Title: KENNEDY OIL, a Wyoming corporation V. DEPARTMENT OF REVENUE

State: wyoming

Issuer: Wyoming Supreme Court

Document:

KENNEDY OIL, a Wyoming corporation V. DEPARTMENT OF REVENUE2008 WY 154205 P.3d 999Case Number: S-07-0287Decided: 12/31/2008
OCTOBER TERM, A.D. 2008

 
 

KENNEDY OIL, aWyoming 
corporation,Appellant(Petitioner),v.DEPARTMENT OF 
REVENUE,Appellee(Respondent).

 
 
Rule 
12.09(b) Certification from

the 
DistrictCourtofCampbellCounty

The 
Honorable Michael N. Deegan, Judge

 
 
Representing 
Appellant:

Morris 
R. Massey of Brown, Drew & Massey, LLP, Casper, Wyoming.  

 
 
Representing 
Appellee:

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

 
 
Before 
VOIGT, C.J., and GOLDEN, HILL, KITE, and BURKE, JJ.

 
 

KITE, Justice.

 
 
[¶1]  After the Wyoming State Board of 
Equalization (Board) affirmed the Department of Revenue's (DOR) valuations of 
Kennedy Oil's (Kennedy) coal bed methane (CBM) production for production years 
2000-2002, Kennedy sought review in district court.  The DOR moved for, the district court 
ordered and this Court accepted certification pursuant to W.R.A.P. 12.09(b).1  We are asked to decide whether the DOR 
properly valued Kennedy's 2000-2002 CBM production at the outlet of the initial 
dehydrator pursuant to Wyo. Stat. Ann. § 39-14-203(b)(iv) (LexisNexis 
2007).         

 
 
ISSUES

 
 
[¶2]  The primary issue for our determination 
concerns the point at which CBM is valued for taxation purposes.  Specifically, we must decide, when a 
producer such as Kennedy sells its CBM production to a third party at or near 
the wellhead, whether the production is valued at the point of sale or at the 
outlet of the initial dehydrator.

 
 
FACTS

 
 
[¶3]  In 2000, 2001 and 2002, Kennedy produced 
CBM from the North, South and Central Kitty fields located in Campbell 
County, Wyoming.  
In 1999, prior to the start of production, Kennedy entered into contracts 
with two affiliates of Enrona gas purchase agreement with Enron Capital & 
Trade Resources Corporation and a field services agreement with Enron Midstream 
Services, LLC.  Under the gas 
purchase agreement, Enron purchased and received CBM from Kennedy at or very 
near the wellhead and was responsible for gathering and transporting it from 
there to available markets at the end of the pipeline. Kennedy discounted the 
purchase price by the costs Enron incurred in gathering and transporting the gas 
from the wellhead to the outlet of the initial dehydrator.  The field services agreement provided for 
Enron to perform the gathering and transporting services for Kennedy even if the 
marketing aspect of the gas purchase agreement failed.  After Enron filed for bankruptcy during 
the term of the agreements, Kennedy sold or transferred the CBM to other 
purchasers or field service providers under terms substantially similar to those 
in its contracts with Enron.  

 
 
[¶4]  For production years 2000-2002, Kennedy 
reported and paid taxes on its CBM production from the Kitty fields in 
accordance with its view that the point of valuation was the point of sale at or 
near the wellheads.  In 2006, the 
Wyoming Department of Audit (DOA) completed an audit of Kennedy's 2000-2002 CBM 
production.  The DOA determined the 
point of valuation to be the outlet of the initial dehydrator downstream from 
the wellheads.  On that basis, the 
DOA disallowed the gathering and transportation expenses incurred between the 
wellheads and the outlet of the initial dehydrator. As a consequence, the DOA 
placed a significantly higher value on the production than Kennedy, subjecting 
Kennedy to additional severance and ad valorem taxes on the difference.  

