a value determination from the department and propose a value determination method which may be used until the department issues a value determination. The taxpayer shall submit all available data relevant to its proposal and any additional information the department deems necessary. After the department issues its determination, the taxpayer shall make adjustments based upon the value established or request a hearing by the board;

(ii) A taxpayer may request and the department shall provide written interpretations of these statutes and rules. When requesting an interpretation, a taxpayer must set forth the facts and circumstances pertinent to the issue. If the department deems the facts and circumstances provided to be insufficient, it may request additional information. A taxpayer may act in reliance upon a written interpretation through the end of the calendar year in which the interpretation was issued, or until revoked by the department, whichever occurs last if the pertinent facts and circumstances were substantially correct and fully disclosed.

(a) All property, except as in this constitution otherwise provided, shall be uniformly valued at its full value as defined by the legislature, in three (3) classes as follows:

(i) Gross production of minerals and mine products in lieu of taxes on the land where produced;

(d) 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.

61. “As we have often stated, our rules of statutory construction focus on discerning the legislature’s intent. In doing so, we begin by making an ‘inquiry respecting the ordinary and obvious meaning of the words employed according to their arrangement and connection.’ Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo.1993) (quoting Rasmussen v. Baker, 7 Wyo. 117, 133, 50 P. 819, 823 (1897)). We construe the statute as a whole, giving effect to every word, clause, and sentence, and we construe together all parts of the statute in pari materia. State Department of Revenue and Taxation v. Pacificorp, 872 P.2d 1163, 1166 (Wyo.1994).” Chevron U.S.A., Inc. v. Department of Revenue, 2007 WY 79, ¶ 15, 158 P.3d. 131, 136 (Wyo. 2007).

62. The Wyoming Supreme Court has previously summarized a number of useful precepts concerning statutory interpretation:

Statutes must be construed so that no portion is rendered meaningless. (citation omitted) Interpretation should not produce an absurd result. (citation omitted) We are guided by the full text of the statute, paying attention to its internal structure and the functional relation between the parts and the whole. (citations omitted) Each word of a statute is to be afforded meaning, with none rendered superfluous. (citation omitted) Further, the meaning afforded to a word should be that word’s standard popular meaning unless another meaning is clearly intended. (citation omitted) If the meaning of a word is unclear, it should be afforded the meaning that best accomplishes the statute’s purpose. (citation omitted) We presume that the legislature acts intentionally when it uses particular language in one statute, but not in another. (citations omitted) If two sections of legislation appear to conflict, they should be given a reading that gives them both effect. (citation omitted)

Rodriguez v. Casey, 2002 WY 111, ¶¶ 9-10, 50 P.3d 323, 326-27 (Wyo. 2002); quoted in Hede v. Gilstrap, 2005 WY 24, ¶ 6, 107 P.3d 158, 163 (Wyo. 2005).

…[W]e look first to the plain and ordinary meaning of the words to determine if the statute is ambiguous. A statute is clear and unambiguous if its wording is such that reasonable persons are able to agree on its meaning with consistency and predictability. Conversely, a statute is ambiguous if it is found to be vague or uncertain and subject to varying interpretations. We have said that divergent opinions among parties as to the meaning of a statute may be evidence of ambiguity. However, the fact that opinions may differ as to a statute’s meaning is not conclusive of ambiguity. Ultimately, whether a statute is ambiguous is a matter of law to be determined by the court.

State ex rel. Wyo. Dept. of Revenue v. UPRC, 2003 WY 54, ¶ 12, 67 P.3d 1176, 1182 (Wyo. 2003) (internal citations omitted). “Once the court determines a statute is ambiguous the court will ‘resort to general principles of statutory construction in the effort to ascertain legislative intent.’” Richards v. Board of County Com’rs, 6 P.3d 1251, 1253 (Wyo. 2000).

In ascertaining the legislative intent in enacting a statute …the court …must look to the mischief the act was intended to cure, the historical setting surrounding the enactment, the public policy of the statute, the conditions of the law and all other prior and contemporaneous facts and circumstances that would enable the court intelligently to determine the intention of the lawmaking body.

We generally defer to the construction placed on a statute by the agency that is charged with its execution, provided, however, that the agency’s construction does not conflict with the legislature’s intent. In this case we are also cognizant of the principle that statutes which are penal in character are generally strictly construed.

Petroleum Inc. v. State Bd. of Equalization, 983 P.2d 1237, 1240 (Wyo. 1999) (internal citations omitted). We also apply these rules when interpreting administrative rules and regulations. Powder River Coal, ¶ 6 (citing State ex rel. Dept. of Rev. v. Buggy Bath, 2001 WY 27, ¶ 6, 18 P.3d 1182, 1185 (Wyo. 2001)).

We are further guided by principles related to tax imposition statutes. ‘Tax statutes are to be construed in favor of the taxpayer and are not to be extended absent clear intent of the legislature.’ Chevron U.S.A., Inc., 918 P.2d at 985.

In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government and in favor of the citizen.

Amoco Production Co. v. Dept. of Revenue, 2004 WY 89, ¶ 18, 94 P.3d 430, 438 (Wyo. 2004). Thus, taxes may not be imposed by any means other than a clear, definite and unambiguous statement of legislative authority. Chevron U.S.A., Inc., 918 P.2d at 984; Amoco Production Co., ¶ 18. See also Wyo. Const., art. 15, § 13 (stating ‘[n]o tax shall be levied, except in pursuance of law, and every law imposing a tax shall state distinctly the object of same, to which only it shall be applied.’)” Qwest Corp. v. State ex rel. Dept. of Rev., 2006 WY 35, ¶¶ 8-9, 130 P.3d 507, 511-512 (Wyo. 2006).

64. “The omission of words from a statute must be considered intentional on the part of the legislature. (citation omitted) Words may not be supplied in a statute where the statute is intelligible without the addition of the alleged omission. (citations omitted) Words may not be inserted in a statutory provision under the guise of interpretation. (citations omitted) The Supreme Court will not read into laws what is not there. (citations omitted)” Matter of Adoption of Voss, 550 P.2d 481, 485 (Wyo. 1976).

65. “An agency’s interpretation of statutory language which the agency normally implements is entitled to deference, unless clearly erroneous.” Buehner Block Company, Inc., v. Wyoming Department of Revenue, 2006 WY 90, ¶ 11, 139 P.3d 1150, 1153 (Wyo. 2006).

66. “We read the text of the statute and pay attention to its internal structure and the functional relations between the parts and the whole. We make the determination as to meaning, that is, whether the statute’s meaning is subject to varying interpretations. If we determine that the meaning is not subject to varying interpretations, that may end the exercise, although we may resort to extrinsic aids of interpretation, such as legislative history if available and rules of construction, to confirm the determination…” In re Worker’s Compensation Claim of Johnson, 2001 WY 48, ¶ 8, 23 P.3d 32, 35 (Wyo. 2001), (quoting Hernandez v. Laramie County School District No. 1, 8 P.3d 318, 321 (Wyo. 2000)(quoting Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1045 (Wyo. 1993))).

67. “Reports of legislative committees may not be considered for the purposes of creating an ambiguity, for the purpose of construing a statute contrary to its plain terms, or for the purpose of making identical that which is radically different.” 73 Am Jur 2d Statutes § 91; see also §§ 85, 86. “…[E]xtrinsic evidence such as committee reports may be used only where the meaning of the statute is obscure, and not for the purpose of construing a statute contrary to its plain terms.” 82 C. J. S. Statutes § 341. “ …[L]egislative history may only be resorted to for the purpose of solving doubt, not for the purpose of creating it.” 73 Am Jur 2d Statutes § 85. “…[L]egislative history and legislative intent do not mean the same thing.” Norman J. Singer, Sutherland Statutory Construction, § 48.1, p. 542 (7th Ed. 2007).

68. “Affidavits by legislators or other persons involved in the enactment of a statute are not a proper source of legislative history.” Independent Producers Marketing Corp. v. Cobb, 721 P.2d 1106, 1108 (Wyo. 1986).

69. “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 Company v. Department of Revenue, 2005 WY 60, ¶ 22, 112 P.3d 596, 607 (Wyo. 2005).

70. “Determining the point of valuation is of particular significance because ‘expenses incurred by the producer prior to the point of valuation are not deductible in determining the fair market value of the [CBM].” Wyo. Stat. Ann. § 39-14-203(b)(ii). Thus, because certain expenses ‘downstream’ of the point of valuation are deductible, it is to the producer’s benefit to have the point of valuation determined ‘upstream’ as far as possible. That is the instant case in a nutshell. Williams seeks an ‘upstream’ point of valuation instead of the ‘downstream’ point of valuation determined by the Department and confirmed by the Board.” Williams Production RMT Company v. Department of Revenue, 2005 WY 28, ¶ 10, 107 P.3d 179, 183-184 (Wyo. 2005).

