Title: LANCE OIL & GAS COMPANY v. WYOMING DEPARTMENT OF REVENUE

State: wyoming

Issuer: Wyoming Supreme Court

Document:

LANCE OIL & GAS COMPANY v. WYOMING DEPARTMENT OF REVENUE2004 WY 156101 P.3d 899Case Number: 03-118Decided: 12/07/2004Notice:  This opinion is subject to formal revision before publication in Pacific Reporter Third.  Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be made before final publication in the permanent volume.
October 
Term, A.D. 2004

 
 

LANCE 
OIL & GAS COMPANY,

 

Appellant(Petitioner),

 

v.

 

WYOMING 
DEPARTMENT OF REVENUE,

 

Appellee(Respondent).

 

 

from 
the District Court of Campbell County

The 
Honorable John R. Perry, Judge

 

Representing 
Appellant:

Lawrence 
J. Wolfe, Walter F. Eggers, III, and Mark B. Lehnardt of Holland & Hart LLP, 
Cheyenne, Wyoming.  Argument by Mr. 
Eggers.

 

Representing 
Appellee:

Patrick 
J. Crank, Attorney General; Michael L. Hubbard, Deputy Attorney General; Martin 
L. Hardsocg, Senior Assistant Attorney General; and Karl D. Anderson, Senior 
Assistant Attorney General.  
Argument by Mr. Hardsocg.

 

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

 

 

KITE, 
Justice.

 

[¶1]      Lance Oil and Gas 
Company (Lance) owned an interest in certain wells in northeastern Wyoming, but 
was not the operator.  It took its 
share of production of natural gas in kind and sold it for less than $2.75 per 
MCF.  When filing its severance tax 
forms, Lance claimed an exemption pursuant to Wyo. 
Stat. Ann. § 39-14-205(f) (LexisNexis 2001) which applies when the price 
received by the producer for new production is below $2.75 per MCF.  The Department of Revenue (DOR) rejected 
Lance's claim and concluded the exemption applied only when the gross price 
received by the operator of the wells fell below the trigger price.  The State Board of Equalization (SBOE) 
affirmed DOR's ruling and Lance appealed.  
The matter was certified to this Court for review.  We affirm in part, reverse in part, and 
remand for further proceedings.  

 

 

ISSUES

 

[¶2]      The issues 
certified are:

 

1.         
Did the SBOE correctly determine that the term "price" in the new well 
incentive statute, Wyo. Stat. § 39-14-205(f), denotes a gross price as opposed 
to a net price?

 

2.         
Did the SBOE correctly determine that the new well incentive trigger 
price is only the price received by the operator, or does "producer" also mean 
an owner which takes in kind and receives a price for its production?           

 

 

STANDARD 
OF REVIEW

 

[¶3]      Our standard of 
review is well established.  

 

When 
an administrative agency case is certified to this court under W.R.A.P. 
12.09(b), we review the decision under the appellate standards applicable to a 
reviewing court of the first instance.  
The construction and interpretation of statutes are questions of law 
which we review de novo.  We 
affirm an agency's conclusions of law when they are in accordance with the 
law.  However, when the 
agency has failed to properly invoke and apply the correct rule of law, we 
correct the agency's error. 

 

Wyodak 
v. Dept. of Revenue, 
2002 WY 181, ¶9, 60 P.3d 129, ¶9 (Wyo. 2002) (citations omitted).  

 

[¶4]      We also 
recognized in Wyodak, ¶¶18-19 (some 
citations omitted) that:

 

            
In the conduct of statutory interpretation, we begin by inquiring into 
the ordinary and obvious meaning of the words employed by the legislature 
according to the manner in which those words are arranged.  If more than one reasonable 
interpretation exists, we resort to general principles of statutory 
construction.  When the legislature 
has spoken in unambiguous terms, however, we are bound to the results so 
expressed. 

 

            
We have also observed:

 

            
It is the court's obligation to make sense out of a statute and give full 
force and effect to the legislative product; in construing statutes, intention 
of the law-making body must be ascertained from the language of the statute as 
nearly as possible.  A statute must 
not be given a meaning which would nullify its operation if it is susceptible of 
another interpretation.