 
 
[¶5]  Kennedy appealed the DOA decision to the 
Board, which convened a contested case hearing in January of 2007.  At the hearing, Kennedy maintained that 
it sold the CBM at the wellhead; therefore, § 39-14-203(b)(v) applied and the 
fair market value of the CBM produced should be the bona fide arms length sales 
price.  The DOR asserted that the 
point of valuation was the outlet of the initial dehydrator; therefore, § 
39-14-203(b)(iv) applied and Kennedy should not receive deductions for expenses 
incurred between the wellhead and the initial dehydrator.  The Board affirmed the DOR's valuation. 
 Kennedy filed a petition for review 
in the district court.  The DOR 
filed a motion for certification to this Court, which the district court 
granted.

 
 
STANDARD 
OF REVIEW

 
 
[¶6] 
Our review of administrative agency action is governed by Wyo. Stat. Ann. § 
16-3-114 (LexisNexis 2007), which provides in pertinent 
part:

 
 
   (c) To the extent necessary to 
make a decision and when presented, the reviewing court shall decide all 
relevant questions of law, interpret constitutional and statutory provisions, 
and determine the meaning or applicability of the terms of an agency 
action.  In making the following 
determinations, the court shall review the whole record or those parts of it 
cited by a party and due account shall be taken of the rule of prejudicial 
error.  The reviewing court 
shall:

            
(i) Compel agency action unlawfully withheld or unreasonably delayed; 
and

            
(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.

 
 
[¶7]  When reviewing a case certified to us 
from district court pursuant to W.R.A.P. 12.09(b), we apply the appellate 
standards applicable to a reviewing court of the first instance. Williams Prod. RMT Co. v. State Dep't of 
Revenue, 2005 WY 28, ¶ 7, 107 P.3d 179, 182-183 (Wyo. 2005).  We review factual determinations for 
substantial evidence, meaning we consider whether there is relevant evidence in 
the entire record which a reasonable mind might accept in support of the 
agency's conclusions.  Dale v. S 
& S Builders, LLC, 2008 WY 84, ¶ 21, 188 P.3d 554, 561 (Wyo. 2008).  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 upon all of the 
evidence presented.  Id., ¶ 23, 188 P.3d  at 561.   The burden of 
proof with respect to tax valuation is on the party asserting an improper 
valuation.  Williams Prod., ¶ 7, 107 P.3d  at 183. 
 We review an agency's conclusions 
of law de novo, and will affirm an 
agency's legal conclusion only if it is in accordance with the law.  Dale, ¶ 27, 188 P.3d  at 562.    Statutory interpretation is 
a question of law and is reviewed de 
novo.  Williams Prod., ¶ 8, 107 P.3d  at 
183.

 
 
DISCUSSION

 
 

1.                  
Point 
of Valuation        

 
 
[¶8]  Kennedy asserts that the Board 
incorrectly ruled that the CBM covered by the audit was to be valued at the 
outlet of the initial dehydrator.  
Kennedy contends the uncontested evidence established that it sold the 
CBM at or near the wellhead. Citing § 39-14-203(b)(v), Kennedy maintains that 
the point of sale is the point of valuation for tax purposes.  The DOR responds that the Board 
correctly found that the point of valuation was the outlet of the initial 
dehydrator downstream from the wellhead, not the point of sale upstream as 
Kennedy claimed.  

 
 
[¶9]  The relevant statutory provisions are as 
follows:

 
 
§ 
39-14-203.  
Imposition.

 
 
(a)  Taxable event.  The following shall 
apply:

     (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.  The tax imposed by this subsection shall 
be in addition to all other taxes imposed by law including, but not limited to, 
ad valorem taxes imposed by W.S. 39-13-101 through 
39-13-111.

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

     (i)  Crude oil, lease condensate and natural 
gas shall be valued for taxation as provided in this 
subsection;

     (ii)   The fair market value for crude 
oil, lease condensate and natural gas shall be determined after the production 
process is completed.  
Notwithstanding paragraph (x) of this subsection, expenses incurred by 
the producer prior to the point of valuation are not deductible in determining 
the fair market value of the mineral;

     (iii) The production 
process for crude oil or lease condensate is completed after extracting from the 
well, gathering, heating and treating, separating, injecting for enhanced 
recovery, and any other activity which occurs before the outlet of the initial 
storage facility or lease automatic custody transfer (LACT) 
unit;

     (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; 

     (v)  If the crude oil, lease condensate or 
natural gas production as provided by paragraphs (iii) and (iv) of this 
subsection are sold to a third party, or processed or transported by a third 
party at or prior to the point of valuation provided in paragraphs (iii) and 
(iv) of this subsection, the fair market value shall be the value established by 
bona fide arms-length transaction. 

