Case Title: EXXON MOBIL CORPORATION V. THE STATE OF WYOMING, DEPARTMENT OF REVENUE

Citation: 

Docket Number: S-08-0098

State: wyoming

Court: Wyoming Supreme Court

Date: 2009-11-12T00:00:00Z

Document:
EXXON MOBIL CORPORATION V. THE STATE OF WYOMING, DEPARTMENT OF REVENUE2009 WY 139219 P.3d 128Case Number: S-08-0098Decided: 11/12/2009
OCTOBER 
TERM, A.D. 2009

 
 
EXXON 
MOBIL CORPORATION,

 
 
Appellant

(Petitioner),

 
 
v.

 
 
THE 
STATE OF WYOMING, DEPARTMENT OF REVENUE,

 
 
Appellee

(Respondent).

 
 
W.R.A.P. 
12.09(b) Certification from the District Court of Sublette 
County

The 
Honorable Norman E. Young, Judge

 
 
Representing 
Appellant:

Patrick 
R. Day and Walter F. Eggers, III, Holland & Hart, LLP, Cheyenne, Wyoming; 
Brent R. Kunz, Hathaway & Kunz, PC, Cheyenne, Wyoming.  Argument by Mr. Day.  

 
 
Representing 
Appellee:

Bruce 
A. Salzburg, Attorney General; Michael L. Hubbard, Deputy Attorney General; 
Martin L. Hardsocg, Senior Assistant Attorney General.  Argument by Mr. 
Hardsocg.

 
 
Before 
VOIGT, C.J., and GOLDEN, HILL, and BURKE, JJ., and KAUTZ, 
D.J.

 
 
BURKE, 
J., delivers the opinion of the Court; HILL, J., files a dissenting 
opinion.

 
 
BURKE, 
Justice.

[¶1]        
ExxonMobil 
Corporation's LaBarge Project in southwestern Wyoming has been "a prolific 
source of various valuable gasses," as well as "a prolific source of tax 
litigation."  Wyoming Dep't of Revenue v. Exxon Mobil 
Corp., 2007 WY 112, ¶ 6, 162 P.3d 515, 519 (Wyo. 2007).  The current litigation brings before us 
ExxonMobil's dispute with the Wyoming Department of Revenue over the taxation of 
natural gas for production year 2005.  
The Board of Equalization first heard and decided the dispute.  ExxonMobil appealed two key aspects of 
the Board's decision to the district court.  Pursuant to W.R.A.P. 12.09(b), the 
district court certified the case directly to us for review.  For the reasons set forth in this 
opinion, we 
will reverse the decision of the Board, and remand the case for further 
proceedings.

 
 
ISSUES

 
 

[¶2]        
ExxonMobil 
states these issues for our consideration:

 
 
1.         
The State Board of Equalization determined that ExxonMobil's Black Canyon 
facility is an "initial dehydrator" for point of valuation purposes under Wyo. 
Stat. Ann. § 39-14-203(b)(iv).  
Did the Board err in that conclusion?

 
 
2.         
In applying the proportionate profits statute, the Department of Revenue 
deducted ExxonMobil's post-processing transportation expenses from gross 
revenues rather than including those expenses in the denominator of the direct 
cost ratio as required by statute.  
Did the Board err when it affirmed the Department's creation of a direct 
cost ratio that is contrary to the one set forth in the proportionate profits 
statute?

 
 
The 
Department raises essentially the same issues in different 
words:

 
 
1.         
Did the State Board of Equalization correctly determine that ExxonMobil's 
Black Canyon dehydration facility is the initial dehydrator and not a 
"processing facility" pursuant to Wyo. Stat. Ann. 
§ 39-14-203(b)(iv)?

 
 
2.         
Did the State Board of Equalization correctly affirm the Department of 
Revenue's method of deducting post-plant transportation costs and determination 
that post-plant transportation costs are not included in the direct cost ratio 
pursuant to Wyo. Stat. Ann. § 39-14-203(b)(vi)(D)?

 
 
FACTS

 
 

[¶3]        
Because 
the facts in this case are essentially undisputed, we will rely largely on 
paraphrases of and quotations from the Board's Findings of Fact.1  The LaBarge Project includes eighteen 
natural gas wells in three federal gas units in the Bridger-Teton National 
Forest in Sublette County, Wyoming.  
The natural gas stream from these wells is composed of approximately 65% 
carbon dioxide, 22% methane, 7% nitrogen, 5% hydrogen sulfide, and 0.6% helium, 
with trace amounts of various other components.  As described by the Board: 

 
 
The 
LaBarge gas, unlike most natural gas in Wyoming, is not flammable before 
processing.  It is a unique gas 
stream, and may in fact be the lowest BTU gas produced in the world.  The gas stream is lethal due to its high 
concentration (50,000 parts per million) of hydrogen sulfide.  A concentration of 700 parts per million 
of H2S in a gas stream can be fatal.  In addition, when in contact with water, 
both H2S and CO2 form corrosive acids which can destroy a 
carbon steel pipeline.  In the view 
of the Department, . . . no other natural gas stream in Wyoming is "remotely 
similar."

 
 

[¶4]        
From 
the well fields, the raw natural gas stream is piped approximately five miles to 
the Black Canyon facility where the gas is dehydrated.  From Black Canyon, it is piped another 
forty miles to the Shute Creek facility where it is processed and separated into 
marketable products.  Ordinarily, 
sour natural gas2 is not dehydrated before it is 
processed.  At the other facilities 
in Wyoming where sour natural gas is processed, the raw gas stream is delivered 
directly from the wells into a processing facility, without any intervening 
dehydration.  The unusual 
configuration of the LaBarge Project was necessary largely because of 
environmental constraints.

 
 

[¶5]        
ExxonMobil 
had initially planned that all of the processing and dehydration would be done 
at Black Canyon, but because of the environmental sensitivity of that site, 
ExxonMobil was required to locate the main processing facilities approximately 
forty miles south at the Shute Creek site.  Because of safety and operational 
constraints, however, the sour natural gas had to be dehydrated before it was 
sent on to Shute Creek.  That is 
because this gas stream contains extremely high concentrations of hydrogen 
sulfide and carbon dioxide along with water vapor.  Such concentrations of hydrogen sulfide 
and carbon dioxide, in contact with water, can form acids corrosive enough to 
destroy a carbon steel pipeline, along with hydrates that could plug the 
pipeline.  To prevent this, 
ExxonMobil dehydrates the sour gas at Black Canyon, then sends the dehydrated 
gas to Shute Creek for further processing.  
Further complicating the arrangement, the Shute Creek processing system 
requires wet gas, so ExxonMobil must inject water back into the gas stream 
before processing it at Shute Creek.  

 
 

[¶6]        
Black 
Canyon is a notably large and complex facility.  It is designed to handle as much as 720 
million cubic feet of raw gas per day.  It is more than 2 million square feet in 
area, with office space for more than thirty full-time employees, a warehouse, a 
maintenance garage, and two separate processing train buildings.  As the Board noted, "dehydration of sour 
gas is inherently challenging and complex."  With its high concentrations of hydrogen 
sulfide, the gas is extremely lethal.  
The water removed from the gas stream is also extremely acidic, and must 
be closely managed for safe disposal.  
Air quality considerations prohibit ExxonMobil from emitting any hydrogen 
sulfide, or from burning it, which would create sulfur dioxide.  ExxonMobil must therefore recover and 
manage all of the contaminants removed from the gas 
stream.

 
 

[¶7]        
It 
is undisputed that the Black Canyon facility dehydrates the LaBarge Project gas 
stream.  To do that, it sends the 
gas, in two separate streams, to dehydration towers.  There, the gas rises while a triethylene 
glycol (TEG) solution "rains down" through the gas and absorbs water vapor.  In addition to removing water vapor, the 
TEG solvent also removes a little of "every single component in a raw gas 
stream."  Accordingly, the Black 
Canyon facility also removes hydrogen sulfide, carbon dioxide, and other 
components of the stream.  In 
addition, after the LaBarge Project began operating, ExxonMobil discovered that 
the gas stream contained several unexpected naturally occurring contaminants, 
including dibenzothiophene and other heavy hydrocarbons.  As will be discussed in more detail 
below, these heavy hydrocarbons began settling out of the gas stream and 
contaminating the equipment at Black Canyon, the pipeline to Shute Creek, and 
the processing equipment at Shute Creek.  
ExxonMobil was forced to develop a system for removing these heavy 
hydrocarbons from the gas stream, "otherwise the entire operation from Black 
Canyon through Shute Creek would eventually fail."

 
 

[¶8]        
At 
the Shute Creek plant, the gas is rehydrated, then stripped of hydrogen 
sulfide.  The hydrogen sulfide is 
taken to sulfur recovery units and is either processed into a marketable sulfur 
product or reinjected back into the earth.  
The Shute Creek plant next removes carbon dioxide from the gas 
stream.  The carbon dioxide that can 
be sold is sent through compressors and pipelines for delivery to petroleum 
recovery operations located a substantial distance away.  Some carbon dioxide that cannot be sold 
is vented to the atmosphere.  
Finally, the remaining gas stream is separated and processed into the 
principal products of the gas stream, which are methane, liquefied natural gas, 
and helium.  For all of the products 
processed and separated at Shute Creek, particularly carbon dioxide, methane, 
and sulfur, ExxonMobil incurs additional costs in transporting the products from 
Shute Creek to their point of sale.