 

Hasser 
v. Flint Engineering, 
647 P.2d 66, 69-70 (Wyo. 1982).  
Likewise, we will not construe a statute in a way that renders a portion 
of it meaningless.  With these 
precepts firmly in mind, we consider the proper meaning of the statutes in 
question in the context of the entire tax system as established by the 
constitution and the tax code as a whole.

 

In 
State ex rel. Dept. of Revenue v. UPRC, 2003 WY 54, ¶12, 67 P.3d 1176, 
¶12 (Wyo. 2003) (citations omitted), we recognized: 

 

            

 

. . . 
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.  Moreover, "[a]ll statutes must be 
construed in pari materia; and in ascer­taining the meaning of a 
given law, all statutes relating to the same subject or hav[ing] the same 
general purpose must be con­sidered and construed in harmony." 

 

            
Therefore, in performing our review, 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.  We have said that 
divergent opinions among parties as to the meaning of a statute may be 
evi­dence of ambiguity.  
However, the fact that opin­ions may differ as to a statute's meaning 
is not conclusive of ambiguity.  
Ultimately, whether a statute is ambiguous is a matter of law to be 
determined by the court.

 

FACTS 
AND HISTORICAL BACKGROUND

 

[¶5]      The Wyoming 
legislature enacted Wyo. Stat. Ann. § 39-6-302(s) (Michie 1997) (repealed by 
Laws 1998, ch. 5, § 4), now § 39-14-205(f), in an effort to encourage the 
drilling of new oil and gas wells.  
In 2000, the legislature amended the statute, which now 
provides:

 

(f)  Crude 
oil and natural gas produced from wells drilled between July 1, 1993, and March 
31, 2003, except the production from collection wells, is exempt from the 
severance taxes imposed by W.S. 39-14-204(a)(iii) and (iv) for the first 
twenty-four (24) months of production on oil production up to sixty (60) barrels 
per day or its equivalency in gas production, which for purposes of this 
subsection shall be six (6) MCF gas production for one (1) barrel oil 
production, or until the 
price received by the producer for the new 
production is equal to or 
exceeds twenty-two dollars ($22.00) per barrel of oil or two dollars and 
seventy-five cents ($2.75) per MCF of natural gas for the preceding six (6) 
month period of time [the "trigger" price].  Provided however, that a taxpayer 
claiming a tax reduction under this subsection is prohibited from claiming a tax 
reduction provided by subsection (c) or (e) of this section.  Nothing in this subsection shall apply 
to natural gas produced from any well completed for production at a depth of 
less than two thousand feet (2,000) from the earth's surface if drilling 
activities commenced on or after April 1, 2000.  

 

Id. (emphasis 
added).

 

[¶6]      Lance is a 
"take-in-kind" owner of natural gas produced in Wyoming.1  Barrett Resources Corporation (Barrett) 
currently operates the wells at issue and sells the remaining natural gas 
produced on behalf of the other working interest owners. 

 

[¶7]      On October 12, 
2000, DOR issued a memorandum to all oil and gas taxpayers, including Lance, 
concerning § 39-14-205(f) and defining "price" as "the gross sales value of 
the well divided by the gross sales volume of the well for a particular 
month."  DOR further advised that 
the "incentive tax rate for a well expires after the above listed strike' 
[trigger] price has been met or exceeded for six consecutive months for that 
product on that well."    

 

[¶8]      On January 23, 
2001, DOR advised Lance that the exemption had expired on the wells in question 
because the price Barrett received for the rest of the working interest owners 
had exceeded the statutory "trigger" price for six consecutive months.  Lance objected, contending that the 
"trigger" price of $2.75 per MCF should not be interpreted to mean the gross 
sales price, but the net price or taxable value, i.e., the gross price less any 
transportation, processing, or other expenses incurred by the taxpayer prior to 
sale of the natural gas.  Lance also 
asserted the new well incentive should be based on the price received by each 
take-in-kind taxpayer as opposed to only the price received by the operator on 
behalf of working interest owners not taking in kind.  