71. “In addition to the observations of the DOA representative, the Board also relied upon a lengthy analysis whereby relevant statutory definitions and concepts were applied to Barrett's system, and it also gave deference to the Department's interpretation of a ‘processing facility’ because such was not in conflict with legislative intent. We find that the Board’s analysis, which is revealed in paragraphs 89-132 of the final order, that the TEG dehydrator was not located within a processing facility was a correct interpretation of the applicable statutes. Williams argues essentially that because the TEG dehydrator performs some of the functions listed in the definition of ‘processing’ contained in Wyo. Stat. Ann. § 39-14-201(a)(xviii), ipso facto, it too is a processing facility. When the statutes are read in para materia, as we are required to do, that reasoning simply does not fly. As the Board noted in Conclusion #122, Williams' approach relies on a circular reading of the statute that is not supported by its plain language. The first sentence of the definition limits any activity deemed to be processing to those occurring ‘beyond the inlet to a natural gas processing facility.’ Wyo. Stat. Ann. § 39-14-201(a)(xviii). In addition, the definition recognizes that some of the functions specifically listed may occur during production. In reality, the definition of processing is of little assistance in determining what the legislature meant by processing facility in the context of the severance tax statutes.” Williams Production RMT Company v. Department of Revenue, 2005 WY 28, ¶ 17, 107 P.3d 179, 185 (Wyo. 2005).

72. This Board's final order in Appeal of Williams Production RMT Company, Docket 2002-103, November 14, 2003, 2003 WL 22754175 (Wyo. St. Bd. Eq.), included the following paragraphs which are among those referenced in the preceding paragraph of the Wyoming Supreme Court's Williams Production RMT Company decision:

89. The Wyoming Constitution requires the gross product of mines to be taxed in proportion to the value thereof and uniformly valued for tax purposes at full value as defined by the legislature. Wyo. Const. Art. 15, §§ 3, 11. For natural gas, the value of the gross product “means fair market value as prescribed by Wyo. Stat. Ann. 39-14-203(b), less any deduction and exemption allowed by Wyoming law or rules.” Wyo. Stat. Ann. §39-14-201(a)(xxix).

90. “The fair market value for...natural gas shall be determined after the production process is completed. ...[E]xpenses 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). These two sentences contain two fundamental premises for our decision.

91. First, the point of valuation is a physical location. This physical location is determined by reference to the production process, and where that production process is completed. We will accordingly be deciding which party appropriately identified a point in the sequence of equipment that was the point of valuation.

92. Second, the point of valuation directly affects the calculation of expenses that may be deducted from Barrett's sale price to determine fair market value. Barrett sold its gas at a location beyond the point of valuation. Findings of Fact, ¶ 19. For natural gas sold after the point of valuation, expenses incurred after the point of valuation are deducted from the sale price to reach fair market value. Wyo. Stat. Ann. §39-14-203(b)(vi). The taxpayer argues for a point of valuation that is closer to the wellhead, and further from the point of sale, than the point of valuation chosen by the Department of Revenue. If we found for the taxpayer, the effect would be to increase the deduction of expenses from the sale price of the taxpayer's natural gas.

93. The statute determines the point of valuation for natural gas by reference to the production process:

The production process for natural gas is completed after extracting from the well, gathering, separating, injecting and any other activity which occurs before the outlet of the initial dehydrator. When no dehydration is performed, other than within a processing facility, the production process is completed at the inlet to the initial transportation related compressor, custody transfer meter or processing facility, whichever occurs first.

Wyo. Stat. Ann. §39-14-203(b)(iv)(hereafter, the point of valuation statute).

94. Williams takes two conflicting positions that reach the same result. On the one hand, Williams argues that both the header and the screw compressor were dehydrators, so that the custody transfer meter located between them was an acceptable point of valuation. See Findings of Fact, ¶¶ 48, 49, 68-70. On the other hand, Williams argues that if the glycol dehydrator was the only piece of equipment in which dehydration was performed, then the glycol dehydrator was located in a processing facility operated by Western, and the custody transfer meter is the point of valuation. See Findings of Fact, ¶¶ 37-39. If either theory were correct, Barrett's original deduction for expenses would likewise be correct, since Barrett reported its taxes using the custody transfer meter as the point of valuation. See Findings of Fact, ¶ 27.

95. The Department takes the position that the glycol dehydrator is the only dehydrator, and that there is no processing facility. Findings of Fact, ¶ 72. Under this theory, the point of valuation is the outlet of the glycol dehydrator. Findings of Fact, ¶ 72.

116. The legislature enacted the point of valuation statute and the definitions of dehydrator, compressor, separating, and processing in 1990. 1990 Wyo. Sess. Laws, Ch. 54. Coal bed methane was not commercially significant at the time. Findings of Fact, ¶ 4. We accordingly conclude the reference to water vapor commonly associated with natural gas is a reference to the water vapor in conventional natural gas. Based on the facts presented in this case, the glycol dehydrator, all by itself, possessed adequate capacity to remove water vapor in quantities associated with conventional natural gas. Findings of Fact, ¶¶ 60, 66. We conclude the legislature's intention was only to identify as a dehydrator a device that is the same or similar to the one identified in this case as the glycol dehydrator. The Department offered a similar rationale for its interpretation of the statute, but declined to concede the statute is in any way ambiguous. [Transcript Vol. IV, pp. 680-682, 708-709, 750].

117. We are obliged to avoid a construction that reaches an absurd result. Stauffer Chemical Company v. Curry, 778 P.2d 1083, 1093 (Wyo. 1989). It would be absurd to accept as a dehydrator any enlarged space that creates condensation. This would allow the taxpayer to freely manipulate the point of valuation with inexpensive measures. It is also contrary to an expectation expressed in the first sentence of Wyo. Stat. Ann. § 39-14-203(b)(iv) that the initial dehydrator follows other production functions. As the record in this case shows, the principal purpose of a glycol dehydrator was to make raw natural gas ready for transportation by pipeline. Further, we believe it is logical to infer that the legislature contemplated that normally such dehydration would be a last step in the production of gas that was not processed.

Appeal of Williams Production RMT Company, Docket 2002-103, November 14, 2003, 2003 WL 22754175 , ¶¶ 89-95, 116-117 (Wyo. St. Bd. Eq.).

73. “Citing to numerous pieces of technical evidence in the record, the Board found that, unlike the incidental separation of water and CBM in headers and compressors, and in the pipeline, itself, the TEG dehydrator is a specialized dehydrator—a particular piece of equipment. The Board found this significant because of Wyo. Stat. Ann. § 39-14-203(b)(iv)'s location of the point of valuation at the outlet of the initial dehydrator—a piece of equipment—rather than at the initial place that any dehydration—a function—takes place. Once again, we find that the Board's interpretation of the statute to be consistent with legislative intent.” Williams Production RMT Company v. Department of Revenue, 2005 WY 28, ¶ 22, 107 P.3d 179, 186 (Wyo. 2005).

74. “Preliminarily, it should be noted that the taxable value of state assessed property in Wyoming is self-reported. Wyo. Stat. Ann. § 39-13-107 (LexisNexis 2005) (ad valorem taxation); Wyo. Stat. Ann. § 39-14-207 (LexisNexis 2005) (severance taxation of mine products); Moncrief v. Wyoming State Bd. of Equalization, 856 P.2d 440, 445 (Wyo. 1993) (‘Since the severance tax was enacted in 1969, it has been a self-assessment system.’). The Department of Audit is authorized to conduct audits of the taxpayer-reported taxable value of production. Wyo. Stat. Ann. § 9-2-2003(e) (LexisNexis 2005). The Department of Revenue is authorized to request the Department of Audit to conduct an audit, involving the examination of ‘the books and records of any person paying ad valorem taxes,’ for the purpose of verifying a taxpayer's reported values. Wyo. Stat. Ann. § 39-14-208(b)(i) (LexisNexis 2005). Wyoming Statute § 39-14-208(b)(vii) (LexisNexis 2003)(amended 2005) mandates that taxpayers retain ‘accurate books and records of all production subject to severance taxes imposed by this article and determinations of taxable value as prescribed by [Wyo. Stat. Ann. §] 39-14-203(b) for a period of seven (7) years and make them available to department examiners for audit purposes.’ Thus the taxpayer is required to maintain accurate records supporting its reported taxable value to produce to the Department, through the Department of Audit, upon audit.” Department of Revenue v. Michael T. Guthrie d/b/a MTG Operating Company, 2005 WY 79, ¶ 14, 115 P.3d 1086, 1092 (Wyo. 2005).

