and )












FOR PRODUCTION YEARS 1991, 1992, 1993, )

1994 AND 1995. )






THIS MATTER having come before the State Board of Equalization (SBOE) pursuant to a request by the Sublette County Board of County Commissioners for the SBOE to examine in accordance with Wyo. Stat. 39-1-304 (a)(xiv) and Chapter 4, SBOE Rules and Regulations, an agreement between Exxon Company U.S.A., Sublette County, the SBOE, Sublette County Board of County Commissioners, the Sublette County Assessor, the Sublette County Treasurer and the Department of Revenue (DOR) setting forth the valuation methodology for the gas produced in the LaBarge Wellfield. This matter was considered by Roberta Coates and Ron Arnold, Chairman Ed Schmidt having recused himself on his own motion from participating in these proceedings. The SBOE having reviewed the entire file including all briefs, exhibits and confidential information states the following:


1. The SBOE is mandated to:


(xiv) "Carefully examine into all cases wherein it is alleged property subject to taxation...has been...improperly, or unequally assessed,... and cause to be instituted proceedings which will remedy improper or negligent administration of the tax laws of the State;" WYO. STAT. 39-1-304(a).


2. This matter arose out of a request by the Sublette County Commissioners that the SBOE examine the agreement entered into between Exxon, Sublette County, Sublette County Board of County Commissioners, the Sublette County Assessor, the Sublette County Treasurer, the SBOE and the DOR in 1989 wherein Exxon agreed to pay a certain dollar amount for its tax obligation for tax years 1986, 1987 and 1988 and all parties agreed to use as a comparable value until August 31, 1991, the so-called Howell and Yates agreements. Consequently, the SBOE commenced an examination. The SBOE does find it has jurisdiction to conduct such an examination both statutorily and pursuant to the Wyoming Supreme Court's decision in Exxon Corporation v. Board of County Commissioners, Sublette County, 987 P.2d 158 (Wyo. 1999).


3. In 1988, as a result of the passage of Chapter 93 of the 1988 Wyoming Session Laws which enacted Wyo. Stat. 39-1-401 and 402, Exxon filed a civil action in the First Judicial District Court in Laramie County challenging the constitutionality of these newly enacted laws. These laws purported to limit the deductions that Exxon could take in calculating the value of natural gas and associated minerals for ad valorem and severance tax purposes. Exxon paid its taxes under protest until the civil action was concluded. In order to avoid further costs of litigation and the uncertainties that litigation brings, the parties entered into a settlement agreement which resolved all issues including the valuation methodology which would be binding on all parties, including every Sublette County governmental unit. This valuation methodology had to be used through August 31, 1991. After that date, the decision as to what valuation methodology would be used was negotiable, with DOR ultimately having the final say. The DOR exercised its discretion to continue with the agreed upon valuation methodology for production years 1991, 1992, 1993, 1994 and 1995. Neither Exxon nor Sublette County raised any objection to its use during the years in question.


4. The Sublette County Commissioners believed that the Howell and Yates agreements were no longer producing a fair cash market value and requested that the SBOE examine these agreements and the DOR's use of these agreements in valuing the gas produced from the LaBarge Wellfield for production years 1991 through 1995. Consequently, on January 23, 1997, the Sublette County Commissioners filed a Petition For Board Examination with the SBOE. This petition was challenged by both Exxon and the DOR by filing a declaratory judgment action in the First Judicial District Court in Laramie County. Many issues were raised by the parties including timeliness on the part of Sublette County. Ultimately, the issues were resolved in favor of Sublette County by the foregoing decision rendered by the Wyoming Supreme Court. In essence, the Supreme Court held that there were no time limits per se which precluded the SBOE from conducting an examination into the allegations made by Sublette County. Exxon Corporation v. Board of County Commissioners, Sublette County, 987 P.2d 158 (Wyo. 1999).


5. Thus, the SBOE has proceeded to examine the allegations of Sublette County. However, the parties have disagreed on the proper proceedings to be used in this examination. The Sublette County Commissioners argue that the proceeding must be a contested case proceeding while both Exxon and the DOR argue that the SBOE should hold a regulatory type proceeding when conducting an examination and therefore, a contested case proceeding is neither proper nor mandated.


6. The SBOE was more persuaded by the arguments presented by the DOR and Exxon and conducted a regulatory proceeding. The Wyoming Supreme Court has given some guidance to the SBOE in the decision rendered in Antelope Valley Improvement and Service District of Gillette v. State Board of Equalization et al., Slip Opinion, April Term No. 98-352 where the Court was clear in restating its earlier position in Exxon, 987 P.2d at 163 when it once again held that "subsection (a) to be a part of the Board's adjudicatory function, i.e., that subsection gives the Board the power to hear appeals. Subsection (a)(xiv) (Section 14), on the other hand, is more closely aligned with the Board's regulatory function." The SBOE believes that the Wyoming Supreme Court in two cases differentiated between a contested case proceeding and a regulatory proceeding, such as a Section 14 examination. Clearly, there is a great difference between these two types of proceedings. In the contested case proceeding the SBOE is the adjudicator and cannot participate as a party on appeal. That is not the case when the SBOE performs its regulatory function.


7. In order to conduct a thorough examination, the SBOE requested assistance from both the Departments of Revenue and Audit. These Departments were requested to gather additional information from Exxon in order to calculate valuations using different methodologies. The SBOE requested that the Departments value the gas produced for the production years in question using both the netback and the proportionate profits methods, two of the four methodologies that are provided for in Wyo. Stat. 39-2-208 and methods that have been historically recognized by the Wyoming Supreme Court in numerous decisions.


