Title: Cities Service Oil and Gas Corp. v. State

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Cities Service Oil and Gas Corp. v. State1992 WY 102838 P.2d 146Case Number: 90-266, 90-267Decided: 08/26/1992Supreme Court of Wyoming
CITIES SERVICE OIL AND 
GAS CORPORATION, now known as Oxy, USA, Inc.,

 Appellant 
(Defendant),

v.

The STATE of Wyoming, 
Mike Sullivan, Jack Sidi, Kathy Karpan, Stan Smith, and Lynn Simons, as members 
of the Board of Land Commissioners; Howard M. Schrinar, as Commissioner of 
Public Lands; and Jack Sidi, as State Auditor, 

Appellees 
(Plaintiffs).

The STATE of Wyoming, 
Mike Sullivan, Jack Sidi, Kathy Karpan, Stan Smith, and Lynn Simons, as members 
of the Board of Land Commissioners; Howard M. Schrinar, as Commissioner of 
Public Lands; and Jack Sidi, as State Auditor,

 Appellees 
(Plaintiffs).

v.

CITIES SERVICE OIL AND 
GAS CORPORATION, now known as Oxy, USA, Inc., 

Appellee (Defendant). 

Appeal from District 
Court, Laramie County, Edward L. Grant, J.

Catherine 
MacPherson of MacPherson Law Offices, Rawlins and Deborah Bahn Price of Liskow 
& Lewis, New Orleans, La., for appellant in Case No. 90-266 and 
appellee in Case No. 90-267.

Joseph B. Meyer, 
Atty. Gen. and Vicci M. Colgan, Sr. Asst. Atty. Gen., for appellee in Case 
No. 90-266 and appellant in Case No. 90-267.

Brent R. Kunz of 
Hathaway, Speight, Kunz, Trautwein & Barrett, Cheyenne and Charles L. 
Kaiser, Anthony J. Shaheen, and Mary Viviano Laitos of Davis, Graham & 
Stubbs, Denver, Colo., for Coastal Oil & Gas Corp., Columbia Gas Development 
Corp., CNG Producing Co., and Enron Oil & Gas Co., as amici 
curiae.

Before MACY, 
C.J., and THOMAS, URBIGKIT,* and GOLDEN, JJ. and RYCKMAN, District 
Judge.

* Chief Justice at time of 
oral argument.

URBIGKIT, Justice.

[¶1]      In this case, we 
decide entitlement of the State of Wyoming (State) to receive royalties on tax 
reimbursements paid by gas purchasers to Oxy USA, Inc. (Oxy), a natural gas 
producer previously known as Cities Services Oil and Gas Corporation. We also 
consider assessment of statutory high rate penalty interest on unpaid and 
pastdue royalties.

[¶2]      With resolution 
of cross appeals from the trial court decision, we affirm the trial court's 
ruling that the State is entitled to royalties on ad valorem, severance and 
conservation tax reimbursements under the "federal floor" provision in the 
applicable State oil and gas leases. We reverse the trial court's determination 
that the State is not entitled to royalties on tax reimbursements under the 
"amount realized" provision in the same leases. We affirm the trial court's 
imposition of interest on delinquent royalty payments, but we modify the trial 
court's order which established the date when interest payment obligation 
accrued.

I. ISSUES

[¶3]      Oxy raises the 
following issues as appellant in Case No. 90-266:

I. Are royalties owed on 
tax reimbursements under the "federal floor" clause contained in State Lease 
Nos. 73-46293 and 75-82368 based on the State's proof that federal lessees in 
the same fields paid federal royalties on tax reimbursements?

II. Is the State entitled 
to a judgment that authorizes it to collect additional royalties for the periods 
covered by this litigation if, at some future date, other federal lessees pay 
royalties on tax reimbursements during these periods?

III. Is the State 
entitled to 18% interest under W.S. § 30-5-303(a) (1977 Repub.Ed.) from June 1, 
1982, until the additional royalties due, if any, are paid?

[¶4]      The State, as 
appellee in Case No. 90-266, identifies three issues:

1. Are royalties due on 
tax reimbursements under the "federal floor" clause of the state 
lease?

2. Is the order on 
summary judgment within the scope of the declaratory judgment 
action?

3. Is interest due at the 
statutory rate for late payment of royalties?

[¶5]      In Case No. 
90-267, the State raises a single issue as appellant:

Are royalties on tax 
reimbursements due under the "amount realized" clause of the state 
lease?

[¶6]      Oxy, as appellee 
in Case No. 90-267, responds by restating in argument:

A. The plain meaning of 
the royalty clause in the state lease form precludes the assessment of royalties 
on tax reimbursements.

1. The plain meaning of 
the term "amount realized" connotes a "net" rather than a "gross" 
amount.

2. Tax reimbursements are 
not payments for "production" within the meaning of state lease royalty 
provisions.

B. Wyoming jurisprudence 
and jurisprudence from other jurisdictions uniformly require the deduction of 
tax payments to compute the "amount realized".

C. The inclusion of tax 
reimbursements in the "amount realized" would create an unjustified anomaly in 
the state lease royalty provision.

[¶7]      In its reply 
brief in Case No. 90-267, the State rephrases the issue as a two-part 
argument:

I. The plain meaning of 
the term "amount realized" as used in the lease means the "amount realized" from 
the sale of all the gas.