 
 

[¶9]        
 From 1986 through 2004, severance taxes 
for the LaBarge Project were calculated using an accounting methodology agreed 
to by the Department and ExxonMobil as part of a negotiated settlement of 
litigation.  This settlement was 
necessary, at least in part, because of the unique chemical composition of the 
LaBarge gas stream and its attendant safety, transportation, and processing 
challenges.  In May of 2004, the 
Department cancelled the settlement agreement, and directed that the 2005 taxes 
for ExxonMobil's LaBarge Project would be calculated using the proportionate 
profits valuation method set forth in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) 
(LexisNexis 2007).  Disputes over 
the correct application of this valuation method generated this litigation 
between the Department and ExxonMobil.

 
 
STANDARD 
OF REVIEW

 
 

[¶10]     
Our 
review of an administrative agency's decision is governed by the Wyoming 
Administrative Procedure Act, which, in pertinent part, provides that the 
reviewing court shall:

 
 
(ii)        Hold 
unlawful and set aside agency action, findings and conclusions found to 
be:

 
 
(A)    Arbitrary, capricious, an 
abuse of discretion or otherwise not in accordance with 
law;

 
 
(B)    Contrary to constitutional 
right, power, privilege or immunity;

 
 
(C)    In excess of statutory 
jurisdiction, authority or limitations or lacking statutory 
right;

 
 
(D)    Without observance of 
procedure required by law; or

 
 
(E)    Unsupported by substantial 
evidence in a case reviewed on the record of an agency hearing provided by 
statute.

 
 
Wyo. 
Stat. Ann. § 16-3-114(c)(ii).  
We affirm an agency's findings of fact if they are supported by 
substantial evidence.  Dale v. S & S Builders, LLC, 2008 WY 
84, ¶ 22, 188 P.3d 554, 561 (Wyo. 2008).  In this case, however, ExxonMobil does 
not challenge the Board's findings of fact.  Rather, it asserts that the Board 
incorrectly applied the law to those facts, so that the Board's conclusions are 
not in accordance with the law.  "As 
always, we review an agency's conclusions of law de novo."  Id., ¶ 26, 188 P.3d  at 
561.

 
 

[¶11]     
The 
basic task before us is to interpret various provisions of Wyo. 
Stat. Ann. § 39-14-203 
and determine whether the Board correctly applied this severance tax statute to 
the undisputed facts.  Statutory 
interpretation presents a question of law which we review de novo.   Qwest Corp. v. State ex rel. Dept. of 
Rev., 2006 WY 35, ¶ 8, 130 P.3d 507, 511 (Wyo. 2006).  

 
 
When 
interpreting statutes, we follow an established set of guidelines.  First, we determine if the statute is 
ambiguous or unambiguous.  A statute 
is unambiguous if its wording is such that reasonable persons are able to agree 
as to its meaning with consistency and predictability.  Unless another meaning is clearly 
intended, words and phrases shall be taken in their ordinary and usual 
sense.  Conversely, a statute is 
ambiguous only if it is found to be vague or uncertain and subject to varying 
interpretations.

 
 

BP 
America Prod. Co. v. Department of Revenue, 
2006 WY 27, ¶ 20, 130 P.3d 438, 464 (Wyo. 2006), quoting State Dept. of 
Revenue v. Powder River Coal Co., 2004 WY 54, ¶ 5, 90 P.3d 1158, 1160 
(Wyo. 2004).  If a statute is clear and unambiguous, 
we give effect to the plain language of the statute.  State ex rel. Wyo. Dept. of Revenue v. 
Union Pacific R.R. Co., 2003 WY 54, ¶ 12, 67 P.3d 1176, 1182 (Wyo. 
2003).  To determine whether a 
statute is ambiguous, we are not limited to the words found in that single 
statutory provision, but may consider all parts of the statutes on the same 
subject.  Mathewson v. City of Cheyenne, 2003 WY 
10, ¶ 6, 61 P.3d 1229, 1232 (Wyo. 2003).  
If a statute is ambiguous, we may resort to principles of statutory 
construction to determine the intent of the legislature.  Qwest, ¶ 8, 130 P.3d  at 
511.

 
 
DISCUSSION

 
 
Issue 
I.  Point of Valuation

            

A.  Severance 
Tax

 
 
1.  Statutory 
Background

 
 

[¶12]     
Pursuant 
to Wyo. Stat. Ann. § 39-14-203(a)(i), "There is levied a severance tax on 
the value of the gross product extracted for the privilege of severing or 
extracting crude oil, lease condensate or natural gas in the state."  This tax is imposed on the value of the 
natural gas at the time "the production process is completed."  Wyo. Stat. Ann. 
§ 39-14-203(b)(ii).  It is not 
always clear, however, just where the production process is completed and other 
operations, such as transportation, are begun.  See, e.g., Union Pac. Resources Co. v. State, 839 P.2d 356, 361 (Wyo. 1992) (The legislature, oil and gas producers, and agencies 
"have struggled over the years to determine when the mining or production 
process is complete.").        

 
 

[¶13]     
In 
1990, the legislature made an effort to clarify the proper point of 
valuation.  See Kennedy Oil v. Department of Revenue, 
2008 WY 154, ¶ 22 n.3, 205 P.3d 999, 1006 n.3 (Wyo. 2008).  It enacted this statutory 
guidance:

 
 
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).  
Significantly, this statute provides only two alternatives:  Black Canyon is either an "initial 
dehydrator" as set forth in the first sentence, or a "processing facility" as 
set forth in the second sentence.  
There is no third option.  
The Board concluded that Black Canyon is an initial dehydrator.  On appeal, we must determine whether 
that conclusion is based on correct interpretation and application of this 
statute.

 
 
            
            
2.  Application of the 
Statute

 
 

[¶14]     
As 
explained by an expert witness for ExxonMobil during the Board's hearing, 
dehydrators can be divided into three different types.  The statute quoted above is relatively 
simple to apply to "Type 1" and "Type 2" dehydrators.  It is more difficult to apply to "Type 
3."

 
 

[¶15]     
The 
Type 1 dehydrator is a relatively small piece of equipment located at or 
near the well.  It is used to 
dehydrate sweet natural gas, and typically handles the gas stream from a single 
well or a small group of wells.  The 
expert witness estimated that Type 1 dehydrators constitute approximately 97% of 
the dehydrators in use in the United States.  After dehydration, much of Wyoming's 
sweet natural gas already meets commercial quality standards, and can be sent 
directly from the dehydrators to the pipelines without further processing.  A Type 1 dehydrator appears to be 
precisely the sort of "initial dehydrator" referred to in the first sentence of 
Wyo. Stat. Ann. § 39-14-203(b)(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."  Applying this statutory provision, the 
severance tax is imposed at the outlet of the initial dehydrator.  See, e.g., Williams Prod. RMT Co. v. Wyoming Dep't of 
Revenue, 2005 WY 28, ¶ 34, 107 P.3d 179, 189 (Wyo. 2005) (The statute "is 
quite clear in pronouncing that the natural gas production process is completed, 
for severance tax purposes, at the outlet of the initial 
dehydrator.").

 
 

[¶16]     
According 
to the expert witness, nearly all of the other dehydrators in use in the United 
States are Type 2 dehydrators.  They 
are larger in capacity than Type 1 dehydrators, as they typically dehydrate 
gas gathered from a larger number of wells.  Accordingly, they are generally located 
at a greater distance from the wells.  
Type 2 dehydrators are used on sour natural gas, and so are usually 
incorporated within a large and complex gas processing facility.  Type 2 dehydrators fall under the 
second sentence of Wyo. Stat. Ann. § 39-14-203(b)(iv):  "When no dehydration is performed, other 
than within a processing facility, the production process is completed at the 
inlet to the initial transportation related compressor, custody transfer meter 
or processing facility, whichever occurs first."  An example of a Type 2 dehydrator 
in Wyoming is the Whitney Canyon processing plant.  See Amoco Prod. Co. v. Department of 
Revenue, 2004 WY 89, ¶ 29, 94 P.3d 430, 442 (Wyo. 2004) ("The parties 
to this case agree that no dehydration occurs in the field, so the point of 
valuation is either the inlet to the initial transportation related compressor, 
custody transfer meter or processing facility, whichever comes first.").  Other examples include the Lost Cabin 
plant, see RME Petroleum Co. v. Wyoming 
Dept. of Revenue, 2007 WY 16, ¶ 9, 150 P.3d 673, 677 (Wyo. 2007); and 
the Carter Creek plant, see Chevron 
U.S.A., Inc., ¶ 1, 158 P.3d  at 132.

 
 

[¶17]     
There 
are only five Type 3 dehydrators in the world according to the expert witness, 
and the only one in Wyoming is ExxonMobil's Black Canyon facility.  Unlike a typical Type 1 dehydrator, 
Black Canyon is a very large and complex facility, is used to dehydrate the gas 
gathered from several wells, and is located approximately five miles from the 
well fields.  Like a Type 2 
dehydrator, Black Canyon dehydrates sour natural gas, but unlike a typical Type 
2 dehydrator, Black Canyon is a stand-alone unit, not part of the larger 
processing facility located at Shute Creek.  As the Board recited in its findings of 
fact, "In Wyoming, there are no other facilities which dehydrate highly sour raw 
gas.  At the other facilities in 
Wyoming where raw sour natural gas is processed, the raw gas stream is delivered 
directly from the wells into a processing facility, without an intervening . . . 
process."  These unique 
characteristics make it difficult to classify the Black Canyon facility as 
either an initial dehydrator or a processing facility, as those terms are used 
in the statute.  This difficulty is 
at the heart of the dispute between ExxonMobil and the Department over the 
correct point of valuation for severance tax purposes.