75. “Statutory construction is a matter of law which this Court reviews de novo. Amoco Prod. Co. v. State of Wyoming, Dep't of Revenue, 2004 WY 89, ¶ 34, 94 P.3d 430, (Wyo. 2004). While MTG's logic is appealing, the Department presents the more persuasive argument. The language of the statute is plain as it pertains to the instant issue. The fair market value ‘shall be the value established by bona fide arms-length [sic] transaction.’ The gas purchase contracts embody the terms of the arm’s-length sales transaction between MTG and Purchaser. Thus, the fair market value ‘shall be the value established’ in the gas purchase contracts. It follows that it is the specific terms of the contracts that must be used to establish the legislatively defined fair market value. In verifying the value of gas production, therefore, the Department is required by the statute to refer to the specific terms of the contracts.” Department of Revenue v. Michael T. Guthrie d/b/a MTG Operating Company, 2005 WY 79, ¶ 23, 115 P.3d 1086, 1094-1095 (Wyo. 2005).

76. “Kennedy Oil and the Department generally agree that natural gas sales which are the subject of paragraph (v) are only those which occur ‘at or prior to the point of valuation.’ It is nonetheless possible to parse paragraph (v) into two independent parts. The first would apply when the natural gas production is ‘sold to a third party.’ The second would apply to natural gas production transported or processed ‘at or prior to the point of valuation provided in paragraphs (iii) and (iv) of this subsection,’ with the quoted phrase modifying only ‘processed or transported by a third party.’ However, such a reading would make paragraph (v) apply to all sales to a third party, and would therefore conflict with paragraph (vi) and its focus on production ‘not sold at or prior to the point of valuation.’ Such a reading would be contrary to the precept that ‘[i]f two sections of legislation appear to conflict, they should be given a reading that gives them both effect.’ Rodriguez v. Casey, supra, quoted in Conclusions, ¶ 69. The Board therefore concludes the parties are correct in reading paragraph (v) to apply only to production sold to a third party at or prior to the point of valuation, and not to all production sold to a third party.” Kennedy Oil, Docket No. 2006-104, September 4, 2007, 2007 WL 2509669 (Wyo. St. Bd. of Eq.), ¶ 106.

77. “The record reveals that, although the Board declined to decide the constitutionality of the tax law as it was applied by the Department of Revenue and Taxation, the Board did decide that the valuation and assessment, as made by the Department of Revenue and Taxation, was proper under the 1975 amendment. This was all the Board could properly do. We hold that an administrative agency has no authority to determine the constitutionality of a statute…” Belco Petroleum Corp. v. State Board of Equalization, 587 P.2d 204, 213-214 (Wyo. 1978).

78. “This court has not previously required that a valuation system adaptation and pricing mechanisms within the Department require promulgation by the regularized rule processes of the [Wyoming Administrative Procedure Act, W. S. 16-3-102(b), as long as statutory and constitutional rights to protest and contest are afforded the taxpayer…We concur with the Board in contention that the basic decision letters as issued by the Department do not constitute rules and need not be adopted pursuant to the WAPA.” Pathfinder Mines v. State Board of Equalization, 766 P.2d 531, 535 (Wyo. 1988); quoted in Amoco Production Company v. Wyoming State Board of Equalization, 899 P.2d 855, 860 (Wyo. 1995).

79. Petro-Canada filed these appeals pursuant to Wyo. Stat. Ann. § 39-14-209(b) and Chapter 2, Section 5 of the Rules of Practice and Procedure of the Wyoming State Board of Equalization. [Notices of Appeal]. Under Wyo. Stat. Ann. § 39-14-209(b)(i), “[a]ny person aggrieved by any final administrative decision of the department may appeal to the state board of equalization.”

80. The Board decides appeals brought under Wyo. Stat. Ann. § 39-14-209(b) using “the general standard that the valuation must be in accordance with constitutional and statutory requirements for valuing state-assessed property.” E.g., Chevron U. S. A., Inc., Docket No. 2005-66, June 8, 2006, 2006 WL 3327955, ¶ 84 (Wyo. St. Bd. Eq.).

81. In applying this standard, the Board must presume the Department's valuations are valid, accurate, and correct. BP America Production Company v. Department of Revenue, 2005 WY 60, ¶ 26, 112 P.3d 596, 608 (Wyo. 2005). Petro-Canada had the burden of presenting credible evidence to overcome the presumption. Id.; Chevron U.S.A., Inc. v. Department of Revenue, 2007 WY 79, ¶ 30, 158 P.3d 131, 139 (Wyo. 2007). A taxpayer’s burdens of proof and persuasion are further articulated in the Board's Rules. Rules, Wyoming State Board of Equalization, Chapter 2, Section 20.

82. This case is the fourth in a series involving the correct point of valuation for coal bed methane production. All of the cases have arisen from audits, Findings, ¶ 46, for periods which generally coincide with the commencement of commercial coal bed methane production in Wyoming in the late 1990's. Findings, ¶ 25. The preceding three cases were:

- Williams Production RMT Company v. Department of Revenue, 2005 WY 28, 107 P.3d 179 (Wyo. 2005)(“Williams I”), which arose from Williams Production RMT Company, Docket 2002-103, November 14, 2003, 2003 WL 22754175 (Wyo. St. Bd. Eq.).

- Kennedy Oil, Docket No. 2006-104, September 4, 2007, 2007 WL 2509669 (Wyo. St. Bd. of Eq.).

- Williams Production RMT Company, Docket 2006-107, January 11, 2008, 2008 WL 165435 (Wyo. St. Bd. Eq.)(“Williams II”).

83. In all three cases, the outlet of a TEG dehydrator was held to be the correct point of valuation. The TEG dehydrator was associated with facilities used to compress gas for transport on a high pressure pipeline, referred to in this case as second stage (recip) compression. Findings, ¶ 3.

84. Petro-Canada paid taxes on the gross proceeds of its sales, without regard to the point of valuation. Findings, ¶ 14. Those gross proceeds were based on a formula which relied on index prices reflecting downstream market sales, less deductions explicitly related to transportation fees including fuel expense. Findings, ¶ 5-7. The outlet of every initial dehydrator related to Petro-Canada's sales was located along the line of transport, between the pods at which Petro-Canada's purchasers took custody of its gas, and the market locations reflected in the index prices. Findings, ¶ 8.

85. Petro-Canada, much like Kennedy Oil, claims that Wyo. Stat. Ann. § 39-14-203(b)(v) “unambiguously requires the value [of Petro-Canada's production] to be determined by the bona fide arms-length sales transaction” at the pod, using gross sale proceeds as the measure of value. [Petitioner's Updated Summary of Contentions, pp. 2-3]. Paragraph (v) provides:

(v) If the crude oil, lease condensate or natural gas production as provided by paragraphs (iii) and (iv) of this subsection are sold to a third party, or processed or transported by a third party at or prior to the point of valuation provided in paragraphs (iii) and (iv) of this subsection, the fair market value shall be the value established by bona fide arms-length transaction;

Wyo. Stat. Ann. § 39-14-203(b)(v)(emphasis supplied). We note that Petro-Canada's claim depends on the addition of two words which do not appear in the statute, “the” and “sales”: the bona fide arms-length sales transaction. Nonetheless, by application of the facts to the plain language of the statute, the Board concludes that for the entire audit period, all Petro-Canada production was natural gas sold to a third party prior to the point of valuation. Findings, ¶ 4. All production fell under Wyo. Stat. Ann. § 39-14-203(b)(v).

86. The physical facilities in this case are essentially the same as in Williams I, Kennedy Oil, and Williams II. Petro-Canada distinguished its factual circumstances from those of Williams on the grounds that the sales of gas in Williams I were in Glenrock, downstream of the initial dehydrator, while Petro-Canada's sales were at the pods. [Petitioner's Updated Summary of Contentions, p. 4].

87. The stakes are likewise the same as in Williams I, Kennedy Oil, and Williams II. “[B]ecause certain expenses ‘downstream’ of the point of valuation are deductible, it is to the producer’s benefit to have the point of valuation determined ‘upstream’ as far as possible.” Williams Production RMT Company, 2005 WY 28, ¶ 10, 107 P.3d 179, 183-184 (emphasis in original). As in Williams I, Kennedy Oil, and Williams II, Petro-Canada seeks to place the point of valuation at the CDP, or pod, which is further upstream than the TEG dehydrator.