II. Wyoming jurisprudence 
and other jurisdictions do not uniformly require the deduction of tax payments 
to compute the "amount realized."

[¶8]      Finally, in an 
amicus brief submitted by various Wyoming oil and gas producers with interests 
similar to Oxy's interests in state oil and gas leases, the following issues are 
presented:

I. The State 
impermissibly seeks to impose federal lease royalty standards on state 
leases.

II. The district court's 
federal-floor holding must be rejected because it is administratively 
infeasible.

[¶9]      These complex 
issues test the pricing effects for royalty purposes provided by reimbursement 
clauses emplaced within the federal Natural Gas Policy Act of 1978 (NGPA), 15 
U.S.C.A. §§ 3301, et. seq.

[¶10]   For purposes of these cross 
appeals, we recognize three issues:

     1. Was the trial court 
correct in ruling that royalties to the State were due on tax reimbursements 
under the "federal floor" provision of the state leases?

     2. Was the trial court 
correct in ruling that royalties to the State were not due on tax reimbursements 
under the "amount realized" clause of the state leases?

     3. Was the trial court 
correct in ruling that the State was entitled to interest pursuant to Wyo. Stat. 
§ 30-5-303(a) (Supp. 1992) for the late payment of royalties?

II. FACTS

[¶11]   The essential facts in this case 
are not in dispute. Under the Wyoming Constitution and statutes, the Board of 
Land Commissioners is responsible for mineral leasing of state lands. Wyo. 
Const. art. 18, § 3; Wyo. Stat. § 36-6-101 (Supp. 1992). Oxy, as assignee of two 
state oil and gas leases, holds State Lease No. 73-46293 in Carbon County, 
Wyoming and State Lease No. 75-82368 in Sweetwater County, Wyoming. Oxy operates 
a single natural gas producing well on each of the leased sites.

[¶12]   Oxy (then known as Cities Services 
Oil and Gas Corporation) entered into separate gas purchase contracts with 
Cities Services Gas Company (CSGC) for gas produced from the two state lease 
wells. From January 1980 through December 1986 (the relevant period for royalty 
computation purposes in this case), Oxy produced natural gas from the two wells 
and sold the gas to CSGC. During this period, natural gas sales were regulated 
by the NGPA which was passed by Congress to establish a maximum allowable 
ceiling price for natural gas.

[¶13]   There are federal gas leases with 
producing wells in the same fields where Oxy's two wells are located. At various 
times between 1980 and 1986, the United States received royalty payments from 
those leases. Some but not all of the federal royalty payments were calculated 
on the basis of the maximum applicable NGPA amount plus tax reimbursements for 
ad valorem, severance and conservation taxes.

[¶14]   Following a 1987 audit of Oxy gas 
production and State royalty payment figures for the period from 1980 through 
1986, the Wyoming State Auditor concluded that Oxy had failed to pay royalties 
on ad valorem tax reimbursements it had received from CSGC during a significant 
portion of the previous six-year period. Because the federal government had 
received royalties from ad valorem, severance and conservation tax 
reimbursements during this period, the State Auditor concluded that Wyoming was 
entitled to the same benefit by receipt of similar royalty payments and demanded 
that Oxy pay claimed delinquent amounts in the sum of $140,802.31.

[¶15]   When Oxy refused to pay, the State 
brought a declaratory judgment with a money judgment demand in the District 
Court, First Judicial District, Laramie County, Wyoming. The State asked the 
trial court to declare that royalties were owed on tax reimbursements either 
received or receivable by Oxy from CSGC and to enter judgment for the 
delinquencies claimed with statutory penalty interest pursuant to Wyo. Stat. § 
30-5-303. Oxy not only denied the State's claim for unpaid royalties on ad 
valorem tax reimbursements and interest, but also counterclaimed seeking 
reimbursement for royalties Oxy had previously paid to the State based on 
severance and conservation tax reimbursements pricing. Oxy premised its 
counterclaims on the argument that the State was not entitled to royalties on 
severance and conservation tax reimbursements under the royalty provisions in 
the applicable state leases and, as a result, such portions of previous royalty 
payments should be repaid by the State.

[¶16]   After a hearing on cross motions 
for summary judgment, the trial court decided that the State was entitled to 
retain royalties on severance and conservation tax reimbursements under the 
"federal floor" provision in the state leases (royalties previously paid by Oxy 
to the State and contested by Oxy in its counterclaim). The "federal floor" 
provision also entitled the State to receive additional royalties for ad valorem 
tax reimbursements (royalties the State sought in its complaint). Further, the 
trial court ruled that the State was not entitled to royalties on tax 
reimbursements for ad valorem, severance or conservation taxes under the "amount 
realized" provision in the state leases. Consequently, the State was ordered to 
refund or credit royalties previously paid by Oxy on severance and conservation 
tax reimbursements until such time as federal lessees in the same fields remit 
royalties on such tax reimbursements. Finally, the trial court ordered that the 
State was entitled to eighteen percent per annum interest on delinquent 
royalties owed by Oxy from June 1, 1982 through the date of eventual payment. 
Interest was found to accrue beginning with "the first day of the month two 
months after the last day of the month in which taxes were due." 

