Subcommittee Meeting Information

May 15, 2007

State Capitol Room 302

Cheyenne, Wyoming

 

Committee Members Present

Senator Jim Anderson, Co-Chairman

Representative Rodney "Pete" Anderson, Co-Chairman

Senator Jayne Mockler

Senator Tony Ross

Representative Steve Harshman

Representative Mark Semlek

 

Legislative Service Office Staff

Mark Quiner, Assistant Director

Josh Anderson, Staff Attorney

Dean Temte, Legislative Analyst

 

Others Present at Meeting

Please refer to Appendix 1 to review the Committee Sign-in Sheet
for a list of other individuals who attended the meeting.

Call To Order

Co-Chairman Representative Anderson called the meeting to order at 9:00 am.  The following sections summarize the Committee proceedings by topic.  Please refer to Appendix 2 to review the Committee Meeting Agenda.

 

Adoption of Minutes

Senator Mockler moved for the adoption of the minutes from the meeting on April 16, 2007, the motion passed unanimously.

 

Presentation by Petroleum Association of Wyoming

Mr. Bruce Hinchey, President of the Petroleum Association of Wyoming, made a presentation concerning the issue of valuation of producer-processed natural gas.  The presentation emphasized that natural gas represents only seven percent of the taxable value of the total minerals in the state.  The presentation explained that there are five different methodologies to determine the fair market value of natural gas.  Mr. Hinchey stated that the Department of Revenue has questioned the result of some of the methods and that the application of the methods by the Department has resulted in extensive litigation.  The first method is comparable value.  Mr. Hinchey stated that there are issues with the method in that the Department uses non-arms length contracts, does not allow adjustments for quantity, quality or terms and conditions and that they do not include all aspects of a contract and that it results in the taxation of processing and transportation.  The second methodology discussed was proportionate profits, which benefits the state in low price environments.  He emphasized that the method is not designed to calculate the actual cost of processing gas.  The third methodology discussed was the netback method, which is currently prohibited by statute.

 

Senator Mockler asked why the netback method was not allowed.  Mr. Hinchey responded that under that method it is possible to reach a value of zero in certain situations.  He continued his presentation by stating that netback is widely used in mineral appraisal practiced throughout the US.  The next method was the mutually agreed upon method.  It requires the department and the taxpayer to negotiate in good faith.  When in place such agreements provide predictability, are audit friendly and reduce litigation.  Current law prohibits the use of the netback method for producer-processed gas.

 

Cochairman Representative Anderson asked whether the Department and the taxpayer could agree to use a netback method, which is otherwise prohibited by statute.  Mr. Craig Grenvik, Department of Revenue Mineral Tax Administrator, answered that it was an open question and the Department was avoiding getting into that issue.

 

Mr. Hinchey then discussed a proposed addition to statute which he referred to as a modified netback method.  The proposal would allow those taxpayers who are currently using comparable value to continue using it.  The slides from Mr. Hinchey's presentation and the proposed language submitted by Mr. Hinchey are set out in Appendix 2.

 

Senator Ross asked whether the new method would apply to coal bed methane.  Mr. Hinchey responded that it would not apply to coal bed methane.

 

Senator Anderson asked about the possibility of the construction of similar gas plants in the future.  Mr. Hinchey responded that it was hard to tell because you cannot tell where they will find this "nasty" gas and cannot forecast the life of the existing plants.

 

Mr. Craig Grenvik of the Department of Revenue stated that he believed that the language proposed by the Petroleum of Association of Wyoming regarding comparable value was an effort to move some taxpayers from comparable value to another method.

 

Mr. John McKinley of Sublette County emphasized that the goal of the committee should be to determine an accurate value and that modified netback may not result in an accurate value.  He also suggested that any solution should not allow a deduction on gross investment as well as allow deduction for property taxes and questioned why the state should allow a deduction for return on investment independent of value of the mineral.