 
 
            
B.  Interpretation of the Statutory 
Terms

 
 
            
            
1.  Interpretation in 
Williams

 
 

[¶18]     
The 
terms "initial dehydrator" and "processing facility" are not defined in the 
statutes.  However, we interpreted 
these terms in Williams Prod. RMT Co. v. 
Wyoming Dep't of Revenue, 2005 WY 28, ¶ 34, 107 P.3d 179 (Wyo. 2005).  That opinion provides guidance in our 
current efforts to interpret the statutory terms.  

 
 
                                    
a.  Initial 
dehydrator

 
 

[¶19]     
At 
issue in Williams was the proper 
point of valuation for coal bed methane3 that was gathered from separate 
wellheads and sent through pipelines and compressors to a triethylene glycol 
(TEG) dehydrator, a fairly typical example of the Type 1 dehydrator 
discussed by ExxonMobil's expert witness.  
In Williams, the Department 
considered the TEG dehydrator to be the initial dehydrator and, under the first 
sentence of the statute, set the point of valuation at the dehydrator outlet. 
 Williams disagreed, asserting that 
dehydration also occurred when the gas was gathered and compressed, long before 
the gas got to the TEG dehydrator.  
On that basis, Williams denied that the TEG dehydrator was the initial 
dehydrator, and contended that the correct point of valuation was at the 
gathering or compression stages where the gas was also dehydrated.  Id., ¶ 12, 107 P.3d  at 184.  After a hearing, the Board affirmed the 
Department's position, and Williams appealed to this 
Court.

 
 

[¶20]     
Because 
the statutes did not define the term "initial dehydrator," we turned to the 
statutory definition of "dehydrator," which is "a device which removes water 
vapor that is commonly associated with raw natural gas."  Wyo. Stat. Ann. § 39-14-201(a)(vii) 
(LexisNexis 2003).  Williams 
asserted that its gathering equipment and compressors removed water vapor from 
the raw natural gas, and therefore fell within the definition of a 
dehydrator.  Because the gathering 
equipment and compressors were upstream of the TEG dehydrator, Williams 
contended that they constituted initial dehydrators.  The Court rejected Williams's position 
and affirmed the Board's decision on this basis:

 
 
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, 
¶ 22, 107 P.3d  at 186.  In 
other words, the gathering equipment and compressors caused some separation of 
water from the gas, but that was only incidental to their intended functions of 
gathering and compressing the gas.  
The TEG dehydrator was the "initial dehydrator" specified in the statute, 
because it was the first particular piece of equipment with the specialized and 
intended purpose of dehydrating the raw natural gas.

 
 
                                    
b.  Processing 
facility

 
 

[¶21]     
We 
also rejected Williams's contention that its TEG dehydrator was a "processing 
facility."  The term "processing 
facility" is not defined by statute, but the term "processing" 
is:

 
 
any 
activity occurring beyond the inlet to a natural gas processing facility that 
changes the well stream's physical or chemical characteristics, enhances the 
marketability of the stream, or enhances the value of the separate components of 
the stream.  Processing includes, 
but is not limited to fractionation, absorption, adsorption, flashing, 
refrigeration, cryogenics, sweetening, dehydration within a processing facility, 
beneficiation, stabilizing, compression (other than production compression such 
as reinjection, wellhead pressure regulation or the changing of pressures and 
temperatures in a reservoir) and separation which occurs within a processing 
facility. 

 
 
Wyo. 
Stat. Ann. § 39-14-201(a)(xviii).  

 
 

[¶22]     
Williams 
argued that the TEG dehydrator was a processing facility because it performed at 
least some of the functions (e.g. absorption) listed in this statutory 
definition.  The Board rejected that 
argument:

 
 
The 
Board also relied upon the testimony of witnesses . . . as to characteristics of 
processing facilities and the lack of those characteristics in the [Williams] 
facilities.  The "common 
understanding" of these witnesses was that there was "an identifiable universe 
of processing plants, such as Whitney Canyon, Painter, and Carter Creek."  Clearly, within the industry, the term 
"processing facility" has a specialized meaning beyond a collection of disparate 
pieces of equipment.

 
 

Williams, 
¶ 17 n.2, 107 P.3d  at 185 n.2.  
We affirmed the Board's decision.  
Like an initial dehydrator, a processing facility is a particular 
facility constructed for an intended and specialized purpose.  The purpose of a processing facility, in 
simplified terms, is to remove components such as condensate, natural gas 
liquids, or sulfur from the gas stream, id., ¶ 19, 107 P.3d  at 186, which 
changes the well stream's physical or chemical characteristics and enhances its 
marketability.  Wyo. Stat. Ann. 
§ 39-14-201(a)(xviii).  The TEG 
dehydrator in Williams did separate 
some components from the gas stream, but that separation was only incidental to 
its intended function of dehydration.  
The TEG dehydrator was not a processing facility because it was not a 
particular facility with the intended and specialized purpose of removing these 
components from the gas stream.

 
 
            
                        
c.  Application of the Williams interpretation to Black 
Canyon

 
 
                                                
            
i.  Initial 
dehydrator

 
 

[¶23]     
As 
interpreted in Williams, the 
statutory term "initial dehydrator" is the first device or particular piece of 
equipment with the intended and specialized purpose of dehydrating natural 
gas.  It is undisputed that the 
Black Canyon facility dehydrates natural gas, and is intended to do so.  It is also undisputed that Black Canyon 
is the first such equipment in the LaBarge Project gas stream.  For these reasons, the Department 
contends that Black Canyon is an initial dehydrator, falling within the first 
sentence of the statute.

 
 

[¶24]     
While 
ExxonMobil acknowledges that Black Canyon is a dehydrator, it insists that the 
legislature intended the statutory term "initial dehydrator" to apply to 
facilities very different from Black Canyon.  Because the legislature did not define 
the term, ExxonMobil contends that the legislature must have intended to use it 
in a common and familiar way so it would be readily understood by the petroleum 
companies that are required to calculate, report, and pay the severance taxes 
they owe.  ExxonMobil further 
maintains that Type 1 dehydrators are so common and familiar that the 
legislature must have had Type 1 dehydrators in mind when it used the term 
initial dehydrator without defining it.  
ExxonMobil then compares Type 1 dehydrators to the Black Canyon facility, 
and contends that the contrasts are so significant that the legislature could 
not have intended the term "initial dehydrator" to include both types.  

 
 

[¶25]     
As 
the Board found, Type 1 dehydrators are "not significantly larger than a 
truck."  The Black Canyon facility 
covers more than 2 million square feet, an area described by ExxonMobil's expert 
witness as equivalent to 30 football fields.  Type 1 dehydrators are generally 
unstaffed, but checked periodically by field personnel.  Black Canyon employs 35 full-time 
workers.  Type 1 dehydrators 
are not individually designed, one-of-a-kind units, but can be ordered 
prepackaged and shipped to the site.  
Black Canyon is unique, a facility specifically designed and constructed 
to meet many unusual conditions encountered in the LaBarge Project.  Type 1 dehydrators have 
historically vented their relatively small emissions directly into the 
atmosphere.  At Black Canyon, both 
the air emissions and the water outflow are highly toxic, and must be disposed 
of and managed carefully.  Based on 
these striking differences between Type 1 dehydrators and Black Canyon, 
ExxonMobil asserts that the legislature could not reasonably have intended the 
statutory term "initial dehydrator" to encompass both Type 1 dehydrators and the 
Black Canyon facility.  ExxonMobil 
therefore contends that Black Canyon is not an initial 
dehydrator.

 
 

[¶26]     
We 
acknowledge that the differences are dramatic, but as a legal matter, it is 
difficult to say that these differences disqualify Black Canyon as an "initial 
dehydrator."  Both Type 1 
dehydrators and Black Canyon use a TEG process to remove water vapor from the 
raw gas stream.  Black Canyon is 
much larger in scale and complexity, which led the Department to characterize 
Black Canyon as a "dehydrator on steroids."  In ExxonMobil's favor, we agree that it 
is a stretch to include both Black Canyon and Type 1 dehydrators within the same 
statutory classification.  Still, we 
find no support in the statutes or our case law for the proposition that an 
initial dehydrator becomes something different when it reaches a certain size or 
complexity.  At this point in our 
analysis, based solely on the interpretation from Williams, we would be inclined to agree 
with the Board's conclusion that Black Canyon is an initial dehydrator, though 
we remain troubled by that conclusion because the Black Canyon facility is so 
significantly different from the Type 1 dehydrators commonly used in the 
petroleum industry.

 
 
                        
                        
ii.  Processing 
facility

 
 
                                                            
(A)  Carbon dioxide and 
hydrogen sulfide

 
 

[¶27]     
In 
addition to removing water vapor from the natural gas stream, the Black Canyon 
facility also removes carbon dioxide and hydrogen sulfide.  This changes the gas stream's physical 
or chemical characteristics, satisfying that part of the statutory definition of 
processing.  Wyo. Stat. Ann. 
§ 39-14-201(a)(xviii) (LexisNexis 2007).  On this basis, ExxonMobil contends that 
Black Canyon is a processing facility.  
ExxonMobil further points out that the Black Canyon facility removes 
approximately 5,000 tons of hydrogen sulfide and 17,000 tons of carbon dioxide 
on an annual basis.  These amounts 
are so large that, according to ExxonMobil, their removal cannot be considered 
merely incidental to dehydration.