[¶17]   Both Oxy and the State appealed. In 
Case No. 90-266, Oxy contests the trial court's ruling that the State is 
entitled to royalties for ad valorem, severance and conservation tax 
reimbursements under the "federal floor" provision in the state leases. Oxy 
contends that the State is not entitled to receive any tax reimbursement 
royalties under either the "federal floor" or "amount realized" provisions in 
the state leases. Oxy also disputes the trial court decision entitling the State 
to collect additional royalties for the period of this litigation if, at some 
point in the future, federal lessees pay additional tax reimbursement-based 
royalties to the federal government. Finally, Oxy argues that the statute 
authorizing the State to collect eighteen percent interest on unpaid royalties 
is not applicable under the facts presented in this case.

[¶18]   In Case No. 90-267, the State 
contests the trial court's decision that tax reimbursements are not 
royalty-bearing under the "amount realized" clause in the state leases. Relying 
on this court's decision in State v. Moncrief, 720 P.2d 470 (Wyo. 1986), the 
State argues that in addition to receiving royalties under the "federal floor" 
provision, it should also have the option of using the "amount realized" 
provision in the state leases to justify receiving royalties on tax 
reimbursements.

III. STANDARD OF 
REVIEW

[¶19]   Appellate resolution of the issues 
decided by the trial court on cross motions for summary judgment are governed by 
W.R.C.P. 56 and our well-established standard of review. See Provence v. Hilltop 
Nat. Bank, 780 P.2d 990 (Wyo. 1989). Because the parties entered into a joint 
stipulation of facts and the essential facts are not in dispute, we focus our 
attention on the question of whether summary judgment was properly entered as a 
matter of law. W.R.C.P. 56(c). See Cordova v. Gosar, 719 P.2d 625 (Wyo. 1986). 
We accord no deference to and are not bound by the trial court's decisions on 
issues of law. True Oil Co. v. Sinclair Oil Corp., 771 P.2d 781 (Wyo. 1989); 
Robinson v. Bell, 767 P.2d 177 (Wyo. 1989).

IV. 
DISCUSSION

A. "Federal Floor" 
Provision

[¶20]   Since the State did not elect to 
receive an "in kind" royalty share of gas production pursuant to Section 2(e) in 
the state leases,1 the critical contractual language 
which determines the amount of the State's royalty in this case is found in 
Section 2(d) in the identical state leases. The royalty clause states in 
part:

SECTION 2. THE LESSEE 
AGREES:

* * ** * *

(d) ROYALTIES. The 
royalties to be paid by lessee are: * * * (ii) on gas, including casinghead gas 
or other hydrocarbon substance, produced from said land saved and sold or used 
off the premises or in the manufacture of gasoline or other products therefrom, 
the market value at the well of one-eighth of the gas sold or used, provided 
that on gas sold at the wells the royalty shall be one-eighth of the amount 
realized from such sale.

* * * * * *

For royalty purposes on 
gas and natural gasoline the value shall be as approved by the lessor, * * * and 
in no event shall the price for gas, or natural gasoline, be less than that 
received by the United States of America for its royalties from the same 
field.[2]

 

[¶21]   In Moncrief, 720 P.2d 470, this 
court analyzed identical state lease royalty language for ambiguity. "An oil and 
gas lease is a contract and must be construed under the doctrines applicable to 
contracts." Id. at 473 (citing Kuehne v. Samedan Oil Corp., 626 P.2d 1035 (Wyo. 
1981)). We found no ambiguity and held that the market value/amount realized, 
lessor approval and federal floor provisions can and should be read in a 
consistent manner. Moncrief, 720 P.2d  at 474. See also State v. Pennzoil Co., 
752 P.2d 975, 979 (Wyo. 1988) and State v. Davis Oil Co., 728 P.2d 1107, 1109 
(Wyo. 1986). After reversing the district court's determination that the market 
value/amount realized provision had the effect of superseding the lessor 
approval and federal floor provisions, Moncrief went on to say:

Under the lease 
provisions, the board of land commissioners must accept royalties on the basis 
of either the market-value/amount-realized or, as we will see, the 
federal-floor.

* * * As indicated above, 
the value[3] of gas for royalty purposes is to 
be based on market value or the amount realized. However, the language that "in 
no event shall the price of gas, or natural gasoline, be less than that received 
by the United States" clearly indicates that the market-value/amount-realized 
provision was intended to be controlled by the federal-floor provision. If the 
market value or amount realized is higher than the federal floor, royalties must 
be paid on the basis of market value or amount realized. Conversely, if the 
amount realized or market value is lower than the federal floor, royalties must 
be paid on the basis of the federal floor. Consistent with the rules of contract 
interpretation stated above, this holding gives meaning to both the 
market-value/amount-realized provision and the federal-floor 
provision.

Moncrief, 720 P.2d  at 474.

[¶22]   The fact that the parties to the 
leases disagree as to the contractual basis for royalty calculation does not 
necessarily indicate ambiguity. Amoco Production Co. v. Stauffer Chemical Co. of 
Wyoming, 612 P.2d 463, 465 (Wyo. 1980) (citing Homestake-Sapin Partners v. 
United States, 375 F.2d 507 (10th Cir. 1967)). We affirm our decision in 
Moncrief and agree with the parties' assertions in this case that the royalty 
clause taken as a whole and the "federal floor" provision taken separately are 
unambiguous. We examine the royalty clause portion of the lease agreements to 
determine the proper method of determining the State's royalty 
share.

