Exxon wins in high court

by Cat Urbigkit

It’s unknown at this time, but it appears that Sublette County may lose out on about $5 million of the $10 million that ExxonMobil recently refused to pay in taxes.

The loss is the effect of two Wyoming Supreme Court decisions issued last week, in cases involving mineral companies and the Wyoming Department of Revenue and certain other counties, but not directly involving Sublette County.

In one of the two decisions issued last week, ExxonMobil won its legal challenge to the Wyoming Department of Revenue’s valuation of gas produced at the company’s Shute Creek plant.

The court provided background on the case: “ExxonMobil owns and operates deep natural gas wells in Sublette County, as part of its LaBarge project. LaBarge gas has a unique and complex composition. The gas is largely carbon dioxide but also contains helium and methane. It is called a ‘sour gas’because it contains hydrogen sulfide. In its untreated state, the gas is not flammable and the gas stream is lethal. Consequently, the costs of processing the gas are high.”

The court continued: “In the mid-1980s, ExxonMobil invested more than a billion dollars in transportation and processing facilities for the LaBarge project in Sublette and Lincoln Counties. When production began in 1986, natural gas prices were low. Under the netback method of valuing production for taxation purposes in use at the time, ExxonMobil’s massive capital investments failed to yield a return on investment and resulted in a zero taxable value. In response to this situation, legislation was passed in 1988 to cap the deductions that could be claimed for processing.”

What followed was a few years of litigation, a settlement agreement in which the county was paid $12 million, then many more years of litigation and legal proceedings regarding the proper valuation of production from Shute Creek.

Last month, Sublette County received a check in the amount of $3.4 million from ExxonMobil for its 2006 ad valorem taxes. But state officials had certified that the valuation for ExxonMobil’s production that year was $13.8 million, meaning that the company had shorted the county over $10 million in what the tax bill said versus the amount issued on the check.

The check was accompanied by a letter from C. Terry Olson, assistant manager in ExxonMobil’s Tax Reporting and Analysis Center, noting the company disagreed with the valuation because of the method used by DOR. Olson argued that the valuation was void because it included assessments on federal helium purchased by ExxonMobil from the federal government and in the direct cost ratio of the proportionate profits formula. Although the helium issue will be heard by the high court at a later date, last week the state’s high court sided with ExxonMobil in its challenge to the DOR’s directive to include production taxes and royalties as direct costs of production in calculating proportionate profits.

John McKinley of the Davis and Cannon law firm spoke with Sublette County Commissioners via telephone conference call on Tuesday, explaining the decisions by the high court and notifying them that the actual financial impact of the decision isn’t yet know. The state will have to recalculate the taxes owed and issue a notice of valuation change that reflects the court’s decisions, but with the helium case still pending, and with other issues pending before the Wyoming Board of Equalization, it’s doubtful such an action will be taken in the near future.