 
 

[¶28]     
The 
Department counters that the quantities of hydrogen sulfide and carbon dioxide 
may be large, but they constitute only a tiny fraction  roughly 1%  of the 
hydrogen sulfide and carbon dioxide found in the raw gas stream.  The remaining 99% of these components 
remain in the gas stream until they are removed at the Shute Creek 
facility.  Based on these 
proportions, the Department asserts that Black Canyon is a dehydrator that also 
happens to perform some processing functions.

 
 

[¶29]     
Given 
our interpretation of the term processing facility in Williams, however, the significant 
question is not the amount or the proportion of the components removed, but the 
intended and specialized purpose of the facility.  If Black Canyon's removal of carbon 
dioxide and hydrogen sulfide from the gas stream is only incidental to its main 
function of dehydration, then Black Canyon may be an initial dehydrator.  On the other hand, if Black Canyon has 
the intended and specialized function of removing the carbon dioxide and 
hydrogen sulfide, then it may be a processing facility.  

 
 

[¶30]     
At 
Black Canyon, the gas stream is sent to a dehydration absorber tower, where it 
passes through a TEG solution that absorbs water vapor out of the gas 
stream.  The TEG does not absorb 
water vapor alone, however.  It also 
absorbs small amounts of nearly every component in the gas stream.  The TEG solution therefore absorbs 
hydrogen sulfide and carbon dioxide along with the water vapor, removing them 
all from the gas stream.  This 
description of Black Canyon's functions indicates that the removal of hydrogen 
sulfide and carbon dioxide is an unavoidable side-effect of the TEG treatment, 
not an intended and specialized purpose.  
Further, Black Canyon does not permanently remove the hydrogen sulfide 
and carbon dioxide from the gas stream.  
Almost all of those components are reinjected into the gas stream before 
it leaves Black Canyon and is sent to the Shute Creek facility, where these 
components are permanently removed.  
The fact that Black Canyon removes these components only temporarily, 
then puts them back in the gas stream, suggests that their removal is not the 
intended and specialized function of the Black Canyon facility.  Based on Black Canyon's removal of 
hydrogen sulfide and carbon dioxide from the gas stream, Black Canyon does not 
appear to fit the definition of a processing facility as that term is used in 
the statute.

 
 

                                                            
(B)  Heavy hydrocarbons             

 
 

[¶31]     
ExxonMobil 
also points out that the Black Canyon facility removes heavy hydrocarbons from 
the gas stream.  When ExxonMobil 
began operating the Black Canyon facility, it learned that the raw gas contained 
unexpected concentrations of heavy hydrocarbons.  These heavy hydrocarbons exit the 
wellhead in a gaseous phase, but later separate out as solids.4   The solids began to foul and 
contaminate the equipment at Black Canyon, as well as the pipeline to Shute 
Creek and the processing equipment there.  
The accumulating heavy hydrocarbon solids threatened to render the entire 
project inoperable.

 
 

[¶32]     
ExxonMobil 
began cleaning the heavy hydrocarbon deposits from the equipment by hand, but 
found that to be an unsatisfactory long-term solution to the problem.  Later, ExxonMobil developed and 
installed an activated carbon filtration system that adsorbs the heavy 
hydrocarbons and removes them from the gas stream.  In 2003, ExxonMobil designed and 
installed a larger, improved carbon filtration system employing two large tanks, 
each holding 10,000 pounds of activated carbon, to adsorb and capture the heavy 
hydrocarbons.  After the heavy 
hydrocarbons are removed from the gas stream at Black Canyon, they are disposed 
of by burning.  

 
 

[¶33]     
ExxonMobil 
contends that the removal of heavy hydrocarbons at Black Canyon constitutes 
processing of the gas stream.  The 
carbon filtration system performs the processing function of adsorption, and it 
changes the physical and chemical characteristics of the gas stream.  All of these are elements of the 
statutory definition of processing.  
Wyo. Stat. Ann. § 39-14-201(a)(xviii).  The removal of heavy hydrocarbons 
enhances the value and marketability of the gas stream, because failing to 
remove them from the gas stream could cause the entire LaBarge Project to fail 
and render the gas stream worthless.  
Most significantly, it appears that the removal of heavy hydrocarbons is 
an intended and specialized purpose of the facility.  It is done with equipment separate and 
apart from the TEG dehydrator, employing specially designed equipment 
constructed for the very purpose of removing the heavy hydrocarbons permanently 
from the gas stream.  All of these 
factors support ExxonMobil's contention that Black Canyon fits the definition of 
a processing facility as we interpreted that term in Williams.

 
 

[¶34]     
The 
Department contends that the removal of heavy hydrocarbons does not constitute 
processing because the amount of heavy hydrocarbons removed is so small.  But as we previously stated, the amount 
of carbon dioxide and hydrogen sulfide removed by the Black Canyon facility is 
not dispositive in determining whether it is a processing facility.  Similarly, we conclude that the amount 
of heavy hydrocarbons removed at Black Canyon is not the determining 
factor.  We note again that failure 
to remove the heavy hydrocarbons from the gas stream could force the LaBarge 
Project to shut down, which indicates that the removal of heavy hydrocarbons 
cannot be considered trivial or incidental.  In sum, the removal of heavy 
hydrocarbons is a specialized and intended purpose of the Black Canyon facility, 
it changes the physical characteristics, and it enhances the value of the 
natural gas.  Based on the Williams interpretation, Black Canyon 
appears to be a processing facility as that term is used in the second sentence 
of Wyo. Stat. Ann. § 39-14-203(b)(iv).

 
 

[¶35]     
The 
Department also contended, and the Board agreed, that processing occurs only 
when saleable products are removed from the gas stream.  The heavy hydrocarbons removed at the 
Black Canyon facility are not sold as a product, but are disposed of by 
burning.  On this basis, the Board 
found that Black Canyon does not remove any saleable materials from the gas 
stream, and concluded that Black Canyon is not a processing 
facility.

 
 

[¶36]     
The 
Board inferred this "saleable products" test from our decision in Williams.  In that case, as part of our effort to 
interpret the term processing facility, we considered the statutory definition 
of the term "natural gas," which for "the purposes of taxation . . . includes 
products separated for sale or distribution during processing of the natural gas 
stream."  Williams, ¶ 18, 107 P.3d  at 
185.  We took this language to 
suggest "that the legislature understood processing would separate certain 
products from the natural gas stream."  
Id.  The Board read this to mean that 
processing occurs only when a valuable or saleable product is removed from the 
gas stream.  The heavy hydrocarbons 
removed at Black Canyon are not sold or distributed, and so applying the 
saleable products test, the Board determined that Black Canyon is not a 
processing facility.

 
 

[¶37]     
We 
reject this reading of our decision in Williams.  The statutory definition of processing 
refers to "enhanc[ing] the marketability of the stream, or enhanc[ing] the value 
of the separate components of the stream."  
Wyo. Stat. Ann. § 39-14-201(a)(xviii).  Removing the heavy hydrocarbons at Black 
Canyon clearly enhances the marketability and value of the gas stream.  Otherwise, ExxonMobil would have no 
reason to remove the heavy hydrocarbons.  
While the statutory definition of "natural gas" does include "products 
separated for sale or distribution," that could as easily refer to the remaining 
gas stream, which is separated and sold or distributed, as to the heavy 
hydrocarbons.  Neither the statutory 
definition nor our discussion in Williams provides support for the 
saleable products test applied by the Board.

 
 

[¶38]     
Further, 
the Department has not previously applied the saleable products test as it did 
here.  Prior to the hearing, one of 
the Department's witnesses was deposed, and asked to define a processing 
facility.  He stated that there "has 
to be a deliberate attempt to remove components from the gas stream, either 
valuable or 
nonvaluable components, that are items of 
natural gas other than water vapor."  
If the heavy hydrocarbons are considered nonvaluable components of the 
gas stream, Black Canyon's deliberate removal of them would constitute 
processing under this definition.  
At the hearing, however, this same witness testified that at a processing 
facility, there "must be a deliberate attempt to change the physical, chemical 
characteristics to make . . . the natural gas or the product more marketable and 
available for sale and distribution."  
With this change to its definition, the Department asserted that a 
processing facility must remove a saleable product from the gas stream.  While we generally defer to an agency's 
interpretation of the statutes it administers, an agency's statutory 
interpretation is entitled to little deference when it is contrary to prior 
practice and precedent.  RME, ¶ 44, 150 P.3d  at 689.  Moreover, Black Canyon qualifies as a 
processing facility even under the Department's second definition, because its 
removal of heavy hydrocarbons makes either "the natural gas or the product more 
marketable."  Black Canyon is not 
disqualified as a processing facility just because the heavy hydrocarbons it 
removes are not sold.