[¶23]   As in Moncrief, the "federal floor" 
provision in the two state oil and gas leases at issue provides:

[I]n no event shall the 
price for * * * natural gasoline * * * be less than that received by the 
United States of America for its royalties from the same 
field.

(Emphasis 
added.)

[¶24]   The parties emphasize different 
words in the "federal floor" provision and, consequently, interpret the 
provision language differently. Oxy emphasizes the significance of the word 
"price" in the "federal floor" provision and interprets "price" to limit the 
State's royalty payment solely to the amount for which the State's one-eighth 
royalty share of the natural gas produced from each state lease is sold. Oxy 
says that "price" automatically excludes any tax reimbursements from royalty 
calculation since the State's royalty share would be tax-exempt if the State 
chose to receive its royalty share on an "in kind" basis. Oxy argues that the 
State's interpretation of the "federal floor" provision improperly ties Oxy's 
royalty obligation to the federal government's royalty receipts (which are 
computed on the basis of the maximum sale price of natural gas under the NGPA 
plus tax reimbursements) rather than the price the federal government receives 
for its royalty share of natural gasoline as mandated by a literal and narrow 
reading of the "federal floor" provision. Thus, Oxy contends that the "federal 
floor" provision merely provides assurance that the State will not receive a 
price for its royalty share of the natural gas produced from a state lease that 
is less than the price the federal government gets from the sale of its royalty 
share, causing the State's royalty to be calculated solely on the basis of sales 
price without including tax reimbursements for ad valorem, severance or 
conservation taxes.

[¶25]   On the other hand, the State 
contends that since all of the gas produced by Oxy is sold by Oxy as a whole 
(i.e., the State's royalty share of natural gas is not "segregated out" and sold 
separately), since Oxy is entitled to and does receive tax reimbursements from 
its purchasers in addition to the maximum ceiling price that it receives for 
natural gas under the NGPA,4 and since Oxy pays royalties to the 
federal government calculated on the basis of NGPA ceiling price plus tax 
reimbursements, then the State is entitled under the "federal floor" provision 
to receive the same royalty amount as the federal government. By emphasizing the 
"for its [the federal government's] royalties from the same field" language in 
the "federal floor" provision, the State interprets and attempts to apply the 
provision more broadly than does Oxy.

[¶26]   In his decision letter ruling that 
the State was entitled to royalties for all tax reimbursements received by Oxy 
from its gas purchasers, the trial court judge stated:

     The FF/OA ["federal 
floor" and "owner approval"] clauses together entitle the state to royalties 
based on "gross receipts" which includes royalties on reimbursed tax and other 
payments on its leases located in those fields in which federal leases also 
produce. This is, although not the holding, the result required by State v. 
Mon[]crief, 720 P.2d 470, cited by both parties.

     [Moncrief] holds that 
the presence of the three clauses at issue in the leases does not render them 
ambiguous, that consistent with the law of contracts the three can, and 
therefore must be reconciled to give meaning to all and that the Board [of Land 
Commissioners] must accept royalties on either the MV/AR ["market value" and 
"amount realized"] or the FF/OA clause.

     I believe that the 
effect of the holding [in Moncrief] is that not only must the Board accept 
royalties on the basis of one clause or the other, but that conversely, it may 
demand them on the basis of either clause, which ever would result in the 
highest payments. * * *

* * * * * *

     I recognize Oxy's 
argument that the State would be entitled to receive royalties based on the same 
gas price as that upon which the federal royalty payments are calculated, but 
that this does not justify a conclusion that the FF clause justifies the State's 
demand that its royalties be based on reimbursed taxes in addition to the price 
paid for the gas. But I think this is an unduly narrow reading of Mon[]crief. It 
seems to me that the court recognized the right of the State, based on the FF/OA 
clauses, to receive royalties on its leases calculated in such a way as to 
provide the State with the same revenue as that generated for the federal 
government by its leases in the same field.

[¶27]   We agree with the trial court's 
analysis of Moncrief and its application here. Under the "federal floor" 
provision in the state leases, the State is entitled to receive the same royalty 
revenue that the federal government gets from its leases in the same field. If 
other gas producers in the same field remit royalties to the federal government 
calculated on the basis of NGPA ceiling price plus tax reimbursements, then 
state lease gas producers must calculate their State royalty payments on the 
same basis. This is a common sense conception that what is the same is also 
equal or what is not equal cannot be the same. We disagree with Oxy's argument 
that to construe the "federal floor" provision as establishing "federal royalty 
receipts" as a minimum for the royalties due under the state leases requires the 
royalty clause of the leases to be rewritten to conform to the federal 
government's view of what the "value of production" should be for federal 
royalty payment purposes. The underlying purpose behind the "federal floor" 
provision incorporated in the royalty clause in the state leases clearly 
mandates that the State shall receive nothing less than what the federal 
government gets in the way of royalty payments from natural gas wells on federal 
land in the same field.