 

[¶9]      Subsequently, 
Lance sought tax-exempt status for certain 2000 and 2001 gas production under § 
39-14-205(f).  DOR denied this 
request.  On appeal, SBOE affirmed 
DOR's denial of tax-exempt status to Lance.  Lance then filed a petition for review 
in the district court, which certified the case to this Court. 

                                             

 

DISCUSSION

 

 

 

[¶10]   Lance argues the term "price" as 
used within § 39-14-205(f) means a "net" price and had the legislature intended 
the incentive to be based on a "gross" price, it could have easily specified 
that intention.  In addition, Lance 
proffers that in order to harmonize the statutes that impose taxes with this 
exemption statute, § 39-14-205(f), this Court must conclude the term 
"price" means "net" price or taxable value.

 

[¶11]   In countering Lance's arguments, 
DOR argues the term "price" as used within § 39-14-205(f) is unambiguous 
and refers to "gross" price because the commonly accepted definition of the word 
"price" when used alone implies a "gross" price as opposed to a "net" price 
calculated after allowed deductions.  
DOR also asserts that had the legislature meant "net" price or taxable 
value, it simply could have said so as it has done in other tax statutes.  

 

[¶12]   Our analysis must begin with a 
determination of whether § 39-14-205(f) is unambiguous.  If the statute is unambiguous, we must 
give effect to the plain and ordinary meaning of the language used in the 
statute.  Construction of 
legislative enactments is only appropriate where the enactment has first been 
found, as a matter of law, to be ambiguous.  A statute is unambiguous if its wording 
is such that reasonable persons are able to agree to its meaning.  Airtouch Communications, Inc. v. Dept. of 
Revenue, 2003 WY 114, ¶14, 76 P.3d 342, ¶14 (Wyo. 2003) (citing Snake River Brewing Co., Inc. v. Town of 
Jackson, 2002 WY 11, ¶29, 39 P.3d 397, ¶29 (Wyo. 2002)); Petroleum Inc. v. State ex rel. State Board 
of Equalization, 983 P.2d 1237, 1240 (Wyo. 1999); Chevron U.S.A., Inc. v. State, 918 P.2d 980, 984 (Wyo. 1996); General Chemical 
Corp. v. State Board of Equalization, 819 P.2d 418, 420 (Wyo. 1991)); State ex rel. Dept. of Rev. v. UPRC, 
¶12; and Wyodak, ¶¶18-19.

 

[¶13]   We do find the term "price" as used 
in § 39-14-205(f) to be unambiguous.  
The common meaning of the word "price" is:  the amount of money or other 
consideration asked for or given in exchange for something else; the quantity of 
one thing that is exchanged or demanded in barter or sale for another; or cost 
at which something is obtained.  
See Black's Law Dictionary 1207 (7th ed. 1999); Webster's Third New 
International Dictionary 1798 (1966).2  Lance argues that had the legislature 
intended "gross" price, it would have used the word "gross."  We disagree. Since the term "price" 
means the full amount paid, there was no need to specify "gross" price.  Contrary to Lance's contention, we 
conclude if the legislature intended "net" price, it would have so stated.   

 

[¶14]   Even assuming that § 39-14-205(f) 
could be deemed ambiguous, we would reach the same result by construing its 
meaning in light of other related Wyoming severance tax statutes.  Throughout those statutes, the term 
"price" is not synonymous with "net" price or taxable value.  Rather, when the legislature has 
addressed the deduction of expenses or a "net" price, it has done so in the 
context of determining "fair market value" or "value," as opposed to simply 
"price."  For instance, Wyo. Stat. 
Ann. § 39-14-203(b)(ii) (LexisNexis 2003) states in applicable part, "expenses 
incurred by the producer prior to the point of valuation are not deductible in 
determining the fair market value of the mineral."  In the same way, Wyo. Stat. Ann. § 
39-14-203(b)(vi)(B) (LexisNexis 2003) provides, under a comparable value 
computation, that "fair market value is the 
arms-length sales price less processing and transportation fees 
charged to other parties."  
Similarly § 39-14-203(b)(vi)(C) states, under a netback calculation, 
"fair market value is the sales price minus expenses incurred by 
the producer for transporting produced minerals to the point of sale and third 
party processing fees."  Thus, we 
conclude the term "price" as used by the legislature is distinguished from 
taxable value which is a "net" price. We find unpersuasive Lance's argument that 
it should be allowed to subtract its post-production transportation and other 
processing costs to arrive at the net "price" of the mineral for purposes of 
applying the new well incentive.