 
 

[¶39]     
We 
are also persuaded by ExxonMobil's argument that a saleable products test could 
lead to absurd results.  At Shute 
Creek, ExxonMobil removes sulfur and carbon dioxide from the gas stream.  Historically, there have been times when 
sulfur and carbon dioxide have had essentially no commercial value.  During such times, ExxonMobil did not 
sell these components, but reinjected the sulfur back into the ground and vented 
the carbon dioxide to the atmosphere.  
See Amoco Prod. Co. v. State, 
751 P.2d 379, 380 (Wyo. 1988).  
Applying the saleable products test as the Board did here, the Department 
could treat Shute Creek as a processing facility when it is selling sulfur and 
carbon dioxide, but not when it is reinjecting or venting those components.  Shute Creek's classification as a 
processing facility should not fluctuate with the market, and for this 
additional reason, we reject the saleable products test used by the 
Board.

 
 
                                    
d.  Recap of Williams 
interpretations

 
 

[¶40]     
Our 
review of the Board's decision in light of the interpretations discussed in Williams yields mixed results.  It is a close question because of the 
significant differences between the Black Canyon facility and the typical 
Type 1 dehydrator, but we are inclined to agree with the Department that 
Black Canyon fits the definition of an initial dehydrator.  We are not convinced that Black Canyon 
is a processing facility based on its temporary removal of carbon dioxide and 
hydrogen sulfide from the gas stream, and yet we are inclined to agree with 
ExxonMobil that Black Canyon fits the definition of a processing facility 
because of its deliberate removal of heavy hydrocarbons.  These contradictions require us to 
continue with our analysis.

 
 
            
            
2.  Interpretation 
based on industry usage

 
 

[¶41]     
In 
Williams, the Board expressly relied 
on "customary usage in the industry" to help interpret the term processing 
facility, and less explicitly, to help define the term initial dehydrator.  Williams, ¶ 17 n.2, 107 P.3d  at 185 
n.2.  In this case, ExxonMobil 
presented expert witnesses who testified to the Board that, within the petroleum 
industry, Black Canyon would not be considered an initial dehydrator.  They testified that the Black Canyon 
facility has all of the functional attributes of a natural gas processing 
facility "as understood in the industry," and would be considered a processing 
facility under customary usage.  The 
Department presented no industry experts to counter or disagree with this 
testimony.  

 
 

[¶42]     
The 
Department asserted that ExxonMobil's expert testimony was not relevant.  The Board agreed, ruling that "the 
exhibits and testimony presented by Dr. Enick and [Mr.] MacFarland 
might be appropriate if the question was how to characterize Black Canyon in a 
technical and engineering context, [but] such evidence does not shed any 
particular light on, nor significantly assist in the task at hand, which is to 
determine the Wyoming Legislature's intent in adopting . . . the term 
processing facility.'"  This ruling 
by the Board contravenes well-established precedent.  "[W]hen construing technical terms 
contained within statutes, we look to the meaning ascribed to those terms in the 
applicable field."  Williams, ¶ 19, 107 P.3d  at 
185.  Indeed, for technical terms, 
particular weight may be given to industry usage:  

 
 
If 
a word in a statute has a usual meaning and a technical meaning, the technical 
meaning is preferred as stated in § 8-1-103 W.S.1977, Cum.Supp.1987, which 
provides: 

 
 
(a) 
The construction of all statutes of this state shall be by the following rules, 
unless that construction is plainly contrary to the intent of the 
legislature:

 
 
(i) 
Words and phrases shall be taken in their ordinary and usual sense, but technical words and phrases having a 
peculiar and appropriate meaning in law shall be understood according to their 
technical import.

 
 

Amoco 
Prod. Co., 
751 P.2d  at 383 (emphasis supplied in original; some internal punctuation 
omitted).

 
 

[¶43]     
The 
industry's characterization of Black Canyon as a processing facility, even if in 
the technical or engineering context, is highly relevant in determining what the 
legislature intended the terms initial dehydrator and processing facility to 
mean.  The Board erred in refusing 
to consider this evidence.  This 
error is especially troublesome because this evidence was essentially 
undisputed.  The Department 
presented no industry expert to contest ExxonMobil's testimony that within the 
petroleum industry, Black Canyon would be considered a processing facility and 
not an initial dehydrator.  

 
 

[¶44]     
The 
Department did present evidence that ExxonMobil has historically referred to 
Black Canyon as a dehydrator and to Shute Creek as a processing facility.  This has been done in internal planning 
documents, and in documents submitted to regulatory agencies.  We agree with the Department's 
contention that these historical references provide evidence that Black Canyon 
is a dehydrator.  That evidence is 
of little use here, however, because it is undisputed that Black Canyon is a 
dehydrator.  The question before the 
Board, and now before us, is whether Black Canyon is an initial dehydrator or a 
processing facility as those terms are used in Wyo. Stat. Ann. 
§ 39-14-203(b)(iv).

 
 

[¶45]     
Administrative 
agencies have broad discretion in deciding to admit or exclude evidence.  Sinclair Oil Corp. v. Wyoming Public Service 
Comm'n, 2003 WY 22, ¶ 41, 63 P.3d 887, 901 (Wyo. 2003).  In this case, however, the Board 
admitted the expert testimony into evidence, and used it as the basis for 
detailed findings of fact.  It then 
ruled that the evidence was irrelevant and could be ignored.  This was not a discretionary decision to 
admit or exclude evidence, but a legal decision about how the evidence could be 
used.  We review this legal question 
de novo, and have an obligation to 
correct the Board's legal error.  Dale, ¶ 26, 188 P.3d  at 
561.

 
 

[¶46]     
Evidence 
that the industry would consider Black Canyon a processing facility rather than 
an initial dehydrator is a strong factor in ExxonMobil's favor.  Still, we are left with various 
plausible interpretations of the statutory language.  Black Canyon seems to fit the definition 
of an initial dehydrator as interpreted in Williams, but it is not an initial 
dehydrator as that term is understood in the petroleum industry.  Black Canyon may not be a processing 
facility because it removes carbon dioxide and hydrogen sulfide from the gas 
stream, but it may be because it removes heavy hydrocarbons.  A statute is ambiguous if it is vague or 
uncertain and subject to varying interpretations.  Allied-Signal v. Wyoming State Bd. of 
Equalization, 813 P.2d 214, 219-220 (Wyo. 1991).  At this point in our analysis, we must 
conclude that the statutory terms initial dehydrator and processing facility, as 
used in Wyo. Stat. Ann. § 39-14-203(b)(iv), are ambiguous.  This same conclusion has previously been 
suggested by the Board.  Williams, ¶ 34, 107 P.3d  at 
189.

 
 
            
C.        
Construction of the Severance Tax Statutes

 
 

[¶47]     
Because 
the statute is ambiguous, we rely upon principles of statutory construction in 
order to ascertain the legislative intent.  
Qwest, ¶ 8, 130 P.3d  at 
511.  Two principles of statutory 
construction are particularly useful in this case.  First is a principle of construction 
applicable to taxation 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. [v. State], 918 P.2d [980,] 985 [(Wyo. 
1996)].  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[, 94 
P.3d at 438-39].  See also Wyo. Const. art. 15, § 13 
(stating "no tax shall be levied, except in pursuance of law, and every law 
imposing a tax shall state distinctly the object of the same, to which only it 
shall be applied.").  

 
 

Qwest, 
¶ 9, 130 P.3d  at 511-12 (paragraph breaks omitted).  Construing the statute in favor of the 
taxpayer inclines us toward ExxonMobil's position that Black Canyon is not an 
initial dehydrator, but is a processing facility, as those terms are used in 
Wyo. Stat. Ann. § 39-14-203(b)(iv).

 
 

[¶48]     
The 
second useful principle of statutory construction is this:

 
 
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 its enactment, the public policy of the 
state, 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.

 
 

Qwest, 
¶ 8, 130 P.3d  at 511, quoting Petroleum Inc. v. State Bd. of 
Equalization, 983 P.2d 1237, 1240 (Wyo. 1999).  In the case before us now, the statute's 
historical setting and the general public policy regarding severance taxes 
provide helpful insight into what the legislature intended when it enacted the 
statute at issue.

 

[¶49]     
The 
severance tax is imposed at the point where "the production process is 
completed."  Wyo. Stat. Ann. 
§ 39-14-203(b)(ii).  
Historically, the term "production" refers to the severance of minerals 
from the ground.  State v. Pennzoil Co., 752 P.2d 975, 979 
(Wyo. 1998).  Accordingly, the 
severance tax was traditionally imposed on the value of the mineral at the point 
where it is severed from the ground.  
Petra Energy, Inc. v. Department 
of Revenue, 6 P.3d 1267, 1271 (Wyo. 2000).  For natural gas, severance is generally 
considered to occur at the wellhead.  
See Union Pac. Resources Co., 839 P.2d  at 
360-61.  Accordingly, it has been 
said that the "basic concept" of the severance tax "is valuation at the 
wellhead."  J. Ray McDermott & Co. v. Hudson, 
370 P.2d 364, 367 (Wyo. 1962).  The 
legislature may choose to adjust or clarify the precise point of valuation, and 
over the years it has enacted legislation to do that.  But unless the statute includes a clear 
expression of legislative intent to shift the point of valuation away from the 
wellhead, the statutory language should be construed to conform as nearly as 
possible to the basic severance tax concept of valuation at the wellhead.  