[¶28]   Oxy's narrow interpretation of the 
"federal floor" provision fails to take into account the significance of the 
federal government's "royalties from the same field" language. This phrase, when 
read in conjunction with the rest of the royalty provision, implies that the 
State's royalty will not be less than the federal government's royalty - not 
just the "price" used to calculate the federal government's royalty. Thus, the 
"federal floor" provision actually involves dual considerations: (1) the State's 
royalty must be calculated on the basis of a natural gas price which is no less 
than the price used to calculate the federal government's royalty; and (2) the 
State's royalty shall not be less than the royalty amount the United States 
receives from its leases in the same field. Such a result incorporates Oxy's 
reading of the "federal floor" provision in the former consideration and the 
State's interpretation of the provision in the latter consideration.

B. "Amount Realized" 
Provision

[¶29]   As appellant in Case No. 90-267, 
the State urges that the leases in question, which call for the State to receive 
"one-eighth of the amount realized" from the sale of natural gas sold "at the 
well,"5 requires inclusion of all tax 
reimbursements which Oxy receives or is entitled to receive from the sale of 
natural gas produced from the state-leased land. After thoughtful analysis set 
forth in a decision letter incorporated in the Order on Summary Judgment, the 
trial court ruled:

4. [The State is] not 
entitled to royalties on tax reimbursements for ad valorem, severance or 
conservation taxes under the "amount realized" clause of the lease. Thus, for 
state lease 73-46293, [the State is] not entitled to royalties on tax 
reimbursements received by [Oxy] for production from January 1, 1980 through 
December 31, 1980. For state lease 75-82368, [the State is] not entitled to 
royalties on tax reimbursements for production for March 1, 1982 through 
September 30, 1982. [Oxy] is entitled to refund or credit for royalties paid on 
conservation and severance tax reimbursements for the periods set out in this 
paragraph, until such time as other federal lessees remit royalties on tax 
reimbursements for these periods.

[¶30]   The trial court suggested three 
primary reasons for its decision: (1) the "amount realized" provision is closer 
in meaning to "net proceeds" than it is to "gross proceeds;" (2) 
"post-production costs" are deductible by a gas producer; and (3) with regard to 
the State's tax-exempt share of the gas produced, no taxes were assessed, no 
taxes were paid by Oxy and, therefore, none were reimbursed by CSGC. Because we 
hold that the plain meaning of the "amount realized" provision in the state 
leases - as supported by case law and analogous reasoning in the "federal floor" 
section of this opinion - requires reversal of this portion of the trial court's 
order, we do not pursue a point-by-point refutation of the lower court's 
reasoning.6

[¶31]   Our analysis and conclusion in 
Moncrief establishes that the state is entitled to receive royalty payments 
calculated on the basis of the "amount realized" from the sale of natural gas. 
Moncrief held that the "amount realized" and "federal floor" provisions were to 
be read and applied so as to give meaning to both. Thus, as in our discussion of 
the "federal floor" provision, the question then becomes whether or not the 
"amount realized" provision includes tax reimbursements.7

[¶32]   In Enron Oil & Gas Co. v. 
Department of Revenue and Taxation, State of Wyo., 820 P.2d 977, 982 (Wyo. 
1991), this court stated: 

[I]t is evident that the 
value of the gas to purchasers is not just the price of the gas itself. 
Purchasers, at least in the instances that are at issue here, are clearly 
willing to pay not only the maximum price permitted by the NGPA, but also a 
price enhanced by the reimbursement of both the severance and ad valorem taxes 
assessed by the State of Wyoming.

Just as the 
Wyoming statutes require a "measurement of value" at the time natural gas is 
produced for state tax assessment purposes, so too the state oil and gas leases 
require calculation of the "amount realized" by the gas producer for state 
royalty purposes. For the same reasons that the "measurement of value" in Enron 
Oil & Gas Co. included the NGPA price for gas enhanced by tax 
reimbursements, the "amount realized" for royalty payment purposes also consists 
of the NGPA price plus tax reimbursements. In this regard, the reasoning and 
logic behind our decision is identical to our preceding analysis of the "federal 
floor" provision. Again, we conceptualize that what is to be the amount is the 
actuality created in finite result. The same in amount is equal in result. See 
Hillard v. Big Horn Coal Co., 549 P.2d 293 (Wyo. 1976).

[¶33]   Moncrief, 720 P.2d 470 clearly 
indicates that the state is entitled to receive the highest royalty possible. In 
the event that state royalties would be identical under both the "federal floor" 
and "amount realized" provisions, the express language in the state leases and 
our decision in Moncrief does not preclude the state from changing its mind 
during the duration of a lease agreement as to which provision the state will 
select for royalty calculation purposes. If the royalty will be identical under 
both provisions, the state may choose the contractual provision under which it 
will receive payment. This is the "most favored nation" (best deal) concept of 
the highest total equivalency.

[¶34]   We agree with the State and hold 
that the State is entitled to receive royalties on tax reimbursements for ad 
valorem, severance and conservation taxes under the "amount realized" provision 
in the state leases. Because Oxy received or was entitled to receive the NGPA 
ceiling price for natural gas plus tax reimbursements for ad valorem, severance 
and conservation taxes, Oxy is obligated to remit one-eighth of the amount it 
"realized" from the sale of all state lease natural gas. Tax reimbursements are 
part of the "amount" Oxy "realizes" from the sale of natural gas "at the well," 
and the State's royalty is properly calculated on the basis of inclusion of the 
tax reimbursement amount in addition to the "price" Oxy receives under the NGPA 
for natural gas sold to CSGC. Consequently, we reverse that portion of the trial 
court's order denying the State royalties under the "amount realized" 
provision.