 

[¶15]   We also find 
inapplicable PacifiCorp, Inc. v. Dept. of 
Revenue, 2001 WY 84, 31 P.3d 64 (Wyo. 2003), which held that the appraised value of tax exempt property 
must be calculated in the same manner as taxable property, constituting an 
"apples to apples" comparison.  In 
the new well incentive statute, the legislature was not addressing appraised 
value, but instead was defining the market conditions in which it was willing to 
provide a tax incentive to producers.  
Therefore, comparing the trigger price in the incentive statute to the 
fair market value is truly an "apples to oranges" comparison. 

 

[¶16]   Lance's interpretation of "price" 
also ignores the legislature's clear intent, which was to encourage the drilling 
of new wells at times in which the market price for oil and gas is low.  If Lance's interpretation were correct, 
it would transform the new well incentive into a benefit for those paying higher 
processing, transportation and related costs, which is not the actual purpose of 
the new well incentive.

 

 

2.         
Producer

 

[¶17]   In its second issue, Lance argues 
that the term "producer" as set forth in § 39-14-205(f) includes both working 
interest owners who are operators and take-in-kind interest owners who report 
their own production and pay taxes on that production. DOR contends the term "producer" unambiguously refers only 
to the entity that physically extracts the oil.  DOR seems to infer that the term 
"producer" is analogous to the term "operator."  DOR also asserts that the 
legislature's use of the word "producer" with respect to the trigger price, but 
use of the term "taxpayer" later in the statute, indicates the legislature was 
making a distinction between these two terms. Therefore, DOR argues that every producer is a taxpayer, 
but all taxpayers are not producers.  

 

[¶18]   Upon review of the language used by 
the legislature in § 39-14-205(f), we conclude the term "producer" is ambiguous 
and when construed in context includes a working interest owner who receives a 
price for its production.  SBOE 
disagreed with Lance's suggestion that "producer" meant the same thing as 
"taxpayer." SBOE contended that by using two different terms, the legislature 
meant  to refer to two different 
entities.  We do not suggest that 
"producer" and "taxpayer" are interchangeable, but only that "producer" in this 
context means an owner that receives a price for its new production.  This interpretation does not render the 
word "taxpayer" used within the latter portion of the statute meaningless, as 
suggested by SBOE.  That reference 
is to the entity claiming the deduction and if the oil or gas qualifies for an 
exemption because of the price for which it is sold, all owners of that 
production are taxpayers who could claim the deduction.  The term producer is simply used to 
determine when an exemption is available, not who is entitled to the exemption. 

 

[¶19]   In interpreting statutes, we are 
governed by the fundamental rule that the role of the courts is to give effect 
to the plain meaning of unambiguous terms chosen by the legislature.  Union 
Pacific Resources Co. v. Dolenc, 2004 WY 
36, ¶13, 86 P.3d 1287, ¶13 (Wyo. 2004).  
If a statute is unambiguous, we need not apply the traditional rules of 
statutory construction.  
Id.  Whether a statute 
is ambiguous is a question of law.  
Id.  We conclude DOR 
and SBOE were incorrect in concluding the term "producer," as used by the 
legislature in this context, is unambiguous.  The best evidence of this mistaken 
conclusion is DOR's need to resort to various rules of statutory construction in 
order to arrive at the meaning it ascribes to the term.