88. Unlike Williams, Petro-Canada makes no express claim that paragraph (v) “supersedes (b)(iv) where there is a bona fide arms-length sale or transfer of custody upstream of the initial dehydrator.” Williams II, ¶ 154. Petro-Canada all but ignores paragraph (iv), which is merely paraphrased in its brief. [Petitioner’s Brief, p. 7]. Petro-Canada never addressed the question of how paragraph (iv) fits with paragraphs (v) and (vi). [See generally Petitioner’s Brief; Petitioner’s Updated Summary of Contentions].

(iv) The production process for natural gas is completed after extracting from the well, gathering, separating, injecting and any other activity which occurs before the outlet of the initial dehydrator. When no dehydration is performed, other than within a processing facility, the production process is completed at the inlet to the initial transportation related compressor, custody transfer meter or processing facility, whichever occurs first;

Wyo. Stat. Ann. § 39-14-203(b)(iv)(emphasis supplied). In the Department’s view, the first sentence of paragraph (iv) establishes the point of valuation in this case. Findings, ¶ 26.

90. In deciding Kennedy Oil and Williams II, this Board understood the taxpayers in both cases to acknowledge that paragraph (iv) established a general point of valuation for all natural gas. That being so, the issue for the taxpayers was whether paragraph (v) created an exception to paragraph (iv), and thereby allowed them to avoid the consequences which followed from a universally applicable point of valuation.

91. After taking into account all of the language of Wyo. Stat. Ann. §39-14-203(b), the Board concluded that paragraph (v) and paragraph (vi) were mutually exclusive statutory directions for determining value, and that the valuations directions of paragraph (v) were an exception to the valuation directions of paragraph (vi). Kennedy Oil, ¶ 113; Williams II, ¶ 171. Paragraph (iv) was not in any manner a direction for determining value. Kennedy Oil, ¶ 98, Williams II, ¶ 156. Paragraph (iv) must be applied no matter which method for determining value is used.

92. It is not clear whether Petro-Canada understood the Board’s ruling. [Petitioner’s Brief, pp. 9-11]. Petro-Canada focused instead on its objections to the Department’s power – under paragraph (v) but not under paragraph (vi) – to refer to more than one transaction to establish an appropriate value at the point of valuation. [Petitioner’s Brief, pp. 9-11]. Petro-Canada mistakenly suggests this issue was a central concern for the Board in Kennedy Oil [Petitioner’s Brief, pp. 10-11], while ignoring the Board’s greater concern for the issues directly addressed in the Board’s opinion, which include the proper reading of Wyo. Stat. Ann. §39-14-203(b) as a whole.

93. We conclude the plain language of Wyo. Stat. Ann. §39-14-203(b)(iv) established the point of valuation for Petro-Canada’s production, as it does for the production of all natural gas producers. Paragraph (iv) can and must be read in pari materia with paragraph (v). We have no reason to revisit or modify the extensive discussion of how paragraphs (v) and (vi) must be read in conjunction with one another and paragraph (iv), matters discussed at length in Kennedy Oil, ¶¶ 87-140 and Williams II, ¶¶ 148-192. However, two aspects of Petro-Canada’s statement of the Board’s Kennedy Oil decision warrant specific comment.

94. First, Petro-Canada mischaracterizes the issue in Department of Revenue v. Michael T. Guthrie d/b/a MTG Operating Company, 2005 WY 79, 115 P.3d 1086 (Wyo. 2005). Petro-Canada views the case as one which “addressed the meaning of the valuation direction in (b)(v).” [Petitioner’s Brief, p. 8]. This Board instead views MTG Operating Company as resolving the taxpayer’s failure to substantiate a fuel use adjustment. Williams II, Conclusions of Law, ¶¶ 165-169. Petro-Canada made no effort to address the Board’s discussion of MTG Operating Company in Kennedy Oil and Williams II. [See Petitioner’s Brief, pp. 25, 32].

95. Second, Petro-Canada incorrectly suggests that this Board’s rulings have been unexpected, apparently in the sense of being surprising departures from settled practice and principle. [E.g., Petitioner’s Brief, p. 9]. For Petro-Canada’s reporting during the audit period, 2000 through 2003, this is not and could not be an assertion grounded in fact. Petro-Canada presented no evidence about the thought processes and/or expectations of the individual who prepared the audited returns for Petro-Canada’s predecessor, Prima Oil & Gas. Findings, ¶¶ 12-15. Nor can the Board’s rulings have been unexpected based upon the two Wyoming Supreme Court opinions which reference Wyo. Stat. Ann. § 39-14-203(b) in the context of coal bed methane, Williams I and MTG Operating Company. Neither opinion was issued until 2005 – well after the tax reporting was completed.

96. Petro-Canada’s appeal is generally organized around a claim that legislative history supports Petro-Canada’s interpretation of the statute. This raises the threshold question of whether it is at all appropriate to consider legislative history.

97. “We resort to extrinsic aids of statutory interpretation, such as legislative history or intent, only when statutes are ambiguous.” Dike v. State, 990 P.2d 1012, 1018 (Wyo. 1999). Neither Petro-Canada nor the Department claims that the statute is ambiguous. [Petitioner’s Brief, p. 6, fn 6; Brief of the Department, p. 13]. Nor did the Board’s decisions in Kennedy Oil and Williams II conclude that the statute was ambiguous.

98. Petro-Canada offers a variety of justifications for ignoring the established statutory interpretation principle, including factual characterizations (e.g., coal bed methane production as an “unforeseen situation”) unsupported by the record. [Petitioner’s Brief, pp. 11-14; see infra, ¶ 56]. The Board concludes that none of these arguments are persuasive.

99. The Board will consider the legislative history in this case for reasons different than those offered by Petro-Canada:

We read the text of the statute and pay attention to its internal structure and the functional relation between the parts and the whole. We make the determination as to meaning, that is, whether the statute’s meaning is subject to varying interpretations. If we determine that the meaning is not subject to varying interpretations, that may end the exercise, although we may resort to extrinsic aids of interpretation, such as legislative history if available and rules of construction, to confirm the determination...

In re Worker’s Compensation Claim of Johnson, 2001 WY 48, ¶ 8, 23 P.3d 32, 35 (Wyo. 2001), (quoting Hernandez v. Laramie County School District No. 1, 8 P.3d 318, 321 (Wyo. 2000)(quoting Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1045 (Wyo. 1993)))(emphasis supplied). Although the Board has determined the meaning of Wyo. Stat. Ann. § 39-14-203(b) is not subject to varying interpretations, it will resort to the available legislative history to confirm its determination.

100. As the Board makes its inquiry, it will be mindful of certain principles not mentioned by Petro-Canada. “Reports of legislative committees may not be considered for the purposes of creating an ambiguity, for the purpose of construing a statute contrary to its plain terms, or for the purpose of making identical that which is radically different.” 73 Am Jur 2d Statutes § 91; see also §§ 85, 86. Similarly, “…extrinsic evidence such as committee reports may be used only where the meaning of the statute is obscure, and not for the purpose of construing a statute contrary to its plain terms.” 82 C. J. S. Statutes § 341. “…[L]egislative history may only be resorted to for the purpose of solving doubt, not for the purpose of creating it.” 73 Am Jur 2d Statutes § 85. We also note that “legislative history and legislative intent do not mean the same thing.” Norman J. Singer, Sutherland Statutory Construction, § 48.1, p. 542 (7th Ed. 2007).

101. At the same time, the thoughtful analysis of the Wyoming Supreme Court persuades us that we should proceed. Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1050-1051 (Wyo. 1993). By way of pertinent excerpt, the Board agrees that, “[C]ommon sense suggests that inquiry benefits from reviewing additional information rather than ignoring it. [citation omitted].” Id., p. 1050. However, “[i]n our search for meaning, we do not forget that, although we are no longer confined to the text, we are still confined by it. [citation omitted]. ‘In the end, language and external aids, each accorded the authority deserved in the circumstances, must be weighed in the balance of judicial judgment.’[citation omitted].” Id., p. 1051.

102. Petro-Canada directs our attention to statutory changes enacted in 1990, in contrast to the somewhat lengthier, and perhaps superior, perspective offered by the Department. [Brief of the Department, pp. 13-19]. We will focus on the period on which Petro-Canada relies. However, we place no reliance on the testimony of Dan Sullivan, other than as a foundation witness for Exhibits 130 and 131. Exhibit 130 is a report dated February 1, 1990, on the letterhead of the Legislative Service Office of the Wyoming Legislature. We otherwise decline to consider Sullivan’s testimony about the intent of the Legislature. Independent Producers Marketing Corp. v. Cobb, 721 P.2d 1106, 1108 (Wyo. 1986).