V. PENALTY 
INTEREST

[¶35]   After determining that Oxy owed the 
State additional royalties under the "federal floor" provisions in the state 
leases,8 the trial court 
ordered:

     5. [The State is] 
entitled to interest on each late royalty payment from June 1, 1982 through date 
of eventual payment at 18% per annum. Interest on each payment begins to accrue 
the first day of the month two months after the last day of the month in which 
taxes were due.

The trial 
court's ruling was unaccompanied by analysis either within the text of the order 
or within the context of the decision letter which was, by reference, 
incorporated in the final order.

[¶36]   We examined the Royalty Payment 
Act, Wyo. Stat. §§ 30-5-301 through 30-5-305 (1983 & Supp. 1992),9 as it applies to unpaid or 
delinquent royalty payments in Independent Producers Marketing Corp. v. Cobb, 
721 P.2d 1106 (Wyo. 1986) (a gas producer is entitled to the benefit of the 
six-month "grace period" and the Act is not applied retroactively to proceeds 
generated by production that occurred prior to the Act's effective date); State 
v. BHP Petroleum Co., Inc., 804 P.2d 671 (Wyo. 1991) (awareness of the 
deficiency in royalty payments is crucial to imposition of penalty interest); 
and, most recently, in Moncrief v. Harvey, 816 P.2d 97 (Wyo. 1991) (hereinafter 
referred to as Harvey).

[¶37]   In Harvey, we quoted the applicable 
portions of the penalty interest statute, Wyo. Stat. §§ 30-5-301 et seq., and 
then applied the statute to the facts in the case. We held that a lessee who 
knowingly10 failed to pay (or place into 
escrow pursuant to Wyo. Stat. § 30-5-302) royalty proceeds to an assignor who 
reserved a five percent overriding royalty interest was liable for eighteen 
percent per annum penalty interest for unpaid royalties pursuant to the Act. 
Harvey, 816 P.2d  at 105. Further, the Cobb six-month "grace period" applies to 
royalty obligations which arise either before or after June 1, 1982, the 
effective date of the Act. We also held that a non-lessee/non-operator who was 
nothing more than a non-executive owner of a working interest was not liable for 
penalty interest under the Royalty Payment Act. Id. at 109. Finally, with regard 
to the lessee who is liable for unpaid royalties, we determined the correct date 
that production payments first became "due" under the Act and modified the 
district court's order accordingly. Id. at 106.

[¶38]   Oxy contends that the trial court's 
ruling that the State is entitled to receive statutory penalty interest pursuant 
to Wyo. Stat. §§ 30-5-301 through 30-5-305 is erroneous because application of 
the statute in this case: (1) is contrary to the underlying purposes of the Act; 
(2) is inequitable; and (3) would improperly require a retroactive determination 
of value. We disagree.

[¶39]   The Royalty Payment Act is a 
remedial statute intended "to stop oil producers from retaining other people's 
money for their own use." Cobb, 721 P.2d  at 1110. Thus, since we have held in 
this case that the State was entitled to additional royalties under the "federal 
floor" provision in the state leases, imposition of penalty interest is 
serendipitous with the underlying purposes of the Act. Equity is not a factor 
for consideration because there are no exceptions in the Act providing 
justification for royalty nonpayment. Finally, the question of retroactivity is 
resolved by our decision in BHP Petroleum Co., Inc., 804 P.2d 671. The Royalty 
Payment Act takes effect at such time as the lessee becomes aware of a royalty 
payment deficiency. We hold that Oxy became liable for penalty interest on 
unpaid royalties under the "federal floor" provision when it failed to include 
ad valorem, severance and/or conservation tax reimbursements in its calculation 
of state royalty amounts while making comparable royalty payments to the federal 
government which included tax reimbursements. All such state royalty 
deficiencies are subject to penalty interest.

[¶40]   The final question left to be 
decided is the date Oxy's duty to pay eighteen percent penalty interest 
commenced under the Act. Our decision in Harvey, 816 P.2d  at 105-06 controls; 
however, considering the possibility of confusion over the intended application 
of the Royalty Payment Act in the present case, we modify the trial court's 
order imposing penalty interest to read as follows:

     5. The State is 
entitled to interest pursuant to W.S. 30-5-301 et seq. on each late royalty 
payment owed the State under the "federal floor" provision in the State Leases. 
Oxy is entitled to the six-month "grace period" recognized in Cobb and [Harvey] 
for production and sales which predated the effective date of the Royalty 
Payment Act. Thus, additional royalty payments which Oxy owed the State under 
State Lease 73-46293 for production and sales prior to and immediately following 
the effective date of the Royalty Payment Act (for production and sale from 
January 1, 1981 through October 31, 1982) began accruing interest on January 1, 
1983. Additional royalty payments for production (under State Lease 73-46293) 
from November 1, 1982 through December 31, 1984 began accruing interest not 
later than 60 days after the end of the calendar month within which sales were 
made. (For example, sales made during November, 1982 began accruing royalty 
penalty interest on January 30, 1983.)