 

[¶20]   An 
ambiguous 
statute is one whose meaning is uncertain because it is susceptible to more than 
one interpretation.  Allied 
Signal v. State Board of Equalization, 813 P.2d 214, 219 (Wyo. 1991); State Board of Equalization v. Tenneco, 694 P.2d 97, 100 (Wyo. 1983). 
A 
"producer" could mean one who owns a working interest in oil and gas, invests in 
the drilling of wells to produce that resource, and sells that production to a 
third party, thus "receiving a price."  
"Producer" could also mean the party who operates the well and is 
responsible for physically bringing the oil to the surface.  The term "producer" is not defined in 
the taxation statutes or DOR's regulations.  Nor is it a technical term in the oil 
and gas industry such that it has a well-developed meaning.        

 

[¶21]   In the development and production 
of any oil and gas well, various actors play a part:  the lessor as the owner of the oil and 
gas estate who usually retains a royalty interest; the lessees who each have the 
right to drill and produce the resource and are referred to as the "working 
interest" owners; the operators of the well who are usually, but not always, one 
of the working interest owners; and the purchasers of the production.  In many cases, others may have an 
interest in the revenue produced by the well, although no control over its 
operation, such as owners of overriding royalty interests and production 
payments.  Most wells involve 
multiple working interest owners each owning a percentage share of the leasehold 
estate.  Any working interest owner 
can decide to drill a well and the other working interest owners must either 
consent and pay their share, or go "non-consent" and, if the well is productive, 
their share of the expenses plus a penalty will be deducted from their share of 
the revenue.  Wyo. Stat. Ann. § 
30-5-109(g) (LexisNexis 2003).  
Working interest owners usually contract through operating agreements to 
have one such owner conduct the day-to-day operations of the well.  27A Rocky Mountain Mineral Law 
Institute, "Cry Wolf: Sherman & Clayton Acts," p. 21-23 (Matthew 
Bender 1982).  Most operating 
agreements provide that individual working interest owners are responsible for 
disposing of their share of production and for paying the required taxes and 
royalties due on that production.  6 
Walter L. Summers, Oil and Gas, Ch. 41, § 1328, p. 13 (West 
1967); 27B Rocky Mountain Mineral Law Institute, "Oil and Gas 
Operations," p. 1665.  If 
an owner fails to take in kind or make arrangements to dispose of its 
proportionate share, the operator may either purchase the oil and gas or sell it 
to others.  Id.  In a typical operating agreement, no one 
is delineated as the "producer."

 

[¶22]   The statutes governing the taxation 
of oil and gas define only one of these actors, e.g. "purchaser" which means 
"first purchaser who acquires the produced crude oil, lease condensate or 
natural gas from the taxpayer for value."  
Wyo. Stat. Ann. § 39-14-201(a)(xvi) (LexisNexis 2003).  DOR's rules and regulations define 
"operator" as "any person responsible for the day-to-day operation of a mine or 
oil and gas property by reason of contract, lease or operating agreement or 
ownership of an unleased producing mine or well operated by the owner 
thereof."  Dept. of Rev. Rules, Ch. 
6, § 4(j).  A dictionary of the 
technical meaning of terms used in the oil and gas industry recognizes that the 
term "producer" can include, "an operator who owns wells that produce oil or 
gas,"  "a person who owns or is 
entitled to a share of production or the proceeds thereof" and  "the operator' of a well or 
wells."  Howard R. Williams, & 
Charles J. Meyers, Manual of Oil and Gas Terms, 846 (llth Ed. 2000).  Thus, in the oil and gas industry, the 
term "producer" can mean two different entities, an owner who operates wells or 
an owner who simply is entitled to a share of the production. 

 

[¶23]   While the oil and gas severance tax 
statutes do not define "producer," the statutes governing oil and gas production 
do.  Wyo. Stat. Ann. § 30-5-101(vi) 
(LexisNexis 2003) defines the term as "the owner of a well or wells capable of 
producing oil and gas or both."  The 
term "owner" is further defined as "the person who has the right to drill into 
and produce from a pool and to appropriate the oil and gas he produces therefrom 
either for himself or others."  Wyo. 
Stat. Ann. § 30-5-101(v) (LexisNexis 2003).3   While this definition does not 
directly control the meaning of the term as it is used in the tax statutes, it 
is certainly reasonable for us to assume the legislature was aware of it and 
understood how the term was used in the regulation of the industry as a whole at 
the time it adopted the incentive statute.  
Both Barrett and Lance would obviously qualify as a producer under these 
definitions.