 
 
[¶10]  Our review of statutory provisions is 
governed by the following standards:

 
 
The 
paramount consideration is to determine the legislature's intent, which must be 
ascertained initially and primarily from the words used in the statute.  We look first to the plain and ordinary 
meaning of the words to determine if the statute is ambiguous.  A statute is clear and unambiguous if 
its wording is such that reasonable persons are able to agree on its meaning 
with consistency and predictability.  
Conversely, a statute is ambiguous if it is found to be vague or 
uncertain and subject to varying interpretations.  If we determine that a statute is clear 
and unambiguous, we give effect to the plain language of the statute.  

 
      

RME 
Petroleum Co. v. Dep't of Revenue, 
2007 WY 16, ¶ 25, 150 P.3d 673, 683 (Wyo. 2007) (citation omitted).  We have recognized that divergent 
opinions among parties as to the meaning of a statute may be evidence of 
ambiguity but is not conclusive.   
Id., ¶ 28, 150 P.3d  at 684.  Ultimately, whether a 
statute is ambiguous is a matter of law to be determined by the court.  Id.     

 
 
[¶11]  With these principles in mind, we 
consider the statutory provisions.  
Section 39-14-203(a)(i) clearly imposed a severance tax on the value of 
gross product that Kennedy extracted from the Kitty fields, in addition to the 
ad valorem tax imposed by Wyo. Stat. Ann. §§ 39-13-101 through 39-13-111 
(LexisNexis 2007).  Wyo. Stat. Ann. 
§ 39-14-201(a)(xxix) (LexisNexis 2007) defines "value of gross product" to mean 
"fair market value as prescribed by W.S. 39-14-203(b), less any deductions and 
exemption allowed by Wyoming law or rules."  Section 39-14-203(b)(i) provides that 
natural gas is to be valued for taxation purposes as provided in this 
subsection, and § 39-14-203(b)(ii) provides the fair market value for natural 
gas is to be determined after the 
production process is completed.  
Paragraph (b)(ii) also clearly provides that expenses incurred prior to the point of 
valuation, i.e., prior to the completion of the production process, are not 
deductible in determining the fair market value. Giving this language its 
plain and ordinary meaning, Kennedy's CBM production was to be valued for 
taxation purposes at the point when the production process was completed. Any 
expenses Kennedy incurred up to that point (as reflected in the reduction of its 
sales price by the amount of Enron's costs) were not deductible in determining 
fair market value.    

 
 
[¶12]  Section 39-14-203(b)(iv)2 defines when the production process 
for natural gas is completed.  Under 
the plain language of that subsection, the natural gas production process is 
completed after it is extracted from the well, gathered, separated, injected 
and any other activity which occurs 
before the outlet of the initial dehydrator.  Reading together paragraphs (a)(i) 
(levying a severance tax on the value of the gross product), (b)(i) and (ii) 
(valuing natural gas for taxation purposes by determining its fair market value 
after the production process is completed and precluding deduction of producer 
expenses incurred before the production process is completed); and (b)(iv) 
(identifying the completion of the production process as after extraction, 
gathering, separation, injection and any other activity occurring before the 
outlet of the initial dehydrator), it is clear that Kennedy's CBM production was 
to be valued for tax purposes by determining its fair market value after the 
production process was completed at the outlet of the initial dehydrator.  Any expenses incurred before that point 
were not deductible in determining the fair market value.  Thus, the costs of gathering, 
specifically identified as a production function, and transporting, another 
activity occurring before the outlet of the initial dehydrator, the CBM from the 
point of sale to the point of valuation were not deductible but were instead to 
be added back in to determine fair market value. Given that the sale or transfer 
to Enron and other purchasers and field service providers occurred before the 
production process was completed within the plain language of the statute, i.e. 
prior to or in the course of, rather than after, activities occurring before the 
outlet of the initial dehydrator, any expenses Kennedy incurred in the sale or 
transfer were included in the fair market value.  This conclusion is supported by the 
language of § 39-14-201(a)(xxix) which defines "value of gross product" to mean 
"fair market value as prescribed by W.S. 39-14-203(b), less any deductions . . . 
allowed by Wyoming law or rules" and § 39-14-203(b)(ii) 
which expressly disallows deduction of expenses the producer incurs prior to the 
point of valuation. 