     Delinquent royalties 
owed the State under State Lease 75-82368 are also subject to penalty interest. 
Thus, for production and sales from October 1, 1982 through March 31, 1983 
(production and sales subject to NGPA § 107(c)(5)) and for production and sales 
from April 1, 1983 through December 31, 1984 (subject to NGPA § 102), because 
such sales are not covered by the date-of-first-sale "grace period", interest 
began to accrue not later than 60 days after the end of the calendar month 
within which subsequent production is sold. (For example, sales made during 
October, 1982 began accruing royalty penalty interest on December 31, 
1982).

VI. 
CONCLUSION

[¶41]   We affirm the trial court's grant 
of partial summary judgment on behalf of the State. Summary judgment was 
properly entered as a matter of law to establish that the "federal floor" 
provision in the state leases entitles the State to receive royalties on ad 
valorem, severance and conservation tax reimbursements if the federal government 
also received royalties on such tax reimbursements from federal leases in the 
same field during the same period of time. Further, in establishing the right of 
the State to receive royalties on tax reimbursements under the "amount realized" 
provision in the state leases, we reverse the trial court's grant of summary 
judgment on that issue in behalf of Oxy and grant summary judgment to the State 
instead. Finally, we affirm imposition of penalty interest on delinquent royalty 
payments but, in light of our decision in Harvey, 816 P.2d 97, we modify the 
trial court's order as to the dates when interest began to accrue.

[¶42]   Modified, affirmed and remanded for 
any relief required hereby.

FOOTNOTES

1 Section 2(e) states in 
part:

DISPOSITION OF ROYALTY 
OIL AND GAS. To deliver to the lessor, or to such individual, firm or 
corporation as the lessor may designate, all royalty oil, gas, or other kindred 
hydrocarbons, free of charge on the premises where produced; or, at the option 
of the lessor, and in lieu of said royalties in kind, the lessee agrees to pay 
the lessor the field market price or value of all royalty oil, gas, or other 
kindred hydrocarbons produced and saved.

2 In Moncrief, 720 P.2d  at 
473, we labelled various royalty provisions in a comparable state 
lease:

For convenience, the 
provision under subsection (d)(ii) of the leases will be referred to in this 
opinion as the market-value/amount-realized provision. The provision stating 
that "the value shall be as approved by the lessor" will be referred to as the 
lessor-approval provision. Finally, the clause beginning "in no event" shall be 
referred to as the federal-floor provision.

3 Though all the parties 
submitting briefs in this case and the trial court in its decision letter devote 
a substantial amount of time, space and energy in discussing the distinctions 
between "value," "price," and other related terms such as "gross proceeds," "net 
proceeds," and "federal receipts," we apply well-established contract law and 
look for the plain meaning of the written lease agreement. In Klutznick v. 
Thulin, 814 P.2d 1267, 1270 (Wyo. 1991) we said:

The intention of the 
parties to a clear and unambiguous written agreement will be derived from the 
entire writing and determined as a matter of law. * * * Extrinsic evidence will 
not be used to contradict the plain meaning of a clear and unambiguous written 
agreement. * * * We will not rewrite a clear and unambiguous contract under the 
guise of interpretation. * * * We employ common sense and good faith in 
construing contracts, and the words and acts of the parties must be given effect 
in accordance with the meaning which they would convey to reasonable men at the 
time and place of their use or commission.

See 
also Moncrief v. Harvey, 816 P.2d 97, 103 (Wyo. 1991).

4 In Enron Oil & Gas 
Co. v. Department of Revenue and Taxation, State of Wyo., 820 P.2d 977, 979-80 
(Wyo. 1991), this court discussed the ceiling price for natural gas under the 
NGPA and tax reimbursements for ad valorem and severance taxes:

The natural gas industry 
is regulated by the federal government, in part by the Natural Gas Policy Act 
(NGPA), 15 U.S.C.A. §§ 3301 et seq. (West 1982). The general rule is that 
producers may not sell natural gas for more than the maximum price set under the 
NGPA. However, 15 U.S.C.A. § 3320 provides certain exceptions:

§ 3320. Treatment of 
State severance taxes and certain production-related costs

(a) Allowance for 
State severance taxes and certain production-related costs. - Except as 
provided in subsection (b) of this section, a price for the first sale of 
natural gas shall not be considered to exceed the maximum lawful price 
applicable to the first sale of such natural gas under this part if such first 
sale price exceeds the maximum lawful price to the extent necessary to recover. 
-

(1) 
State severance taxes attributable to the production of such natural gas and 
borne by the seller, but only to the extent the amount of such taxes does not 
exceed the limitation of subsection (b) of this section; and

(2) 
any costs of compressing, gathering, processing, treating, liquefying, or 
transporting such natural gas, or other similar costs, borne by the seller and 
allowed for, by rule or order, by the Commission.

(b) 
Limitation on State severance taxes. - The State severance tax allowable 
under subsection (a)(1) of this section with respect to the production of any 
natural gas may not include any amount of State severance taxes borne by the 
seller which results from a provision of State law enacted on or after December 
1, 1977, unless such provision of law is equally applicable to natural gas 
produced in such State and delivered in interstate commerce and to natural gas 
produced in such State and not so delivered.