8. The SBOE understood that the netback method was not statutorily allowed because Wyo. Stat. 39-2-208 (d)(iii) does not allow its use when the gas to be valued is also processed by the producer of the natural gas, as is the case here, but wanted a baseline comparison. The Departments not only complied with the SBOE's request but they expanded the request by calculating additional values by assuming different factual scenarios. These calculations were presented to the SBOE and to all parties in a simplistic, understandable format.


9. It should be mentioned that the work performed by the Departments was a monumental undertaking because neither Department had the necessary information the SBOE requested. Because the information necessary to use the Comparable Value Methodology is different from the information necessary to use either the netback or the proportionate profits methods, additional information had to be obtained from Exxon. This exercise did require a lot of man hours and traveling out of state to obtain the necessary information. Exxon was also cooperative in this endeavor which cooperation aided in the expedited work product of the Departments.


10. The Departments presented to the SBOE four different valuation options for the years in question using the proportionate profits valuation method and four valuation options using the netback valuation method. The SBOE was also given the valuations derived from the use of the Howell and Yates agreements. Except for one of the scenarios presented, all other valuation methodology options produced lower values than those issued by the DOR using the methodology set forth by the 1989 settlement agreement.


11. The one scenario which purportedly reflected a higher value sets forth factual situations which are hypothetical and may be highly contested by the taxpayer. In other words this scenario is speculative and has not been tested in law or factually so as to be reliable at this time. Nevertheless, the higher value scenario calculated by the DOR is not materially higher than that amount obtained from the methodology currently being used by DOR and Exxon and agreed to by all parties.


12. The SBOE has thoroughly reviewed the 1989 settlement agreement and finds that all parties, including Sublette County and its elected officials, agreed that the method of calculation would be made by first determining the total gross revenue of CH4, CO2, S, N2, state helium sales and federal helium sales and then determining the post-production cost deduction (.65 x [a +(0.9167 x [b + c] ) ]. Once the total revenues are determined and the post-production cost deduction is calculated, the gross value is found by subtracting the post-production cost deduction from the total gross revenue. The taxable value is then calculated by subtracting from the gross value the exempt royalty paid, the federal helium paid, the overriding royalty paid and the payments to working interest owners. It should be noted that the 65 percent multiplier in the post-production cost deduction formula did increase to seventy-five percent after 1991. This method is referred to as the settlement methodology.


13. In its January 23, 1997, Petition For Examination, the Sublette County Board of Commissioners allege that the use of this formula and the settlement agreement results in illegal, improper and unequal assessment of LaBarge production. The SBOE has carefully looked into each one of these alleged problems with the settlement agreement and concludes that the settlement agreement was validly entered into by the State of Wyoming which had the authority to settle the civil action filed by Exxon. The method agreed upon, and approved by the First Judicial District Court, is not illegal but is the comparable value methodology which is authorized by Wyo. Stat. 39-2-208 (d)(ii). We cannot find that the settlement agreement in any way is improper in arriving at a fair cash market value nor can we find that use of the agreement results in unequal assessment.


14. The settlement agreement was fair to all parties, including all Sublette County governmental units, and produced a value which exceeded values generated by most other recognized valuation methodologies. Sublette County alleges that the settlement methodology should not be used because it potentially allows deductions which are not authorized by Wyo. Stat. 39-2-208 (d)(iv), proportionate profits methodology. We have considered this argument and do not find that this settlement, which was sanctioned by court order and which is a valuation methodology authorized by the Wyoming legislature in Wyo. Stat. 39-2-208 (d)(ii), is contrary to case law or statutory authority. By their very nature, valuation methodologies should differ in the way fair market value is determined. Many methodologies necessarily include different deductions. The bottom line is that the settlement agreement did produce a fair cash market value, even if the deductions are different from those allowed in the proportionate profit method.


15. Sublette County alleges the sale prices, amount of deductions and volumes reported to DOR for taxation were incorrect. We believe a more appropriate procedure to challenge those reports are through an appeal of the assessments. As acknowledged by the DOR during these proceedings, the properties and years in question are currently under audit by the DOA. We recognize that Sublette County has contested most of the production years that we examined and believe the sale prices, amount of deductions and volumes will be fully litigated in those proceedings. Therefore we decline to examine the reported numbers in this examination and expect parties to fully litigate that issue in the contested case proceedings.


16. Finally, we conclude that the DOR correctly interpreted the settlement agreement and properly administered it for all production years in question. It is not the SBOE's right nor statutory mission to second guess the DOR's valuation methodologies. Presumably, anyone could conjure up a methodology which would always produce the highest value. However, we do not believe that the highest value is what is statutorily mandated. We believe that the DOR only has to find a fair cash market value. Amoco Production Company v. Wyo. State Bd. of Equalization, 2000 WL 359196(Wyo.).






A. The valuation methodology used by the DOR did not result in improper, illegal or unequal assessments for production years 1991 through 1995.


B. The methodology used reflects fair market value of Exxon's production of gas and associated minerals at the LaBarge Wellfield.


C. The Howell and Yates agreements were entered into by Exxon and Howell and Yates after extensive litigation which convinces the SBOE of the arms length nature of these agreements and the nonexistence of collusion.


D, We find no need to continue with this regulatory examination and recognize that the parties may litigate Exxon's reported numbers in other contested cases.


E. The settlement agreement and resulting valuation methodology is binding on all parties for 1991 through 1995. However, the assigned valuation is subject to review both from audit and from Sublette County's appeals of the notices of valuation changes issued by the DOR but only as to the correctness of the reported values, volumes and amount of deductions, and the proper application of the valuation method outlined in the settlement agreement.


Pursuant to Wyo. Stat. 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.


Dated this 28th day of June, 2000.




Roberta A. Coates, Vice-Chairman


Ron Arnold, Member



Kathleen A. Lewis, Executive Secretary