 
 
[¶13]  Despite the clear language of the above 
provisions, Kennedy asserts that § 39-14-203(b)(v) changes the point of 
valuation for taxation purposes when natural gas is sold to or processed or 
transported by a third party prior to completion of the production process.  Kennedy contends that under those 
circumstances the fair market value is the value established by the sale of the 
gas in a bona fide arms-length transaction.  Kennedy further contends that when such 
a sale or transfer occurs upstream from the outlet of the initial dehydrator, 
the producer is entitled to deduct any processing and transportation costs 
incurred between the point of sale or transfer and the outlet of the initial 
dehydrator.  We disagree because we 
conclude that § 39-14-203(b)(iv) establishes the point of valuation, while 
§ 39-14-203(b)(v) establishes only the method of valuation. 

 
 
 [¶14]  The omission of words from a statute is 
considered to be an intentional act by the legislature and this Court will not 
read words into a statute when the legislature has chosen not to include 
them.  BP America Prod.     Co. v. Dep't of Revenue, 2005 WY 60, ¶ 22, 112 P.3d 596, 607 (Wyo. 2005).  "When the 
words are clear and unambiguous, a court risks an impermissible substitution of 
its own views, or those of others, for the intent of the legislature if any 
effort is made to interpret or construe statutes on any basis other than the 
language invoked by the legislature.'"  Pagel v. Franscell, 2002 WY 
169, ¶ 9, 57 P.3d 1226, 1230 (quoting Wyo. Community College Comm'n v. Casper 
Community College Dist., 2001 WY 86, ¶¶ 16-18, 31 P.3d 1242, 1249 ( Wyo. 
2001)).  Section 39-14-203(b)(ii) 
states that the fair market value for natural gas shall be determined after the production 
process is complete.   It 
does not state, "Except as provided in paragraph (v)," the fair market value for 
natural gas shall be determined after the production process is complete.  Likewise, § 39-14-203(b)(v) does not 
state, "Notwithstanding paragraph (ii)," if the natural gas production is sold 
or transported by a third party, the fair market value shall not be determined 
after the production is complete but shall be the value established by sales 
price in a bona fide arms-length transaction.  Paragraph (v) also does not state that 
the "point of valuation" changes or that the production process is complete when 
production is sold or transferred to a third party before the point of valuation 
described in paragraph (iv).  

 
 
[¶15]  Additionally, subsection (ii) states 
that expenses incurred by the producer prior to the point of valuation are not 
deductible in determining fair market value.  It does not state, "Except as provided 
in paragraph (v)," such expenses are not deductible.  Nor does subsection (v) state, 
"Notwithstanding paragraph (ii)," expenses incurred by the producer in the sale 
or transfer of production to a third party before the point of valuation are 
deductible in determining fair market value.  Had the legislature intended these 
provisions to have the meaning Kennedy urges this Court to adopt, it easily 
could have added language necessary to accomplish that 
result.

 
 
[¶16]  Kennedy contends that it did not bear 
the costs of transporting the gas from the point of sale to the outlet of the 
initial dehydrator; therefore, the provision requiring valuation after the 
production process is completed did not apply.   Kennedy points to John Kennedy's 
testimony that Kennedy did not sell its gas at the wellhead for index prices but 
for index prices less a location differential.  Essentially, Kennedy discounted the 
sales price of its CBM by the amount it cost the purchaser to gather and 
transport the gas from the wellhead downstream to the outlet of the initial 
dehydrator.  This is simply another 
way of accounting for expenses incurred between the wellhead and the point of 
valuation.  While other producers 
sold or transferred their gas to third parties who then charged the producer for 
gathering and transportation costs by invoice, Kennedy discounted its sale price 
to account for those costs.  
Regardless of how those expenses were reflected, whether by invoice or a 
discount on the sales price, Kennedy was not entitled to deduct expenses 
incurred prior to the outlet of the initial dehydrator.