103. Our refusal to consider Sullivan’s testimony extends to his testimony concerning certain diagrams, Exhibit 129, which do not speak for themselves. [Compare Exhibit 129 and Petitioner’s Brief, pp. 38-40]. We refuse to credit Petro-Canada’s inferences based on these sources, which are nothing more than speculation of counsel. [See generally Petitioner’s Brief, pp. 37-44].

104. In 1989, the Legislature provided for an interim study concerning minerals valuation:

The purpose of this act [1989 Session Laws, Chapter 204] is to obtain information relative to deductions taken and valuation methodologies in use prior to this act and revenues which may be affected by legislative action on allowable deductions and valuation methodologies for all minerals. For this purpose the attorney general opinion of January 6, 1989, 89AG001, is suspended until April 1, 1991, however, if the joint revenue interim committee fails to offer legislation for introduction in the 1990 budget session to establish the point of valuation for minerals under W.S. 39-2-202, the suspension is effective only until April 1, 1990. The joint revenue interim committee shall submit a report to the Wyoming legislature and the governor on or before February 1, 1990, on this act.

1989 Session Laws, Chapter 204, Section 2 (emphasis supplied). Sullivan identified Exhibit 130 as the report prepared in response to this legislative mandate. Findings, ¶ 50. We note that the ostensible focus of the work of the joint interim revenue committee was to develop legislation “to establish the point of valuation for minerals.”

105. The question presented by Attorney General Opinion No. 89-001, i.e., the opinion referenced in 1989 Session Laws, Chapter 204, Section 2, was, “At what point is the mining or production of a mineral completed under W.S. 39-2-202 for purposes of valuation for ad valorem and severance tax purposes?” Wyoming Attorney General Opinion No. 89-001, p. 1. In his discussion of the issue, the Attorney General noted “that prior versions of the same statute have been considered ambiguous by the Wyoming Supreme Court when applied to specific factual circumstances,” citing the specific instance of a case in which the taxpayer mined limestone, shale, and gypsum from open-pit quarries. Id., p. 3. The Attorney General applied various rules of construction to conclude, inter alia, that “In the case of natural gas, the production process is deemed complete when the natural gas is removed from the well and is placed in the pipeline for transportation to market,” in the absence of legislative direction to the contrary. Id., pp. 6-7. The Attorney General pronounced other guidelines for all other minerals based on whether or not the mineral was “placed in bins, tanks, tipples, silos, stockpiles or other storage after removal from the pit, shaft, mine or well, but prior to beneficiation or further processing.” Id., p. 6.

106. The Attorney General reached additional conclusions regarding natural gas based on a distinction between dry gas which “is principally composed of methane and may not require processing prior to transportation to market,” and raw gas or casinghead gas which may consist “of several different chemical components” and generally “must be processed prior to sale.” Id., p. 7. The Attorney General rejected the idea that once the gas is removed from the well and placed into any pipeline the production process is complete. Id., pp. 7-8. Indeed, the Attorney General noted that “the Department and the [State] Board [of Equalization] have never allowed deductions for the costs of gathering, separating, dehydrating, or compressing natural gas at the lease or unit when valuing the production for tax purposes.” Id., p. 8. After further analysis, the Attorney General concluded “that the production process is deemed complete when the natural gas is placed in the pipeline for transportation to market. The gathering, separation, dehydration and compression of natural gas at the lease or unit is a part of the production process.” Id., p. 10.

107. The Attorney General’s statement of state policy would provide little comfort to Petro-Canada if it were in effect today. This policy would have the taxpayer bear all expense through dehydration and compression prior to entry into a high pressure pipeline, which is typically associated with “transportation to market.” The result is essentially the same as required by Wyo. Stat. Ann. § 39-14-203(b)(iv), i.e., a point of valuation at the outlet of the initial dehydrator. This would leave the taxpayer with an argument based on the boundaries of “the lease or unit,” but neither restriction is mentioned in paragraphs (iv), (v) or (vi) of subsection 203(b).

108. We consider the omission of the words “lease or unit” from paragraphs (iv), (v) and (vi) significant. Conclusions, ¶ 64. The oil and gas taxation statutes specifically define “lease,” “unit,” and the related term “property.” Wyo. Stat. Ann. § 39-14-201(a)(xi), (xxvii), (xix). The words “lease or unit” are specifically referenced elsewhere in the same statutes: “…[n]atural gas which is …consumed prior to sale for the purpose of maintaining, stimulating, treating, transporting, or producing …natural gas on the same lease or unit from which it was produced has no value and is exempt from taxation.” Wyo. Stat. Ann. § 39-14-205(j).

109. On its face, Exhibit 130 is a Mineral Taxation Report to the Members of the Fiftieth Wyoming Legislature and Governor Mike Sullivan, from Senator Dan Sullivan as Chairman of the Joint Interim Revenue Committee. [Exhibit 130]. The first paragraph of the report states that, “[t]he specific charge give [sic] to the Committee was to recommend statutory definition as to the point of taxation of minerals,” that charge being found in 1989 Session Laws, Chapter 204, Section 2. [Exhibit 130, p. 1 (Bates p. 456)]. The Report goes on to explain:

Although the directive of the Legislature only required the Committee to deal with the question of the Point of Taxation, it become [sic] evident that to accomplish what we felt was intended by the Legislature, the Committee needed to expand its discussion to the methods of valuing minerals as well. Given the continuing legal controversy created by the Board of Equalization decision to retroactively change valuation methods for all 1988 sold [sic] mineral production, it is now imperative that we adopt valuation legislation to prevent a worsening of the controversy.

[Id., p. 2 (Bates p. 457); see generally pp. 2-3]. The Committee was optimistic that it had “successfully developed solutions to the Point of Valuation controversy and [had] developed solutions which will resolve the method of valuation controversy for about 96% of the mineral production in the state.” [Id., p. 3 (Bates p. 458)].

110. The Report was clear in its general statement of the Point of Valuation problem, and its broad approach to a solution:

The Committee determined early on that the current statutes did not provide either the mineral industry or the State with a clear definition of where the point of valuation (point of taxation) lies. It was brought up in testimony by both the industry and the state that different producers interpret the statutes differently, as does the state. To resolve this problem, the Committee has adopted two bills – one bill sets the Point of valuation for coal, trona, uranium, bentonite and all other solid minerals at the “mouth of the mine”. The point of valuation for oil and gas is somewhat more complex, as there are several production functions which can and do occur away from the wellhead....

[Id., p. 3 (Bates p. 458)]. Consistency with past Department practices and major court decisions was part of the rationale for the solid mineral Point of Valuation. The rationale for the Point of Valuation for oil likewise was to follow “current practice by both the state and the industry.” [Id., p. 4 (Bates p. 459)].

111. The entire discussion of the Point of Valuation for natural gas was as follows:

For natural gas the production functions that can take place after extraction from the well are gathering, separating, injecting, field dehydration and any other activity that takes place before the outlet of the initial dehydrator. When there is no dehydration in other than the processing plant, the production process is completed at the inlet to the initial transportation related compressor, a custody transfer meter or the processing facility, whichever occurs first. Under the Committee’s proposal, all activities which take place prior to the initial transportation related compressor etc. are part of the production process and are taxable as such. Why was this point established? First of all, it appeared to be fairly consistent with the point of valuation already generally used by the Department of Revenue and Taxation, as well as used by a sizable portion of the oil and gas industry. The point is also analogous to the point of valuation established for oil and for coal and other solid minerals.

[Id., p. 4 (Bates p. 459) (emphasis in original)]. The first two sentences of this explanation have been incorporated verbatim into Wyo. Stat. Ann. § 39-14-203(b)(iv). The explanation also seems to clarify the relationship between compression and dehydration as being associated with transportation by high pressure pipeline. See Findings, ¶ 28.

112. This explanation of committee purpose provides no comfort to Petro-Canada. The taxpayer must bear all expense through dehydration and compression prior to entry into a high pressure pipeline, which is exactly the result of the Board’s decisions in Kennedy Oil and Williams II. We also note there is no reference to the boundaries of a lease or unit. See Conclusions, ¶¶ 107-108.

113. As important, the Committee explanation is entirely consistent with the Department’s view that the legislature intended to identify the point of valuation by reference to a physical activity to determine where the production process is complete. Findings, ¶ 29. The Committee plainly intended to establish a point of valuation “analogous to the point of valuation established for oil and for coal and other solid minerals” [Exhibit 130, p. 4 (Bates p. 459)], which supports Grenvik’s emphasis on the mouth of the mine as a physical analogue to the outlet of the initial dehydrator. Findings, ¶ 30.

114. Nothing in the Report’s Point of Valuation discussion on pages 3 and 4 (Bates pp. 458-459) indicates that the Committee intended any exceptions to the point of valuation.