 
 

[¶50]     
The 
Black Canyon facility is separated, physically and functionally, from the 
wellheads of the LaBarge Project.  
It does not play a part in removing the gas from the ground, but instead 
in handling the gas after it has been removed from the ground and gathered at 
the Black Canyon facility.  On this 
basis, it seems inappropriate to consider Black Canyon, as the Department urges, 
as part of the production process like a typical, small, Type 1 
dehydrator.  It seems more 
appropriate to consider Black Canyon, as ExxonMobil urges, to be part of the 
post-production operations, more akin to the larger and more complex Type 2 
dehydrators.  ExxonMobil's position 
in this litigation places the point of valuation closer to the wellheads, while 
the Department's position pushes it further downstream.  Absent a clear expression of legislative 
intent to depart from the basic severance tax concept of valuation at the 
wellhead, we must construe the statute in harmony with that concept.  Based on these considerations, our 
construction of Wyo. Stat. Ann. § 39-14-203(b)(iv) must be that the 
legislature's intent was not to classify Black Canyon as an initial dehydrator 
as that term is used in the first sentence, but rather to consider Black Canyon 
a processing facility as that term is used in the second sentence of the 
statute.

 
 

[¶51]     
Based 
on both of these principles of statutory construction, we are ultimately 
persuaded that Wyo. Stat. Ann. § 39-14-203(b)(iv) must be construed as 
urged by ExxonMobil.  We therefore 
determine that ExxonMobil's Black Canyon is not an "initial dehydrator," as that 
term is used in the first sentence of Wyo. Stat. Ann. § 39-14-203(b)(iv), 
and the correct point of valuation for severance taxes is not the outlet of the 
Black Canyon facility.   Black 
Canyon is instead a "processing facility" as that term is used in the second 
sentence of the statute, and the proper point of valuation is "at the inlet to 
the initial transportation related compressor, custody transfer meter or 
processing facility, whichever occurs first."  

 
 

[¶52]     
ExxonMobil 
urges us to choose among these three options.  It asserts that there is a custody 
transfer meter located at each wellhead, so the proper point of valuation is at 
the inlet to these custody transfer meters.  The record before us, however, does not 
establish with sufficient certainty whether those meters are custody transfer 
meters or volume meters.  If they 
are volume meters, they are not the proper points of valuation.  See Amoco Prod. Co., ¶ 31, 94 P.3d  
at 443.  We are unable to resolve 
this issue based on the record before us, and will remand this case to the Board 
to determine the correct point of valuation in accordance with this 
opinion.

 
 
Issue 
II.  Proportionate Profits 
Method

 
 

[¶53]     
As 
discussed above, severance taxes are levied on the value of the natural gas at 
the point where "the production process is completed."  Wyo. Stat. Ann. 
§ 39-14-203(b)(ii).  The gas 
from the LaBarge Project is not sold at that point.  Instead, ExxonMobil sells it after the 
gas has been processed and separated into products including methane, carbon 
dioxide, and sulfur.  The amount ExxonMobil actually receives 
when it sells those products represents their higher value after processing and 
separation.  An accounting method 
must be used to reduce the amount ExxonMobil actually receives for the products 
to reflect the lower value at the point where the production process is 
completed.

 
 

[¶54]     
The 
method chosen by the Department 
for calculating the value of ExxonMobil's 2005 production is the proportionate 
profits method set forth in Wyo. Stat. Ann. 
§ 39-14-203(b)(vi)(D):

 
 
Proportionate 
profits  The fair market value is:

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

 
 
(II)  Nonexempt 
royalties and production taxes.

 
 

A 
much-simplified example can illustrate how the proportionate profits method 
works.  A company sells 
its natural gas for $100, which is, in the words of the statute, the "total 
amount received from the sale of the minerals."  The "direct cost of producing the 
minerals" is $30.  The "direct cost 
of producing, processing and transporting the minerals" is $50.  Applying the statutory formula, the 
"fair market value" is calculated as follows:  $100 x ($30 · $50) = $60.  This establishes the value of the 
natural gas at the time production was completed as $60, and the severance tax 
would be levied on this amount.  

 
 

[¶55]     
In 
its order, the Board provided this broad explanation of how the proportionate 
profits method applies to ExxonMobil:

 
 
Under 
Wyoming law, the fair market value of natural gas production is determined at 
the point when the production process has been completed.  Wyo. Stat. [Ann. 
§] 39-2-208(a).  The LaBarge 
raw gas stream, however, must undergo extensive processing in order to have 
marketable products.  For this 
reason the amount received from the sale of the products from the raw gas stream 
reflects the value of those products after both production and processing.  In order to determine the value of the 
products after production only, it is necessary to deduct from the total amount 
received from the sale an amount reflecting the value added to the products by 
processing.  The purpose of the 
direct cost ratio in the proportionate profits methodology is to allocate "a 
portion of a taxpayer's revenue to non-taxable functions, i.e. processing and 
transporting."  RME Petroleum Company v. Wyoming Department 
of Revenue, 2007 WY 16, ¶ 51, 150 P.3d 673, 691 (Wyo. 
2007).

 
 

[¶56]     
The 
dispute between the Department and ExxonMobil concerns the costs ExxonMobil 
incurs in transporting methane, carbon dioxide, and sulfur products to their 
respective points of sale after they have been processed and separated from the 
natural gas stream.  The parties 
agree that post-processing transportation costs must be factored into the 
calculation, but disagree about how that should be done.  The Department subtracted the 
post-processing transportation costs from the "total amount received from the 
sale of the minerals."  ExxonMobil 
contends that this is contrary to the statutory formula, and that 
post-processing transportation costs must instead be included in the denominator 
of the direct cost ratio. 

 
 

[¶57]     
The 
Department maintains that the result of including the post-processing 
transportation costs in the direct cost ratio is a compelling reason to reject 
ExxonMobil's position.  The 
post-processing transportation costs are particularly high for carbon dioxide, 
because it must be compressed and sent long distances through pipelines to the 
eventual points of sale.  The 
Department points out that including the post-processing transportation costs 
for carbon dioxide "reduced taxable value for the gas stream to such an extent 
that not taxing [carbon dioxide] at all generated 
a higher taxable value in the remaining minerals taxed."  (Emphasis supplied by the 
Department.)  The Department claims 
that this is an absurd result that should be avoided when interpreting the 
statute.   See Chevron U.S.A., Inc. v. Department of 
Revenue, 2007 WY 43, ¶ 18, 154 P.3d 331, 337 (Wyo. 
2007).

 
 

[¶58]     
We 
disagree that this result is absurd.  
Severance taxes are levied on the "fair market value" of the mineral 
"after the production process is completed."  Wyo. Stat. Ann. 
§ 39-14-203(b)(ii).  If it is 
unusually expensive to transport a mineral from the point of production to the 
point of sale, then that mineral has a lower fair market value at the point of 
production.  More specifically, if 
the carbon dioxide component of the LaBarge raw gas stream is extremely 
expensive to transport, then the value of the carbon dioxide at the point of 
production is correspondingly low.  
If the value of the carbon dioxide is low, that reduces the value of the 
entire gas stream at the point of production.  In fact, as we have previously observed, 
when natural gas prices are particularly low, the LaBarge gas stream may have 
"zero taxable value" under some accounting methods.  See Wyoming Dep't of Revenue v. Exxon Mobil 
Corp., 2007 WY 21, ¶ 3, 150 P.3d 1216, 1218 (Wyo. 
2007).

 
 

[¶59]     
The 
statutory formula for the proportionate profits method explicitly includes the 
"direct cost of producing, processing and transporting the minerals" in the 
denominator of the direct cost ratio.  
Wyo. Stat. Ann. § 39-14-203(b)(vi)(D).  The use of the plural, "minerals," 
indicates that the transportation costs for all components of the raw gas stream 
must be included in the formula.  
The statute does not allow the Department to include the direct costs of 
some minerals and exclude the direct costs of others.  While the Department may be correct that 
including the high costs of post-processing transportation for carbon dioxide 
results in a lower taxable value for the entire gas stream, that result is not 
absurd but rather a reflection of the true market value of the LaBarge gas 
stream at the point of production.  
The result is entirely consistent with the mandate of the Wyoming 
Constitution that "the product of all mines shall be taxed in proportion to the 
value thereof."  Wyo. Const. 
art. 15, § 3.

 
 

[¶60]     
The 
Department asserts that post-processing transportation costs are not included in 
the direct cost ratio because they are incurred to transport the separate 
products of the gas stream rather than the collective gas stream.  The Board agreed with this contention: 

 
 
When 
individual mineral products are separated through processing as defined by 
statute, the producer may incur post-plant costs for transporting that 
particular mineral product to the point of sale.  Those costs do not proportionately 
enhance the value of the other mineral products.  Post-plant transportation costs thus 
bear no relevance to the value added by processing, and, therefore, do not 
belong in the direct cost ratio.

  

[¶61]     
However, 
Wyo. Stat. Ann. § 39-14-201(a)(xv) explicitly provides that, "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."  Methane, carbon dioxide, and 
sulfur are all products separated from the LaBarge Project natural gas stream, 
and all are included within the definition of natural gas for purposes of 
taxation.  Because the Department 
levies taxes on the value of each individual product, it must also consider the 
costs 
of transporting each individual product.