 

[¶24]   Without a statutory definition in 
the tax statutes themselves, and given the various possible meanings within the 
industry, and the use of the term in the general oil and gas statutes, the 
conclusion is unavoidable that the term "producer" in this context is 
ambiguous.  Applying the rules of 
statutory construction to this ambiguous term, we must first look at the context 
in which the term is used.  
Board of County Comm'rs v. 
City of Cheyenne, 2004 WY 16, ¶27, 
85 P.3d 999, ¶27 (Wyo. 2004).  
"Producer" 
is used to describe the "price" that serves to trigger the tax exemption.  It would appear the legislature intended 
the trigger price to be that price received by any producer of oil or gas from 
the well in question.  Certainly, 
the legislature was aware that different owners could receive different prices 
for their share of the production.  
Had it intended only one producer's price should govern the exemption for 
all owners, it could have said so.  
DOR worries that such an interpretation could allow a non-operating 
working interest owner to receive an exemption while the operating working 
interest owner did not.  That is 
certainly true, but it is likewise true, as recognized by the SBOE, that using 
only the operating working interest owner's price as the trigger, as suggested 
by DOR, could allow a non-operating, take-in-kind working interest owner who was 
obtaining a price higher than the trigger price to receive an exemption 
anyway.  We find it more likely that 
the legislature intended that only owners receiving less than the trigger price 
should be entitled to an exemption, rather than intending that an owner 
receiving a price higher than the trigger price should get an exemption simply 
because the operating owner received a price lower than the trigger 
price.

 

[¶25]   This conclusion is consistent with 
the apparent purpose of the statute to encourage those considering investing in 
oil well drilling to do so even in the face of low market prices.  All working interest owners (other than 
those choosing the "non-consent" option) participate in the decision to drill a 
particular well, not just the operator.  
Operators often change depending on the business considerations of all 
the owners.  In fact, in this case, 
Lance drilled 298 out of the 400 wells in question and was the original operator 
of most of the wells until July of 1999, when Barrett was chosen as the 
operator.  DOR's inference that a 
take-in-kind owner is somehow not involved in the investment decision, and that 
the trigger price would not operate as an incentive to that owner, is simply 
unsupportable.

 

[¶26]   In a somewhat confusing analysis, 
DOR seems to suggest that because the severance tax is imposed on the privilege 
of extracting the mineral, somehow that fact requires the conclusion that only 
the operating owner "severs" the mineral and therefore, is the producer.  However, both the statutes, and the DOR 
rules implementing them, provide that  
the owner of the mineral, not the operator, is responsible for paying the 
severance taxes.  Section 
39-14-203(c)(ii) provides: 

 

            
In the case of severance taxes, any person extracting crude oil, . . . 
and any person owning an interest in the crude oil, . . . production to the 
extent of their interest ownership are liable for the payment of the severance 
taxes . . ..
 

The 
phrase "to the extent of their interest ownership" modifies "any person 
extracting" and "any person owning" and, read properly, the statute clearly 
provides that each owner is responsible for taxes to the extent of their 
ownership.  That concept is repeated 
in the DOR rules, in the section entitled "Persons Responsible for Remittance of 
Tax: Take in Kind Election, Term, Termination, and Exchange of Information," 
which provides, "[a]ll severance taxes on the gross product from an oil or gas 
property attributable to any working or non-working interest owners shall be 
remitted by the interest owner or may be remitted on behalf of the interest 
owner in proportion to his ownership interest by the operator."  Dept. of Rev. Rules, Ch. 6, 
§6(a)(ii).  With regard to 
take-in-kind working interest owners, the rules provide the take-in-kind owner 
must pay the tax or specifically elect the option of having the operator pay on 
its behalf.  Dept. of Rev. Rules, 
Ch. 6, §6(a)(iii).  