115. The Report was more abbreviated in its discussion of valuation methods. “The Committee felt that the ‘proportionate profits’ method was best suited to the valuation of coal, while the valuation of oil and natural gas could be developed using any one of four valuation methods. It is the feeling of the Committee that the methods approved for coal, uranium and oil and gas meet the uniform and equal requirements of the Constitution and also meet professional valuation standards.” [Id., p. 5 (Bates p. 460)].

116. The Report’s specific discussion of the method of valuation for oil and gas is as follows:

...However, determining the proper valuation method for natural gas was more involved, as natural gas is sold at different points, under different circumstances. To allow for these different circumstances, the proposed legislation contains four statutory methods to value oil and gas (in addition to the bona fide arms-length transaction):

2. Comparable value - based on comparable quality minerals less processing and transportation fees;

3. Netback - based on sales price less expenses incurred by the producer for transporting produced minerals to the point of sale and third party processing fees. (Note: this method cannot be used by producers who also process their natural gas.)

4. Proportionate profits - basically the same method as used by coal producers (see the explanation for coal).

It should be noted that when any of the above four options are used, the Department must notify the producer of the method that is going to be utilized no later than September 1 of the year preceding the year in which the oil or gas will be produced.

[Exhibit 130, p. 6 (Bates p. 461)]. Unlike the discussion of the Point of Valuation, this portion of the Report offers no rationale to support the statutory language. Instead, it is an abbreviated synopsis of the valuation statutes. This is not surprising, in view of the fact that the principal responsibility of the Joint Interim Revenue Committee was “to offer legislation for introduction in the 1990 budget session to establish the point of valuation for minerals under W.S. 39-2-202.” 1989 Session Laws, Chapter 204, Section 2.

117. The Committee Report, by its reference to “four statutory methods to value oil and gas (in addition to the bona fide arms-length transaction),” supports the Board’s view that paragraphs (v) and (vi) of Wyo. Stat. Ann. § 39-14-203(b) were the exclusive directions for how to value natural gas production. Conclusions, ¶ 91.

118. Nothing in the Report’s Method of Valuation discussion indicates that the method of valuation was intended to modify the Point of Valuation. If anything, the main body of the Report suggests the contrary inference – that the statutory requirements for the Point of Valuation were intended to apply independent of requirements related to the method of valuation.

119. The close of the Mineral Tax Report referred to four appendices, each associated with a separate bill. They were:

[Exhibit 130, p. 7 (Bates p. 462)]. Petro-Canada included only Appendix C in the Exhibit introduced in this case. [Exhibit 130, Bates pp. 463-469].

120. Appendix C to the Committee Report goes into greater detail about the proposed bill, HB 149. Subsection (b) of HB 149 defined where “the mining or production process is completed,” and subsection (b)(ii) included language, beginning with the words “after extracting from the well,” which was otherwise nearly identical to Wyo. Stat. Ann. § 39-14-203(b)(iv), a minor exception being the reference to “fair cash market value” rather than “fair market value”. [Exhibit 131].

121. Appendix C explained that “Paragraph (b) is the heart of the bill. It defines and specifies the point at which the production process for oil, condensate and gas ends. This is the point at which taxable value will be determined.” [Exhibit 130, Bates p. 463 (emphasis in original)]. Despite its length, we again refer to the complete discussion regarding natural gas:

Subsection (ii) covers natural gas only. Because of the diversity in methods of producing gas and the different types of gas produced (dry, wet, sweet, sour, casing head, etc.), the bill establishes four (4) possible points of taxation:

Only one (1) point will apply to each gas stream - the point that occurs first. Like oil, any and all expenses incurred by the producer to get the gas to the point of taxation will not be deductible when determining taxable value. If expenses are incurred by the producer between the point of taxation and the place of sale or processing those expenses will be deductible.

Examples: If a producer sells gas at one of the defined points, such as a custody transfer meter, for $2/Mcf, the taxable value is the value received or $2/Mcf.

If a producer incurs a .05/Mcf expense to move gas from the defined taxation point, such as the dehydrator outlet or compressor outlet, to sale or a processing plant and receives $2.05/Mcf for the gas, the taxable value will be $2.00/Mcf. ($2.05 - .05 transportation cost = $2.00).

In the case of gas which is processed before sale, the costs of processing will be deducted from the amount received to determine taxable value. ($2.20 - .20 processing cost = $2.00 taxable value)

The provisions of both (i) and (ii) represent various compromises and incorporate existing practices wherever possible. Industry wanted the taxable value to be determined at the actual wellhead. The department wanted it at the point of sale or processing plant inlet. Depending on the specific circumstances, the point of taxation could be either place.

The interim committee attempted to define a point where the mineral is considered produced. Once set, the producer has the responsibility for all expenses to get the mineral to that point. Functions such as extracting, gathering, separating, non-transportation compressing, injecting, etc. will be included in the taxable value. Post-production functions such as transportation, refining and processing will not be included in the taxable value.

122. Reading the first, second, and last paragraphs of this excerpt, it seems clear that the Committee considered this section of the bill to be of paramount importance; that the principles enunciated in statute were to apply to all gas, no matter how produced; and that the point of valuation established in any specific circumstances would also establish the producer’s responsibility for expenses to get the mineral to that point. The Department’s position is entirely consistent with these principles, as are the Board’s rulings in Kennedy Oil and Williams II.

123. We note that the first and third examples cited by the Committee do not apply to Petro-Canada’s case. Petro-Canada did not sell its gas at the defined point of valuation. Petro-Canada did not process the gas before sale.

124. The second example describes what the Department has done. The Department views Petro-Canada as having incurred a cost to move gas from the defined point of valuation, the dehydrator outlet, to a downstream point of sale. The Department allowed a deduction for costs incurred after the point of valuation, but denied a deduction for costs incurred before the point of valuation.

125. At the same time, the last two quoted paragraphs suggest two points which might contradict the Department’s and Board’s reading of the statute. The penultimate paragraph suggests the Department anticipated a point of valuation either at the point of sale or at the processing plant inlet. The last sentence of the last paragraph suggests that transportation and processing will always be treated as post-production functions. The report appears to assume these results would always follow from the general principle that, “Once [the point of valuation is] set the producer has the responsibility for all expenses to get the mineral to that point.” We now know this was an incorrect assumption.

126. This takes us to a final discussion. Appendix C to the Report addressed subsection (c), the valuation method which is now Wyo. Stat. Ann. § 39-14-203(b)(v), again with the minor exception of the phrase “fair cash market value” rather than the present “fair market value.” The following passage is central to Petro-Canada’s argument:

Paragraph (c) contains language similar to existing statutes. In short, it maintains the integrity of arms-length transactions for sales at the wellhead or other places prior to new points of taxation in this bill. If a producer contracts for sale, transportation or processing with a third party before the legislated point of taxation, the value received or the costs incurred as a result of the transaction determines the taxable value. With this paragraph, the producer is protected from the possibility of paying taxes on the subsequent value added to the mineral. Another way to say it is that, the producer will pay taxes on value actually received as opposed to a higher value resulting from the post sale functions performed by someone else downstream of the point of sale.

The provisions of paragraph (c) are especially important for independents and small companies which do not have the resources to build elaborate processing or transportation systems. The majority of their production is sold at or near the wellhead, with the purchaser or transporter performing other functions beyond the place of custody exchange. In order to qualify under this section, the sale or transaction must be at arms-length (between parties with opposing economic interests).

127. The Board cannot square this excerpt of Appendix C to the Report with what has been considered thus far. The stated legislative objective was to establish a point of valuation for minerals, presumably in response to concerns about the Wyoming Attorney General’s opinion on the same subject. Conclusions, ¶¶ 104-106. That purpose was reiterated in the opening paragraph of the Mineral Taxation Report. Conclusions, ¶ 109. The Report then clearly stated its broad approach to the Point of Valuation issue, Conclusions, ¶ 110, followed by a specific discussion of natural gas. Conclusions, ¶ 111. The authors of Exhibit C reiterated that subsection of the proposed legislation was its “heart,” and the bright line principle that “Once [the point where the mineral is considered produced is] set the producer has the responsibility for all expenses to get the mineral to that point.” Conclusions, ¶ 121. Until the quoted excerpt of Appendix C, nothing in the Mineral Taxation Report indicates there would be exceptions to the points of valuation established for all minerals in the proposed legislation.