 

Mr. Joe Evans of the Wyoming County Commissioners Association questioned who would get to choose which method was selected and suggested that the Department of Revenue should be the ones who choose which method is used for a particular taxpayer.

 

Executive Session

The Subcommittee resolved into executive session to discuss confidential taxpayer information at 11:50 am.

 

The Subcommittee reconvened in general session at 12:10 pm.

 

Meeting Recess

The Subcommittee recessed at 12:10 pm for lunch.

 

Presentation by Exxon Mobil

The Subcommittee reconvened in general session at 1:30 pm.

 

Mr. Patrick Day, representing Exxon Mobil made a presentation concerning their natural gas processing facilities.  He stated that their primary concern is that there be a fair valuation of the value added by the processing and transportation of the gas.  They believe that for taxation purposes production ends at the ground or well head and not at the outlet of the Black Canyon facility where the Department of Revenue proposed the point of valuation.  The non-confidential slides of the presentation by Exxon Mobil are set out in Appendix 3.

 

Public Comment

Mr. Chuck Greenhawt from Questar stated his company was interested in the possibility of constructing a gas processing facility similar to Exxon-Mobil's in the future and that to the extent the Subcommittee and the Legislature could provide stability in the taxation area and allow for a return on the investment, this would allow more companies to consider making the investment in such a facility.

 

Ms. Sarah Goren of the Equality State Policy Center stated that the goal of the Subcommittee should be to find a method that is efficient, stable, enforceable and fair.  Ms. Goren stated that while the investment in natural gas processing facilities is huge, these are not mom and pop operations, they have been profitable and they are still running and being upgraded.  She also urged not to change the wording of the comparable value method as it has already been litigated and any changes would invite additional litigation.

 

Mr. Martin Hardsocg, Senior Assistant Attorney General suggested that a problem with the current scheme is that gas from the same field is being valued differently for taxation purposes.  He also stated that proportionate profits may not always provide for a higher rate in low value periods and that the numbers used in the confidential portion of Exxon Mobil's presentation were speculative.

 

Mr. Craig Grenvik, Department of Revenue Mineral Tax Administrator stated that there is no one way to do proportionate profits valuation, it is used in many different types of mineral valuations and in every one it is different.

 

Subcommittee Action

The Subcommittee discussed what action it would take prior to the Joint Revenue Committee in June, 2007.

 

Cochairman Representative Anderson moved that LSO draft a bill to include the modified netback provision as suggested by the Petroleum Association of Wyoming, but not include the changes to comparable value and with no changes to proportionate profits.  Also LSO would prepare an amendment that would make the changes to comparable value as suggested by the Petroleum Association of Wyoming and an amendment that would explicitly include taxes and royalties in the ratio for discussion.  The motion failed.

 

Representative Harshman moved that LSO prepare a matrix comparing the draft legislation prepared by the Petroleum Association of Wyoming, 2006 House Bill 43, and include any drafted suggestion from the Department of Revenue and the current statutes.  The motion failed.

 

Senator Ross suggested that LSO prepare a draft for recommendation that would include a modified netback as suggested by the Petroleum Association of Wyoming, that it not change comparable value, that it ensure that the Department of Revenue could select the method of valuation for a three year period and that it retain the proportionate profits method.  The motion passed.

 

Meeting Adjournment

There being no further business, Co-Chairman Representative Anderson adjourned the meeting at 3:10 pm.

 

Respectfully submitted,

 

 

 

Representative Rodney "Pete" Anderson, Co-Chairman

 

 

 

 

 

 

 

Appendix		Appendix Topic		Appendix Description		Appendix Provider
1		Committee Sign-In Sheet		Lists meeting attendees		Legislative Service Office
2		Slides and draft legislation from Petroleum Association of Wyoming		Power point slides and the draft legislation from presentation by Bruce Hinchey, President of the Petroleum Association of Wyoming		Petroleum Association of Wyoming
3		Slides from presentation		Power point slides from the presentation by Exxon Mobil		Exxon Mobil