(c) 
Definition of State severance tax. - For purposes of this section, the 
term "State severance tax" means any severance, production, or similar tax, fee, 
or other levy imposed on the production of natural gas -

(1) 
by any State or Indian tribe (as described in section 3316(b)(2)(B)(ii) of this 
title); and

(2) 
by any political subdivision of a State if the authority to impose such tax, 
fee, or other levy is granted to such political subdivision under State 
law.

In 
Enron Oil & Gas Co., this court discerned that the "value" of natural gas 
for tax purposes is the price of the natural gas under the NGPA "enhanced by the 
reimbursement of both the severance and ad valorem taxes assessed by the State 
of Wyoming." Id. at 982.

The 
same rationale developed in Enron Oil & Gas Co. to determine that taxable 
value should be applied to this case. Under the "federal floor" provision in the 
state leases, the "price" of natural gas includes tax reimbursements. See also 
Hoover & Bracken Energies, Inc. v. United States Dept. of Interior, 723 F.2d 1488, 1491 (10th Cir. 1983), cert. denied 469 U.S. 821, 105 S. Ct. 93, 83 L. Ed. 2d 39 (1984) ("the actual price [for federal royalty purposes] * * * was the 
ceiling amount [under the NGPA] plus the amount of taxes.").

5 See section 2(d)(ii) of 
the state leases.

6 We note, however, that 
we recently resolved a contention similar to the trial court's second "reason." 
In Amax Coal Co. v. Wyoming State Bd. of Equalization, 819 P.2d 825 (Wyo. 1991), 
we held that Black Lung Excise Taxes apply to the "privilege of mining" and, as 
such, are not deductible as "post-production costs."

Along the same lines, we 
recognize that the trial court's third "reason" adopts Oxy's argument that 
Section 2(e) of the state lease is controlling. As suggested in our discussion 
of the "federal floor" provision, this argument depends on the flawed premise 
that the State's royalty share of gas production is somehow separated or 
"segregated out" from the sale of other gas production - despite the fact that 
the State took its royalty "in value" rather than "in kind" and all of the gas 
produced was sold "as a whole."

7 It is undisputed that 
the natural gas produced and sold by Oxy has all been sold "at the well." Thus, 
for purposes of calculating the State's royalty, we consider the "amount 
realized" from the sale of the gas rather than the "market value." The "market 
value" provision only applies to gas which is "sold or used off the premises or 
in the manufacture of gasoline or other products therefrom." See Davis Oil Co., 
728 P.2d 1107 (quoting Piney Woods Country Life School v. Shell Oil Co., 726 F.2d 225 (5th Cir. 1984), cert. denied 471 U.S. 1005, 105 S. Ct. 1868, 85 L. Ed. 2d 161 (1985)).

8 The trial court 
ordered:

     2. [The State is] 
entitled to royalties on the N.G.P.A. Section 102 price plus ad valorem, 
severance and conservation tax reimbursements received by defendant for state 
lease 73-46293 for production from January 1, 1981 through December 31, 
1984.

     3. [The State is] 
entitled to royalties on state lease 75-82368 as follows:

     (a) For production 
from October 1, 1982 through March 31, 1983, at the N.G.P.A. 107(c)(5) price 
plus ad valorem, severance and conservation tax reimbursements received by 
defendant.

     (b) For production 
from April 1, 1983 through December 31, 1984, at the N.G.P.A. Section 102 price 
plus ad valorem, severance, and conservation tax reimbursements received by 
defendant.

9 Two statutory provisions 
in the Royalty Payment Act are applicable to the facts in this case. Wyo. Stat. 
§ 30-5-301(a) states:

The proceeds derived from 
the sale of production from any well producing oil, gas or related hydrocarbons 
in the state of Wyoming shall be paid to all persons legally entitled thereto, 
except as hereinafter provided, commencing not later than six (6) months after 
the first day of the month following the date of first sale and thereafter not 
later than sixty (60) days after the end of the calendar month within which 
subsequent production is sold, unless other periods or arrangements for the 
first and subsequent payments are provided for in a valid contract with the 
person or persons entitled to such proceeds. Payment shall be made directly to 
the person or persons entitled thereto by the lessee or operator or by any party 
who assumes such payment obligation under any legal arrangement.

Wyo. Stat. § 30-5-303(a) 
states:

Any lessee or operator, 
purchaser or other party legally responsible for payment who violates the 
provisions of this article is liable to the person or persons legally entitled 
to proceeds from production for the unpaid amount of such proceeds, plus 
interest at the rate of eighteen percent (18%) per annum on the unpaid principal 
balance from the due date specified in W.S. 30-5-301(a).

10 In Harvey, 816 P.2d  at 
107, we distinguished BHP Petroleum Co., Inc., 804 P.2d 671, on the basis of the 
lessee's lack of awareness of the royalty payment deficiency. This writer's 
dissent in Harvey is now subject to stare decisis for non-constitutional 
statutory interpretation which leaves the legislature, if it desires, to 
readdress its legislative intent for any future application. Allied-Signal, Inc. 
v. Wyoming State Bd. of Equalization, 813 P.2d 214 (Wyo. 1991).