 
 
[¶17]  Reading all of the provisions together, 
it is clear the DOR properly determined the fair market value for Kennedy's CBM 
at the outlet of the initial dehydrator after the sale or transfer to Enron and 
others.  The plain language of 
subsection (b)(v) simply provides that the fair market value will be 
"established by" bona fide arms length transaction, not that the point of 
valuation is different than that applicable to sales occurring downstream of the 
dehydrator. In context, this approach makes sense when compared to the use of 
measures other than the actual transactions downstream from the point of 
valuation, e.g. comparable value, comparable sales, net back and proportionate 
profits, all of which are proxies for the actual costs intended to assure fair 
market value when the producer does its own transportation and processing.  When sales occur upstream from the 
initial dehydrator, the fair market value of the production is the value 
established by the bona fide arms-length sales price and the bona fide 
arms-length expenses incurred in getting the CBM from the wellhead to the outlet 
of the initial dehydrator.  Because 
those expenses are due to activities which occurred before the outlet of the 
initial dehydrator, the production process is not complete when they are 
incurred.  The point of valuation 
remains the point at which the production process is complete and the fair 
market value of Kennedy's gas includes those expenses incurred prior to that 
point.     

 
 
[¶18]  In RME Petroleum, ¶ 48, 150 P.3d  at 690, we 
said:

 
 
 Statutes levying taxes should not be 
extended, by implication, beyond the clear import of the language used, or their 
operations enlarged to embrace matters not specifically addressed.  Article 15, Section 13 of the Wyoming 
Constitution requires that "every law imposing a tax shall state distinctly the 
object of the same, to which only it shall be applied."  We believe the legislature is well 
acquainted with the need to draw its tax statutes carefully and with 
precision.  

 
 
The 
legislature specified that gas is to be valued at the point where production is 
completed; production is completed after any activity occurring prior to the 
outlet of the initial dehydrator.  
If the legislature had intended the point of valuation to change with 
circumstances occurring upstream from the outlet of the initial dehydrator, we 
would expect to see that intent clearly reflected in the language of the 
statute.  Id.

 
 
[¶19]  Kennedy claims that the legislature 
adopted the mineral valuation statutes with conventional gas wells in mind, 
before CBM production was contemplated.  
In the context of conventional gas production where dehydrators were 
ordinarily located at or near the well, the point where the production process 
was completed, the point of valuation and the point of sale were all at the same 
location.  Kennedy asserts that with 
the advent of CBM production, where the dehydrators may be located miles 
downstream from the wellhead, the statutes require a different interpretation 
because in that context the point of valuation may be downstream from the point 
of sale. 

 
 
[¶20]  While we do not dispute that CBM 
production may differ somewhat from conventional production, our task is limited 
to determining legislative intent where possible from the language used in the 
statute.  Absent finding the 
language ambiguous, we do not resort to rules of construction.  We have concluded the language clearly 
and unambiguously provides that the point of valuation for gas is at the outlet 
of the initial dehydrator.  If the 
legislature disagrees with that conclusion it is free to amend the statute.  Courts, however, are not free to 
legislate.     

 
 
[¶21] 
As Appendix 3 to its brief, Kennedy 
attached a joint revenue interim committee report and narrative discussing 
draft mineral taxation legislation.  
The DOR filed a motion to strike the attachment on the grounds that it 
was not introduced into evidence in the proceedings before the 
Board, the State had no opportunity to object to the report and it is not proper 
evidence of legislative intent.  We 
denied the motion.  In its brief, 
the DOR renews its argument that the documents are improper and should be 
disregarded by this Court.  The DOR 
cites our precedent holding that the intent of an individual legislator is not 
proper evidence of legislative intent. Greenwalt v. Ram Rest. Corp. of Wyo., 2003 WY 77, ¶ 52, 71 P.3d 717, 735 (Wyo. 
2003).    