 
 

[¶62]     
The 
key to resolving this dispute, we believe, is to determine whether 
post-processing transportation costs are part of the "direct cost of producing, 
processing and transporting the minerals."  
If so, then Wyo. 
Stat. Ann. § 39-14-203(b)(vi)(D) directs 
that they be included in the denominator of the direct cost ratio.  This is the position taken by 
ExxonMobil.  The position taken by 
the Department, though never expressly stated this way, is that post-processing 
transportation costs are indirect costs.  
The Department's regulations provide this definition of direct 
costs:  

 
 
"Direct 
costs of producing, processing and transporting" includes the direct cost of 
producing . . . plus transportation and processing plant or facility labor whose 
primary purpose is transporting or processing crude oil, plant condensate, 
natural gas and other mineral products removed from the production stream; 
materials and supplies used for transporting and processing; depreciation 
expense for equipment used for transportation and processing; fuel, power and 
other utilities used for transportation and processing and maintenance of the 
transporting and processing plant or facilities; transportation from the point 
of valuation to the processing plant or facility to the extent included in the 
price and provided by the producer; ad valorem taxes on the transporting 
equipment and processing plant or facility; and any other direct costs incurred 
that are specifically attributable to the transporting or processing of mineral 
products contained in the production stream.

 
 
Department 
of Revenue Rules, ch. 6, § 4b(x).  
The Department contends that because the definition of direct costs 
expressly includes the costs of "transportation from the point of valuation to 
the processing plant or facility," it impliedly excludes costs incurred after 
the processing plant or facility.

 
 

[¶63]     
The 
Department has overlooked another phrase in this regulation, which states that 
direct costs include "any other direct costs incurred that are specifically 
attributable to the transporting or processing of mineral products contained in 
the production stream."  
Post-processing transportation costs are specifically attributable to 
transporting the methane, carbon dioxide, and sulfur products contained in the 
gas stream.  This provision of the 
regulation substantially undermines the Department's position that 
post-processing transportation costs are not direct costs.

 
 

[¶64]     
The 
statutes and regulations provide no definition of the term "indirect costs" as 
applied to natural gas.  As applied 
to coal, however, indirect costs are defined to include "allocations of 
corporate overhead, data processing costs, accounting, legal and clerical costs, 
and other general and administrative costs which cannot be specifically 
attributed to an operational function without allocation."  Wyo. Stat. Ann. 
§ 39-14-103(b)(vii)(D).  
Applying this statutory definition, we have observed that, for example, 
the costs of mining permits and environmental impact statements are indirect 
costs because they benefit the entire operation and cannot be specifically 
attributed to any coal mining or processing function.  Powder River Coal Co. v. Wyoming State Bd. 
of Equalization, 2002 WY 5, ¶ 22, 38 P.3d 423, 430 (Wyo. 2002).  Although this statutory definition 
applies directly to coal, we also find it helpful in defining indirect costs of 
producing natural gas.

 
 

[¶65]     
The 
post-processing transportation costs for methane, carbon dioxide, and sulfur are 
not general administrative costs that benefit the entire project.  They are directly attributable to the 
function of transporting those mineral products.  Reading this statutory definition of 
indirect costs together with the regulatory definition of direct costs, we must 
conclude that post-processing transportation costs are not indirect costs, but 
direct costs.  Accordingly, 
post-processing transportation costs must be included in the denominator of the 
statutory formula for calculating the fair market value of the minerals using 
the proportionate profits method. 

 
 

[¶66]     
Even 
if these post-processing transportation costs were indirect costs, however, the 
Department has provided no case law support for the approach of subtracting them 
from total sales.  In Powder River, ¶ 18, 38 P.3d  at 429, 
we explained that "The proportionate profits method adopted by the legislature 
recognizes that indirect costs occur proportionately over all functions, 
production, processing, and transportation, in the same ratio as direct 
costs."  Accordingly, Wyo. Stat. 
Ann. § 39-14-203(b)(vi)(D) 
requires a calculation of the ratio of direct costs of production to the direct 
costs of production, processing, and transportation.  It does not require a calculation of 
indirect costs in this formula, but instead presumes that indirect costs occur 
in the same ratio as direct costs.  
The statutory formula, as interpreted in Powder River, does not mention indirect 
costs, and therefore cannot be interpreted to authorize the Department's 
approach of subtracting indirect costs from total sales.

 
 

[¶67]     
The 
Department has cited no statutory or regulatory authority for its approach of 
subtracting post-processing transportation costs directly from the amount 
received in sales.  The applicable 
statute, Wyo. Stat. Ann. § 39-14-203(b)(vi)(D), is explicit about what is 
included in this step of the formula:  
"The 
total amount received from the sale of the minerals minus exempt royalties, 
nonexempt royalties and production taxes."  
It does not indicate, in any way, that post-processing transportation 
costs are also subtracted from the sales amount.

 
 

[¶68]     
For 
all of these reasons, we conclude that Wyo. 
Stat. Ann. § 39-14-203(b)(vi)(D) is unambiguous on the correct way to 
account for post-processing transportation costs.  Post-processing transportation costs are 
"direct cost[s] of producing, processing and transporting the minerals."  They must therefore be included in the 
denominator of the direct cost ratio under the proportionate profits 
method.

 
 
CONCLUSION

 
 

[¶69]     
On both 
issues in this appeal, we reverse the Board's decisions, and remand to the 
district court for further proceedings consistent with this 
opinion.

 
 

HILL, 
Justice, 
dissenting.

 
 
 
 
[¶70]   I respectfully dissent because I 
conclude that the majority opinion accords neither the Department of Revenue 
(DOR) nor the Board of Equalization (BOE) the full benefit of the applicable 
standards of review.  Neither does 
it apply a complete statement of the applicable principles of statutory 
construction for revenue statutes such as those at issue 
here.

 
 
[¶71]   It is my view that the heart of 
this controversy is best understood if the following circumstances are noted at 
the commencement of our discussion.  
The fair market value of natural gas for severance and ad valorem tax 
purposes is determined "after the production process is completed."  Wyo. Stat. Ann. § 39-14-203(b)(ii) 
(LexisNexis 2009).  Wyo. Stat. Ann. 
§ 39-14-203(b)(iv) 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.  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[.]  [Emphasis added.]

 
 
[¶72]   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 [natural gas]."  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.  Here Exxon 
seeks an "upstream" point of valuation instead of the "downstream" point of 
valuation determined by the DOR and confirmed by the BOE.  See Williams Production RMT Co. v. State Dept. 
of Revenue, 2005 WY 28, ¶¶ 9-10,  
107 P.3d 179, 183-84 (Wyo. 2005).

 
 
[¶73]   The majority concludes that these 
words in § 39-14-203(b)(iv) are ambiguous:

 
 
                        
§ 39-14-203.  Imposition.

                        
. . . .

(b) 
Basis of tax.  The following shall 
apply:

.

 
 
            
(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;

 
 
[¶74]   The majority begins its analysis by 
reciting the standard of review we apply in matters adjudicated under the 
Administrative Procedures Act.  See 
Wyo. Stat. Ann. § 16-3-114(c) (LexisNexis 2009) and Dale v. S & S Builders, 2008 WY 84, 
¶ 22, 188 P.3d 554, 561 (Wyo. 2008).  
I include the entire statement of that standard of review because that 
cited by the majority is incomplete and, perhaps, just a bit 
misleading:

 
 
            
Thus, in the interests of simplifying the process of identifying the 
correct standard of review and bringing our approach closer to the original use 
of the two standards, we hold that henceforth the substantial evidence standard 
will be applied any time we review an evidentiary ruling.  When the burdened party prevailed before 
the agency, we will determine if substantial evidence exists to support the 
finding for that party by considering whether there is relevant evidence in the 
entire record which a reasonable mind might accept in support of the agency's 
conclusions.  If the hearing 
examiner determines that the burdened party failed to meet his burden of proof, 
we will decide whether there is substantial evidence to support the agency's 
decision to reject the evidence offered by the burdened party by considering 
whether that conclusion was contrary to the overwhelming weight of the evidence 
in the record as a whole.  See, Wyo. Consumer Group v. Public Serv. Comm'n 
of Wyo., 882 P.2d 858, 860-61 (Wyo.1994); Spiegel, 549 P.2d  at 1178 (discussing 
the definition of substantial evidence as "contrary to the overwhelming weight 
of the evidence").  If, in the 
course of its decision making process, the agency disregards certain evidence 
and explains its reasons for doing so based upon determinations of credibility 
or other factors contained in the record, its decision will be sustainable under 
the substantial evidence test.  
Importantly, our review of any particular decision turns not on whether 
we agree with the outcome, but on whether the agency could reasonably conclude 
as it did, based on all the evidence before it.  [Emphasis 
added.]

 
 
Questions 
of law are reviewed de novo.  Id. at ¶ 26, 188 P.3d 561-62.  The majority bypasses the substantial 
evidence part of this standard of review by characterizing the issue here as one 
of "statutory construction" and, thus, a pure question of law.  The core of my dissent, in this regard, 
centers on the circumstance that we historically have applied a much more 
complex standard of review when addressing decisions made by the BOE.  This is so because it exercises a unique 
role under the Wyoming Constitution and statutes.  Wyo. Const. art. 15, § 10; Wyo. Stat. 
Ann. § 39-11-102.1 (LexisNexis 2009).  
The responsibilities assigned to the BOE include: 

 
 

§ 
39-11-102.1.  Administration; state 
board of equalization.

. . . 
.

(iv)  Decide 
all questions that arise with reference to the construction of any statute 
affecting the assessment, levy and collection of taxes, in accordance with the 
rules, regulations, orders and instructions prescribed by the department [of 
revenue]:

            
(A)  Upon application of any person adversely affected; 
or

            
(B)  In performing its responsibilities to equalize values, 
including with respect to the suitability of the system prescribed by the 
department for establishing fair market value.