128. In contrast to the main body of the committee Report, the excerpt of Appendix C suggests that the statute should be read to dispense with the point of valuation entirely, for a limited universe of transactions: “If a producer contracts for sale, transportation or processing with a third party before the legislated point of taxation, the value received or the costs incurred as a result of the transaction determines the taxable value.” Conclusions, ¶ 126. In doing so, the excerpt differs from, and goes beyond, any characterization of paragraph (v) as moving the point of valuation, or changing the location at which the State may tax natural gas production. E.g., Brief of the Department, p. 2. The result is self-contradictory: the Mineral Taxation Report is premised on a broad intention to establish points of valuation for all minerals, then purports to deny that same broad intention.

129. The difficulty we face with reconciling the conflicting expressions of the Committee report brings to mind the observation that “Committee reports are not always reliable interpretive tools…” United States v. Adwallah, 349 F.2d 42, 54 (2d Cir. 2003). Further, as the Supreme Court has said, “We are not aware of any case …in which we have given authoritative weight to a single passage of legislative history that is in no way anchored in the text of the statute.” Shannon v. United States, 512 U.S. 573, 583, 114 S. Ct. 2419, 129 L.Ed. 2d 459 (1994).

130. The Board chooses to rely on those aspects of the legislative history – the great majority of material – which establish a point of valuation. The Board declines to take guidance from the anomalous excerpts of Appendix C which eliminate the point of valuation for some natural gas production. In addition to the beginning phrase of paragraph (v), which explicitly refers to paragraph (iv), several considerations reinforce our reliance on the material which establishes a point of valuation for all minerals.

131. As the Board has already noted, extrinsic evidence such as committee reports may not be used for the purpose of construing a statute contrary to its plain terms, or for the purpose of creating doubt. Conclusions, ¶ 99. The Board stands by its interpretation, which is “anchored in the text of the statute.” Conclusions, ¶ 129.

132. Under the Wyoming Constitution, “All taxation shall be equal and uniform within each class of property.” Wyo. Const., art. 15, § 11(d). The gross production of minerals and mine products is one such class. Id., § 11(a). One way in which the legislature provided for uniformity was with a point of valuation for oil and gas roughly corresponding to the mouth of the mine for solid minerals, with costs of production to be borne by the producer up to that point. Conclusions, ¶¶ 110-111. An interpretation of Wyo. Stat. Ann. § 39-14-205(b)(v) which varies from that general approach – as the elimination of a point of valuation would – raises constitutional concerns. The Department correctly frames this in terms of an example of different producers, with the same expenses and downstream point of sale, who could have markedly variant tax liabilities depending on the point of custody transfer. [Department’s Brief, pp. 28-29]; Findings, ¶ 42.

133. This Board is mindful that “an administrative agency has no authority to determine the constitutionality of a statute.” Belco Petroleum Corp. v. State Board of Equalization, 587 P.2d 204, 214 (Wyo. 1978). The Board merely notes that its decisions in Kennedy Oil and Williams II raised no constitutional concerns because they treat all natural gas taxpayers as subject to the point of valuation established by Wyo. Stat. Ann. § 39-14-205(b)(iv).

134. Further, Petro-Canada’s reading of paragraph (v) is unrelated to the policy concern expressed in Appendix C of the Committee report: to protect a producer “from the possibility of paying taxes on the subsequent value added to the mineral,” i.e., value added after receiving compensation at the point of sale. Conclusions, ¶ 126. Plainly, Petro-Canada’s own circumstances do not expose it to any such risk. Petro-Canada, like Kennedy Oil, has contractually protected itself from taxation related only to post-sale functions performed by a third party. Petro-Canada and Kennedy Oil (for the part of its production sold at the pod) both bargained for a price based on market transactions downstream of the point of valuation, with an offset for services provided back to the point of sale. They both sought and received a value associated with a more desirable marketplace downstream from the point of valuation – not a value associated with an active marketplace at the pod. See Kennedy Oil, Findings of Fact, ¶¶ 22-23. Their contracts protected them from the avowed concern of the Committee.

135. In its Appendix C discussion, the Committee implied that a producer who contracted before the point of valuation was suffering some sort of economic disadvantage, being one of a class of “independents and small companies which do not have the resources to build elaborate processing or transportation systems.” Conclusions, ¶ 126. There is no evidence that Petro-Canada suffered from a lack of economic leverage or resources – in fact, the pricing terms of its contract lead to the opposite conclusion. Petro-Canada’s choices about the mode of transportation appear to have been more likely influenced by the emergence of entities concerned primarily with providing post-production services in a deregulated environment. See Williams II, Findings of Fact, ¶ 47 et seq.

136. Petro-Canada would have us ignore the pricing structure of its sale transaction, but we see no reason to do so. As we learned in Kennedy Oil, the practice of prudent coal bed methane producers will be to structure sales to obtain the benefit of downstream market prices. Kennedy Oil, Findings of Fact, ¶¶ 22-23. There is every reason to believe that index pricing is, or has become, the norm for substantial coal bed methane producers like Petro-Canada.

137. Further, the statute addresses the stated concerns of Appendix C where any producer sells gas for local consumption. When the producer sells its gas to a local consumer so that no dehydration is required for transport on a high pressure pipeline, the value of the gas would be determined under the second sentence of paragraph (iv). With no dehydration, the point of valuation may be at the custody transfer meter: “Where no dehydration is performed...the production process is completed at the inlet to the initial transportation related compressor, custody transfer meter or processing facility, whichever occurs first.”

138. Finally, to the extent the internal conflict of the Mineral Taxation Report counsels that we should ignore the legislative history in its entirety, the Board’s decisions in Kennedy Oil, Williams II, and this case would be supported by the extrinsic aid of the Department’s interpretation. Findings, ¶¶ 22-24, 26, 29-33, 35-37,42-46. “An agency’s interpretation of statutory language which the agency normally implements is entitled to deference, unless clearly erroneous.” Buehner Block Company, Inc., v. Wyoming Department of Revenue, 2006 WY 90, ¶ 11, 139 P.3d 1150, 1153 (Wyo. 2006); also, Qwest Corp. v. State ex rel. Dept. of Rev., 2006 WY 35, ¶ 8, 130 P.3d 507, 511 (Wyo. 2006).

139. Petro-Canada’s legislative history argument does not rest entirely on the Mineral Taxation Report. It also draws inferences based on a side-by-side comparison of the language of paragraph (v), originally adopted in 1990 with minor variations, and 1977 Wyo. Stat. § 39-2-202(c). Petro-Canada’s comparison was:

1977 Wyoming Statutes § 39-2-202	Wyo. Stat. § 39-2-208(c) (1990) n/k/a Wyo. Stat. § 39-2-203
(c)	(b)(v)
If the product as defined in subsection (b) of this section	If the crude oil, lease condensate or natural gas production as provided by paragraphs (iii) and (iv)
is sold	are sold to a third party,
at the mine or mining claim,	or processed or transported by a third party at or prior to the point of valuation provided in paragraphs (iii) and (iv) of this subsection,
the fair cash market value shall be deemed to be the price established by bona fide arms-length sale.	the fair market value shall be the value established by bona fide arms-length transaction;

[Petitioner’s Brief, p. 21]. Petro-Canada’s argument in this regard includes a reference to a 1990 Board decision under the prior statute which has no bearing on this case. [Id., p. 22].

140. Having considered Petro-Canada’s various arguments based on comparison with the prior statute, we found no arguments which were not already addressed in Kennedy Oil or Williams II. Among other specific points, we previously discussed the need for applying the paragraph (iv) point of valuation to sales to third parties under paragraph (v), i.e., to avoid a conflict with paragraph (vi). Kennedy Oil, ¶ 106, quoted in Conclusions, ¶ 76. We also note a significant syntax change in the first phrase of the subsection, from “product as defined in subsection (b)” to “production as provided by paragraphs (iii) and (iv).” In paragraph (v), natural gas production is specifically associated with the paragraph (iv) definition of the point at which the production process for natural gas is complete. In its Brief, Petro-Canada glosses over this specific statutory association by characterizing, rather than quoting, subparagraphs (iv), (v), and (vi). [Petitioners’ Brief, pp. 7-8].

141. Petro-Canada sees “predictability” in a specific light: “The only way producers who sell their production to third parties at or prior to the point of valuation can have certainty that they are correctly paying their taxes is if the fair market value is the amount they received from their third party purchaser.” [Petitioner’s Updated Summary of Contentions, p. 6]. In Petro-Canada’s view, the legislature passed paragraph (v) to facilitate tax reporting by allowing a natural gas taxpayer falling under paragraph (v) to report its proceeds as taxable value, thereby having no fear of errors in reporting. [Petitioner’s Brief, p. 30]. This misreads the statute.