 
 
[¶22]  The documents to which the DOR objects 
are not the statements of an individual legislator.  The documents consist of:  1) a mineral taxation report from a 
joint interim revenue committee charged by the legislature with recommending 
statutory language to define the point at which minerals are to be valued for 
taxation purposes, and 2) a narrative explaining the mineral taxation bill the 
committee recommended to the legislature.3  We have considered similar materials 
when determining the legislature's intent in enacting statutes.  Parker     Land and Cattle Co. v.     Wyo. Game and Fish Comm'n, 845 P.2d 1040, 1050 
(Wyo. 
1993).  While generally we do not 
consider such materials when the statutory language is clear, on occasion we 
have departed from the general rule.  
We do so here because we are persuaded that our "inquiry benefits from 
reviewing additional information rather than ignoring it."   Id. 
(citation omitted).  

 
 
[¶23]  Having reviewed the materials contained 
in Appendix 3, we find nothing that changes our conclusion concerning the 
meaning of § 39-14-203. The report states that the committee's primary charge 
was to develop language clarifying the point of valuation for mineral 
production. The accompanying narrative describes "the heart of the bill" to be 
the paragraph defining the point of valuation as the point at which the 
production process ends.  The 
narrative clarifies that there are four possible points of valuation for natural 
gas, including the initial dehydrator, and states that whichever occurs first is 
the point of valuation.  
Significantly, a point of sale prior to the initial dehydrator is not 
identified as one of the possible points of valuation. The report states, in 
very clear terms, "any and all expenses incurred by the producer to get the gas 
to the point of taxation will not be deductible when determining taxable 
value."  In addition, the report 
indicates a clear intent to distinguish the point of valuation from the method 
of valuation stating: 

 
 
Although 
the directive of the Legislature only required the Committee to deal with the 
question of the Point of Taxation, it became evident that to accomplish what we 
felt was intended by the Legislature, the Committee needed to expand its 
discussion to the methods of valuing minerals as well.  

 
 
Early 
in its deliberations, the Committee decided to consider finding solutions to 
both topics  the "Point of Valuation" and the "Method of Valuation."  

 
 
[D]etermining 
the proper valuation method for natural gas was more involved, as natural gas is 
sold at different points, under different circumstances.  To allow for 
these different circumstances, the proposed legislation contains four statutory 
methods to value oil and gas (in addition to the bona fide arms-length 
transaction).    

 
 
These 
statements from the report and narrative are consistent with the DOR's position 
and the express statutory language.

 
 
[¶24]  The narrative does include language, 
which Kennedy relies on to support its position, describing § 39-14-203(b)(v) as 
"maintaining the integrity of arms-length transactions for sales at the wellhead 
or other places prior to the new points of [valuation] in H.B. 149"  and suggesting that producers selling 
upstream of the point of valuation will only be taxed on what they receive, not 
on the costs of functions performed downstream of the point of sale. However, 
these isolated comments are contrary to the many statements made throughout the 
narrative that the point at which production ends is the point of 
valuation.  It is also contrary to 
the committee's description of the recommended bill as representing a compromise 
between industry's position that taxable value should be determined at the 
wellhead and the DOR's position that it should be determined at the point of 
sale or the processing plant inlet.  
Noting that these differing positions could result in the point of 
taxation moving from one place to another depending on the circumstances, the 
interim committee "attempted to define a point where the mineral is considered 
produced.  Once set, the producer 
has the responsibility for all expenses to get the mineral to that point."   

 
 
[¶25]  In its report, the interim committee 
also referenced the Wyoming constitutional provisions requiring 
that all property shall be uniformly valued and all taxation shall be equal and 
uniform.  Wyo. Const. Art. 15, §§ 
3, 11.  The committee commented that 
it had these provisions in mind in working to draft legislation that would 
satisfy the constitutional requirements.  
The committee's emphasis throughout its report and narrative on 
establishing the point of valuation for all natural gas production is 
consistent with its recognition of the uniformity requirement          

 
 
[¶26]  Like the narrative, neither the report 
nor the actual legislation contains clear language to effectuate a different 
treatment of gas sales prior to the point of valuation.  Instead the all-encompassing language 
defining the end of production as "after extracting, gathering, separating, 
injecting and any other activity which occurs before the outlet of the initial 
dehydrator" makes it clear that is the point of valuation.  To give effect to all paragraphs of § 
39-14-203, paragraph (b)(v) can reasonably be interpreted to mean only that 
while bona fide arms-length transactions shall be used to establish fair market 
value when gas is sold before production is completed, expenses the producer 
incurs prior to the point of valuation remain non-deductible because they are 
part of the production process. 