 

[¶27]   DOR seems to be advocating for the 
creation of a new classification of owner, one that operates the well and, it 
argues, pays all the taxes, as the owner that actually "severs" or "produces" 
the oil.  This reasoning ignores the 
reality that all of the owners participate in that severance and, as a result, 
are liable for the severance tax.  
The severance tax construct simply does not contain any reference to a 
"producer."  DOR's position could 
result in the exemption being triggered by the price received by a contract 
operator.  This result would not 
further the legislative intent of encouraging those responsible for drilling 
decisions, e.g. the owners, to drill when prices are low.  

 

[¶28]   As another reason for denying the 
exemption to a take-in-kind owner, DOR seems to suggest that to do otherwise 
would encourage such owners to seek a lower price for their production or not 
adequately market their production simply to obtain the exemption. These 
concerns ignore the realities of the marketplace.  All owners are motivated to get the best 
price and terms possible for their production.  In some cases, the terms, e.g. contract 
length, may dictate a lower price, which may account for the differences in 
prices obtained by various owners in the same well.  Even if DOR's counter-intuitive 
suggestion were accurate, it would apply as well to the "owner who is 
extracting," which DOR would say is entitled to the 
exemption.

 

[¶29]   DOR suggests any ambiguity must be 
resolved in favor of denying the exemption because of the rule that tax 
exemptions are not favored and must be strictly construed. State Board of 
Equalization v. Wyoming Automobile Dealers Ass'n, 395 P.2d 741 (Wyo. 
1964).  However, that rule does not 
prevent the correct interpretation of a statute simply because that 
interpretation results in an exemption. 

 

When 
it is said that exemptions must be strictly construed in favor of the taxing 
power, this does not mean that if there is a possibility of a doubt it is to be 
at once resolved against the exception.  
It simply means that if, after the application of all rules of 
interpretation for the purpose of ascertaining the intention of the legislature, 
a well founded doubt exists, then an ambiguity occurs which may be settled by 
the rule of strict construction.

 

Cooley, 
The Law of Taxation § 674, p. 1415 (1924).  Further, 
an interpretation that has the effect of denying Lance an exemption because only 
one "producer" can exist on a well is not "strict construction" because it would 
allow a take-in-kind owner who gets a higher price than the trigger price to 
still qualify for an exemption if the operator/producer received a lower 
price.  DOR's interpretation would 
succeed only in denying the current applicant's exemption without consideration 
of how future applicants could expand the exemption beyond what the legislature 
intended.

 

[¶30]   While the legislature did not 
provide us with much to go on in understanding the meaning of the "price 
received by the producer," the most logical interpretation must include any 
owner who sells its own production and receives a price.  In this case, that would include both 
Barrret and Lance.  If the 
legislature meant something different, it certainly could have said so in plain 
language.

 

 

CONCLUSION

 

[¶31]   We affirm the SBOE's conclusion 
that the term "price" as used in § 39-14-205(f) is unambiguous and means gross 
price.  However, we hold that the 
term "producer" as used in the statute is ambiguous. Applying accepted rules of 
statutory construction, we conclude "producer" means any oil and gas owner that 
receives a price for the sale of its share of production, including a 
take-in-kind owner.  Consequently, 
the SBOE order is affirmed in part, reversed in part, and remanded for further 
proceedings consistent with this opinion.

 

FOOTNOTES

 

1A "take-in-kind" owner is generally defined as a party who elects to take 
a portion of the mineral produced rather than receive monetary remuneration for 
their share of the production.  
(Dept. of Rev. Rules, Ch.6, Sec. 4 a(s)). 

 

2Similarly, § 39-14-201(a)(i) defines "arm's length market or sales price" 
as the transaction price determined in connection with a bona fide arm's length 
sale. 

 

3Lance's brief refers to these definitions as being included in the 
"Wyoming Royalty Payment Act."  
However, they are located at the beginning of the general oil and gas 
statutes and apply "in this act" which addresses the regulation of oil and gas 
development by the Oil and Gas Conservation Commission, the Interstate Compact 
on Conservation, as well as the Payment for Interests in 
Production.