142. If the legislative history cited by the taxpayer is any guide, concerns about predictability were the result of disagreement and confusion about the point of valuation. In the words of the Mineral Taxation Report, “The Committee determined early on that the current statutes did not provide either the mineral industry or the State with a clear definition of where the point of valuation (point of taxation) lies.” Conclusions, ¶ 110. There was no consensus on the correct approach, even within the industry. “It was brought up in testimony by both the industry and the state that different producers interpret the statute differently, as does the state.” Conclusions, ¶ 110.

143. The Board concludes, from the plain language of the statute, that the legislature established a predictable point of valuation to facilitate the predictable and uniform determination of value for the industry and the Department. We disagree that Wyo. Stat. Ann. § 39-14-203(b)(v) was enacted to assuage general taxpayer fears of errors in reporting. To the extent such fears were an object of legislative concern, they were specifically addressed by a taxpayer’s right to request interpretations and even value determinations under Wyo. Stat. Ann. § 39-14-209(a). The argument also proves too much: the reporting for all mineral taxpayers would be simplified by tying fair market value to amounts received from their third party purchasers, but that would not result in uniform or equitable valuation.

144. Petro-Canada suggests there is a factual basis to its argument. It expresses concern for the plight of unspecified producers who might be unable to value production due to ignorance about the location or existence of a downstream dehydrator. [Petitioner’s Brief, pp. 28-29]. Petro-Canada produced no such evidence to show that it suffered from this problem itself, Findings, ¶ 15, nor did it produce evidence that any specific producer suffered from this problem. Petro-Canada essentially advances a policy argument not grounded in fact. [See generally, Petitioner’s Brief, pp. 30-32].

145. What facts there are argue against Petro-Canada’s position. Petro-Canada itself had direct access to one type of contractual information – fuel consumption – which the Department identified as providing a reasonable basis for tax reporting based on cost allocations. Findings, ¶¶ 5-7, 38, 40.

146. Petro-Canada next turns from its circumstances to those of the Department of Audit. Petro-Canada complains the Department of Audit did not have information readily available to it for the purpose of performing an allocation. [Petitioner’s Brief, p. 29]. The Board sees no reason for the Department of Audit to have such information before the audit process begins. Wyoming is a self-reporting state. Wyo. Stat. Ann. § 39-14-207(a); MTG Operating Company, ¶ 14, quoted in Conclusions, ¶ 74:

Wyoming Statute § 39-14-208(b)(vii) (LexisNexis 2003)(amended 2005) mandates that taxpayers retain ‘accurate books and records of all production subject to severance taxes imposed by this article and determinations of taxable value as prescribed by [Wyo. Stat. Ann. §] 39-14-203(b) for a period of seven (7) years and make them available to department examiners for audit purposes.’ Thus the taxpayer is required to maintain accurate records supporting its reported taxable value to produce to the Department, through the Department of Audit, upon audit.

Id.; Wyo. Stat. Ann. § 39-14-208(b)(vii) quoted in Conclusions, ¶ 58. In short, the taxpayer must produce pertinent records to the Department of Audit at the time the audit begins.

147. Petro-Canada complains the Department has failed to promulgate rules providing greater “guidance” to producers. [Petitioner’s Brief, p. 28]. Rulemaking is not required “so long as statutory and constitutional rights to protest and contest are afforded the taxpayer.” Pathfinder Mines v. State Board of Equalization, 766 P.2d 531, 535 (Wyo. 1988); Amoco Production Company v. Wyoming State Board of Equalization, 899 P.2d 855, 860 (Wyo. 1995). Petro-Canada plainly has availed itself of such rights to protest and contest.

148. Moreover, there is nothing in this case to indicate that Petro-Canada sought any guidance whatsoever in reporting its taxable value, or even gave any forethought to the proper method for reporting its taxable value. Findings, ¶¶ 12-15. Such guidance was available by law from the Department, had Petro-Canada requested it. Findings, ¶ 41; Wyo. Stat. Ann. § 39-14-209(a). Petro-Canada was also free to petition for rulemaking under Wyo. Stat. Ann. § 16-3-106.

149. Petro-Canada claims the Department’s authority to determine value under paragraph (v) by reference to bona fide arms-length transactions is unconstitutionally vague. [Petitioner’s Brief, pp. 30-31]. We disagree. Once the point of valuation is determined, the object and process of determining value become concrete. Petro-Canada was able to determine a value once it applied itself to the task, and the Department accepted Petro-Canada’s proposed valuation. Findings, ¶ 40. There was nothing particularly unusual about Petro-Canada’s solution; it was in line with customary approaches for determining the taxable value of coal bed methane in circumstances similar to those presented by this case. Findings, ¶ 38.

150. Finally, problems of allocation are routinely encountered under Wyoming’s mineral taxation statutes. E.g., Powder River Coal Company v. Wyoming Department of Revenue, 2006 WY 137, 145 P.3d 442 (Wyo. 2006). The Board finds nothing persuasive in Petro-Canada’s implicit suggestion that Wyoming’s mineral taxation statutes should be interpreted to avoid allocations.

151. As we have already noted, coal bed methane production began in Wyoming in the late 1990's. Findings, ¶ 25. The commencement of audits naturally followed after production and reporting were completed. With the audits, issues arose regarding the proper valuation of coal bed methane production under Wyoming’s mineral tax statutes. The result was Williams I, Kennedy Oil, Williams II, and these proceedings. Conclusions, ¶ 82. Petro-Canada counts MTG Operating Company as one of these cases, arguing that the Wyoming Supreme Court has already ruled that, in Wyo. Stat. Ann. § 39-14-203(b)(v), the phrase “bona fide arms length transaction” means the value established by a taxpayer’s gas purchase contracts. [Petitioner’s Brief, p. 25]. The Board has already explained that it disagrees with Petro-Canada regarding this characterization of MTG Operating Company. Conclusions, ¶ 94.

152. Based on its view of MTG Operating Company, Petro-Canada complains the Department has changed its policies, and now wants to “ignore the producer’s gas purchase contracts.” [Petitioner’s Brief, p. 25]. This is literally untrue; the Department takes the producer’s gas purchase contracts into account, but also takes the point of valuation into account. Similarly, the Board disagrees with Petro-Canada’s characterization of the Department’s position in MTG Operating Company. The Board does not view the Department as having made an issue of the correct point of valuation in that case; the Department was instead responding to issues identified by the Department of Audit. It follows that Petro-Canada’s invocation of principles pertaining to an agency’s powers to modify an established tax policy [Petitioner’s Brief, pp. 25-26] have no application in fact, and hence none in law.

153. Petro-Canada takes a similar approach to the Department’s development of a position during the audits of Kennedy Oil. [Petitioner’s Brief, p. 26]. The Board’s Kennedy Oil decision explained at length the rationale for taking a different approach to reading paragraphs (v) and (vi) than originally offered by the Department. The Board nonetheless upheld the application of a point of valuation determined by paragraph (iv). The Board accordingly rejects Petro-Canada’s argument that the Board’s Kennedy Oil decision was “a departure from a long-standing interpretation.” [Petitioner’s Brief, p. 26]. There was no such long standing interpretation. Kennedy Oil merely resolved issues of statutory interpretation in the context of the record made before the Board – nothing more, nothing less. Specifically, this was not an instance of an agency changing “its administrative interpretation without any known or readily discernable reasons for doing so.” [Petitioner’s Brief, p. 26].

154. In Kennedy Oil and Williams II, the Board found the petitioners’ background evidence on the rise of Wyoming’s coal bed methane industry to be helpful in providing a context for its decisions. However, the Board has not gone so far as to characterize the application of Wyo. Stat. Ann. § 39-14-203(b)(v) as a “situation unforeseen at the time when the act was passed,” as Petro-Canada suggests. [Petitioner’s Brief, p. 14]. Instead, the definition of “dry gas” which appears in Wyoming Attorney General Opinion No. 89-001 describes coal bed methane reasonably well: gas which “is principally composed of methane and may not require processing prior to transportation to market.” Wyoming Attorney General Opinion No. 89-001, p. 7. This statement also fits well with the core of Williams I, which distinguished between a dehydrator and a processing facility. Since Attorney General Opinion 89-001 antedates and in some ways precipitated the 1990 statutory changes, we accordingly reject any inference that the oil and gas taxation statutes were not intended to include natural gas in all its forms, including coal bed methane. See also definition of “natural gas,” Wyo. Stat. Ann. § 39-14-201(a)(xv).

155. Petro-Canada failed to carry its burdens and proof and persuasion with regard to its tax liability.

IT IS THEREFORE HEREBY ORDERED that the determination of the Department is affirmed.

Pursuant to Wyo. Stat. Ann. § 16-3-114 and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in the appropriate district court by filing a petition for review within 30 days of the date of this decision.