 
 

[¶27]  In response to Kennedy's suggestion that 
CBM production is different from conventional gas production prevalent at the 
time the legislature adopted the statutes in question, we note that the interim 
committee's report specifically recognizes that the "diversity in methods of 
producing gas" is one of the reasons it recommended a specific point of 
taxation.   Because we find the 
plain language of § 39-14-203(b) to be clear and unambiguous, and the limited 
legislative history not inconsistent with that language, we must conclude the 
legislature intended to establish one clear point of valuation for mineral 
taxation purposes.  If we are 
incorrect in discerning that intent, we are certain the legislature will act to 
clarify itself.  

 
 
CONCLUSION

 
 
[¶28]  Section 39-14-203(b)(ii) clearly and 
unambiguously provides that the fair market value for gas is determined after 
the production process is complete.  
Paragraph (b)(iv) further provides that the production process for gas is 
completed after it is extracted from the well, gathered, separated, injected and 
any other activity which occurs before the outlet of the initial 
dehydrator.  Under the clear 
language of paragraph (b)(ii), producer expenses incurred prior to the point of 
valuation, i.e. the outlet of the initial dehydrator, are not deductible.  The DOR properly determined the fair 
market value of Kennedy's CBM production after the production process was 
complete and disallowed expenses Kennedy incurred before the outlet of the 
initial dehydrator.

 
 
[¶29]  Affirmed.            

 
 
FOOTNOTES

 
 

1W.R.A.P. 
12.09(b) provides in pertinent part:

 
 
            
(b)  . . . in response to a 
motion for certification . . . by any party within 30 days of the filing of the 
petition for review and after allowing fifteen (15) days from service for 
response, the district court may, as a matter of judicial discretion, certify 
the case to the supreme court.  In 
determining whether a case is appropriate for certification, the district court 
shall consider whether the case involves:

                        
(1)  a novel 
question;

                        
(2)  a constitutional 
question;

                        
(3)  a question of state-wide 
impact;

            
(4)  an important local 
question which should receive consideration from the district court in the first 
instance.;

                        
(5)  a question of imperative 
public importance; or

            
(6)  whether an appeal from 
any district court determination is highly likely such that certification in the 
first instance would serve the interests of judicial economy and reduce the 
litigation expenses to the parties.

 
 

2As reflected 
in our quotation of the statute, § 39-14-203(b)(iii) pertains only to crude oil 
and lease condensate, not to natural gas; that subsection, therefore, is not 
relevant to this discussion. 

 
 

3In 1989, the 
legislature enacted Wyo. Stat. Ann. § 39-2-201(f)(ii) requiring the joint 
revenue interim committee to review and make recommendations concerning 
Wyoming's 
mineral tax policy and to offer legislation for introduction in 1990 
establishing the point of valuation for minerals under Wyo. Stat. Ann. § 
39-2-202.  1989 Wyo. Sess. Laws, Ch. 204, 391-393.  The mineral taxation report contained in 
Kennedy's Appendix 3 is the culmination of that effort.  The interim committee submitted the 
report, a draft of a recommended bill (H.B. 149), and a narrative explanation of 
the bill's intent to the legislature and the governor.   In addition to the committee's 
report, Appendix 3 contains the narrative explanation.  H.B. 149 was enacted in 1990 as Wyo. 
Stat. Ann § 39-20-208.  In 1998, the 
legislature repealed § 39-20-208 and re-enacted it as § 39-14-203.  Throughout this history, three important 
parts of the legislation have remained essentially unchanged:  the fair market value of minerals for 
tax purposes is determined when the production process is completed; the 
production process for gas is complete after any activities occurring before the 
outlet of the initial dehydrator; and expenses the producer incurs prior to the 
point of valuation are not deductible in determining fair market 
value.