 
 
Wyo. 
Stat. Ann. § 39-11-102.1(c)(iv).

 
 
[¶75]   The following constitutes one of 
the expanded standards of review we have applied when considering decisions 
rendered by the DOR and/or the BOE:

 
 
            
With regard specifically to valuations of property by DOR for purposes of 
taxation, we have recently noted:

 
 
      The Department's 
valuations for state-assessed property are presumed valid, accurate, and 
correct.  This presumption can only 
be overcome by credible evidence to the contrary.  In the absence of evidence to the 
contrary, we presume that the officials charged with establishing value 
exercised honest judgment in accordance with the applicable rules, regulations, 
and other directives that have passed public scrutiny, either through 
legislative enactment or agency rule-making, or both.

 
 
      The petitioner 
has the initial burden to present sufficient credible evidence to overcome the 
presumption, and a mere difference of opinion as to value is not 
sufficient.  If the petitioner 
successfully overcomes the presumption, then the Board is required to equally 
weigh the evidence of all parties and measure it against the appropriate burden 
of proof.  Once the presumption is 
successfully overcome, the burden of going forward shifts to the DOR to defend 
its valuation.  The petitioner, 
however, by challenging the valuation, bears the ultimate burden of persuasion 
to prove by a preponderance of the evidence that the valuation was not derived 
in accordance with the required constitutional and statutory requirements for 
valuing state-assessed property.

 
 
      Moreover, in 
examining the propriety of the valuation method, our task is not to determine 
which of the various appraisal methods is best or most accurately estimates fair 
market value; rather, it is to determine whether substantial evidence exists to 
support usage of the chosen method of appraisal.

 
 

Colorado 
Interstate Gas Company v. Wyoming Department of Revenue, 2001 
WY 34, ¶¶ 9-11, 20 P.3d 528, ¶¶ 9-11 (Wyo.2001) (citations 
omitted).

 
 

Airtouch 
Communications, Inc. v. Department of Revenue, State of Wyo., 2003 
WY 114, ¶ 12, 76 P.3d 342, 348 (Wyo. 2003); Amoco Production Co. v. Dept. of 
Revenue, 2004 WY 89, ¶¶ 7-8, 94 P.3d 430, 435-36 (Wyo. 
2004).

 
 
[¶76]   I accept and acknowledge that when 
it comes to the construction of statutes this Court has the last word.  Ordinarily, however, we defer to the 
construction espoused by the DOR and BOE unless it is contrary to the words of the 
governing statutes at issue:

 
 
            
In determining whether these statutes are ambiguous it is helpful to note 
the construction the Department placed on the statutes which it is charged with 
administering.  This Court has 
previously held that an agency's interpretation of the statutory language which 
the agency normally implements is entitled to deference, unless clearly 
erroneous.  Buehner Block Co. v. Wyo. Dep't of 
Revenue, 2006 WY 90, ¶ 11, 139 P.3d 1150, 1153 (Wyo.2006).  Moreover, this Court generally defers to 
the construction placed on a statute by the agency that is charged with its 
execution, provided that construction does not conflict with the legislature's 
intent.  Qwest, ¶ 8, 130 P.3d  at 511; see 
also Loberg v. State ex rel. Wyo. 
Workers' Safety & Comp. Div., 2004 WY 48, ¶ 9, 88 P.3d 1045, 1049 
(Wyo.2004) (one measure of a statute's meaning is the interpretation placed on 
it by the agency charged with its administration); State ex rel. Sublette County Bd. of County 
Comm'rs v. State, 2001 WY 91, ¶ 16, 33 P.3d 107, 113 
(Wyo.2001).

 
 

Wyoming 
Dept. of Revenue v. Exxon Mobil Corp., 2007 
WY 112, ¶ 31, 162 P.3d 515, 526 (Wyo. 2007).  Many jurisdictions afford much greater 
deference to constructions placed on statutes by administrative bodies, 
especially in matters involving revenue and taxation.  As a general rule, because of the 
complexity of taxation issues, significant deference is given to a body such as 
the BOE.  3A Norman J. Singer, Statutes and Statutory Construction, § 
66:4 (Effect of administrative interpretation) (6th ed. 2003); and see Airtouch Communications, ¶ 13, 76 P.3d  at 348 ("Further, in part because of the complex nature of taxation, we 
have found there is a presumption the assessment was done correctly by DOR 
acting in its official capacity."); also see State v. Hanover Compression, LP, 2008 
WY 138, ¶¶ 8-15, 196 P.3d 781, 784-87 (Wyo. 2008).  I reject the majority's conclusion that 
because the industry and the DOR have different views as to what an "initial 
dehydrator" and a "processing facility" are that the statute is, therefore, 
ambiguous and this Court is at liberty to resolve the difference of opinion 
between DOR and Exxon.  My 
examination of the findings of the BOE, especially ¶¶ 77-85, convinces me 
that the DOR correctly identified the Black Canyon facility as an "initial 
dehydrator," even though it may also perform some other miscellaneous 
functions.

 
 
[¶77]   The majority also employs a very 
general rule to the effect that revenue statutes must be strictly construed in 
favor of the taxpayer.  We have 
applied this general principle frequently over the years, but seldom has our 
analysis exceeded the most simplistic application of that aphorism.  See 3A Norman J. Singer, Statutes and Statutory Construction, supra, § 66:1 (Strict construction of statutes 
creating taxes).  However, the 
continuation of that commonly cited rule is this:

 
 
But the 
revenue legislation must also be reasonably construed so that their underlying 
purpose is not destroyed.  Where an 
interpretation places undue importance on words subordinate to the plainly 
apparent objective of a statute in order to reward persons who resort to some 
unusual or not reasonably to be expected procedure, the court should not accept 
that interpretation.  It should be 
remembered that when a tax statute is clear and unambiguous there is no 
necessity to apply the rules of strict construction.

 
 
[¶78]   3A Norman J. Singer, Statutes and Statutory Construction, supra, § 66:2 (Reasonable construction of 
revenue laws) posits this more temperate view of the construction of revenue 
statutes:

 
 
            
The long range objective of all tax measures is to promote a stable 
social order by providing financial support to cover the expenses of the 
government and its programs.  
Although different forms of taxation may sometimes produce individual 
hardships, an overly biased interpretation of tax laws for the benefit of the 
taxpayer may result in the loss of revenue at the expense of the government and 
operate to the disadvantage of others contributing to its support.  Furthermore, no other field of 
legislation receives as much attention.  
There are frequent amendments and revisions that afford assurance that 
the statutes cover the subject fully and with precision.  This means that courts do not spend as 
much time interpreting tax legislation as one might anticipate.  Because of this, a reasonable 
construction of tax statutes, i.e., a construction so conditioned by an a priori bias against collectibility of 
the tax has sometimes been preferred.

 
 
            
As stated by one court:  "The 
better rule, and the one we adopt, is that statutes imposing taxes and providing 
means for the collection of the same should be construed strictly in so far as 
they may operate to deprive the citizen of his property by summary proceedings 
or to impose penalties or forfeitures upon him; but otherwise tax laws ought to 
be given a reasonable construction, without bias or prejudice against either the 
taxpayer or the state, in order to carry out the intention of the legislature 
and further the important public interests which such statutes 
subserve."

 
 
[¶79]   I am unable to agree that, in the 
light of modern views of revenue laws, the somewhat antiquated principle of 
construing tax legislation strictly in favor of the taxpayer plays a significant 
role in circumstances such as these.  
Exxon is easily one of the most sophisticated taxpayers on Earth and 
Wyoming is likely one of the very smallest revenue collectors that Exxon has to 
deal with in its efforts to avoid taxation.

 
 
[¶80]   Finally, I do not agree with the 
majority's conclusion that the DOR and the BOE applied the proportionate profits 
method incorrectly.  In this regard, 
I rely on the findings of the BOE order, ¶¶ 141-147 and 
187-210.

 
 
[¶81]   For the reasons set out above, I 
would affirm the BOE's order.

 
 
FOOTNOTES

 
 

1Although 
we will reverse the Board's decision, we commend the Board for the "Findings of 
Fact, Conclusions of Law, and Order" it issued in this case.  This document is thorough, well-written, 
and well-organized.  Without it, our 
review of these complex issues and this voluminous record would have been far 
more difficult. 

2"Sour" 
gas has high levels of hydrogen sulfide, while "sweet" gas does not.  See Chevron U.S.A., Inc. v. Department of 
Revenue, 2007 WY 79, ¶ 4, 158 P.3d 131, 133 (Wyo. 2007). See also Wyo. Stat. Ann. 
§ 39-14-201(a)(xxv), which defines "sweetening" as "any activity that 
removes acid gases, such as hydrogen sulfide and carbon dioxide, from the well 
stream."  

3While 
Williams involved the taxation of 
coal bed methane rather than conventional natural gas, both types of natural gas 
are subject to the same severance tax statutes, and the distinction makes no 
difference in our current analysis. 

4Other 
natural gas streams contain heavy hydrocarbons, but they also contain liquid 
hydrocarbons that dissolve the heavy hydrocarbon solids and prevent their 
build-up on the equipment.  The 
LaBarge gas stream contains no liquid hydrocarbons, so the heavy hydrocarbons 
are not dissolved, but instead separate out from the raw gas stream as 
solids.