Case Name: In re ASSESSMENT OF OMITTED PROPERTY OF PRAIRIE OIL & GAS CO.
Court: Oklahoma Supreme Court
Jurisdiction: Oklahoma
Decision Date: 1932-07-27
Citations: 159 Okla. 181
Docket Number: No. 20914
Parties: In re ASSESSMENT OF OMITTED PROPERTY OF PRAIRIE OIL & GAS CO.
Judges: RILEY, OULLISON, SWINDALL, ANDREWS, and McNEILL, JJ., concur. KORNEGAY, J., dissents. LESTER, O. J., and CLARK, Y. C. J., absent.
Reporter: Oklahoma Reports
Volume: 159
Pages: 181–186

Head Matter:
In re ASSESSMENT OF OMITTED PROPERTY OF PRAIRIE OIL & GAS CO.
No. 20914.
Opinion Filed July 27, 1932.
Chas. E. France, T. J. Flannelly, Paul B. Mason, and Burford, Miley, Hoffman, & Bur-ford, for appellant.
Clarence Tankersley, Oo. Atty., and Paul C. Thorn, Asst. Co. Atty., for Pottawatomie County and State of Oklahoma.

Opinion:
HEFNER, J.
This is an appeal by the Prairie Oil & Gas Company, a corporation, from a judgment of the county court of Pottawatomie county in a tax ferret proceeding. The proceeding was instituted before the county treasurer by the ferret for the purpose of having placed upon the tax roll, as omitted property for the year 1928, a pump station and water line belonging to the above company. The treasurer sustained the proceeding and ordered the property assessed on an ad valorem basis as omitted property. The company appealed to the county court, where a trial de novo was had. The defense was that the pump station and water line were used in connection with a producing oil well, and that such use was actually necessary and indispensable in the production thereof. The trial resulted in judgment in favor of the state. The oil company has appealed and asserts that the judgment is contrary to law. With this contention we agree.
There is no dispute as to the facts. Appellant was operating several producing wells. It had constructed a water pump sta^ tion about seven miles from the lease being operated, and a water line was built from the station to ,the lease. The evidence shows that it was necessary to have and use the water in connection with the operation of the wells; that production could not proceed without the use of the water; and that water could not be obtained conveniently in sufficient quantity at a closer distance to operate the wells. Section 9814, C. O. S. 1921 [O. S. 1931, sec. 12434], after providing for the levy and collection of a gross production tax on oil, gas, and other minerals produced in this state, further provides:
"The payment of the taxes herein imposed ' shall be in full and in lieu of all taxes by the state, counties, cities, towns, townships, school districts and other municipalities upon the machinery, appliances, and equipment used in and around any well producing petroleum or other crude or mineral oil or natural gas, or any mine producing asr phalt, or any of the mineral ores aforesaid and actually used in the operation of such well or mine. "
It is the contention of the state that the property involved is subject to an ad valor-em tax for the reason that it was not used in or about the well; that the pump station was located in an adjoining county and about 7 miles distance from the operating wells; and that it is therefore not exempt from ad valorem taxation, notwithstanding the gross production tax, as provided by section 9814, supra, has been paid. In support of this contention, counsel rely upon the case of Going, County Treas., v. Shaffer, 89 Okla. 4'6, 213 P. 736. In our opinion, this case is not applicable to the facts here involved. In the cited case the producer and party seeking to exempt the property from ad valorem .taxation was the owner of several hundred producing wells. Ten miles from these wells, he erected large steel storage tanks and pipe lines to eonvtey the oil from the receiving tanks to the storage tanks. This court held that the pipe line and storage tanks were subject to ad valorem taxation notwithstanding the gross production taxes on the leases and oil produced therefrom had been paid. In rendering the opinion, the court said:
"Conceding that the evidence fully sustains the finding of the trial court, that these steel tanks and pipe lines were used exclusively by the plaintiff in producing and caring for the crude petroleum, we are of the opinion .that the findings of the trial court and the testimony incorporated in the record do not show that these tanks were used in the operation of the oil wells, or that they were used in and around producing wells. As we have heretofore stated, tin:re were small receiving tanks in and arotnd the producing wells which were actually used in the operation of such wells; but after it was received in these small tanks, it was conveyed to the steel tanks, which are the subject of this controversy, to be cared for until it could be marketed. We do not think it was intended by the Legislature ,to exempt from the ad valorem tax property of this kind, and think that such property cannot be considered as coming wiihin the provisions of the statute, which requires the property ,to be used in and around the producing wells, and to be used in the operation of such wells."
Under the facts there presented, it cannot be said that the pipe line and steel storage tanks were used in connection with producing wells and actually used in the operation thereof.
In the instant case, the well could not be operated without the use of water. The pump station and water line, under the evidence here presented, were used in connection with a producing well and actually used in the operation thereof. Under the plain provisions of the' statute, the property here involved was exempt from ad valorem taxation where the gross production tax was paid upon the oil produced.
In the case of In re Gross Production Tax Wolverine Oil Co., 53 Okla. 24, 154 P. 362, this court, speaking on the question of the kind and' character of equipment and machinery exempt from ad valorem taxation under section 9814, supra, said:
"The equipment and machinery referred to is confined to that used in the actual operation of producing wells, hence does not include equipment and machinery on hand, and not so used. IBy the act a tax is levied based upon the value of the gross production. This can only arise through the discovery and production of oil or gas. The equipment and machinery owned by the producer, and which is- an indispensable agency in the discovery and production of the com.modi'ty, forms a part of the property out of which the production arises. Without it production is impossible. The same is not taxed diirectly, neither are the lands or leases, where the production is through a lessee."
To the same effect is the ease of Board of Equalization of Carter County v. Carter Oil Co., 152 Okla. 99, 3 P. (2d) 816. It is there held that property and equipment which is an. indispensable agency in the discovery and production of oil and used in and around a producing well and actually used in the operation of the well is exempt from ad valorem taxation.
In our opinion, the evidence in this case shows that water for the operation of the wells was an indispensable agency in the operation of the wells for oil and gas purposes; and .that the source of supply could not be had at a nearer point. In reference to these two points, the evidence is as follows :
"Q. What was the purpose of the construction of ,the pump station herein involved? A. In order to get water to operate our leases. Q. What leases, just briefly refer to them by name and location, do you refer to ? A. The Otis Graham, in section 10, 9, 5, Seminole county; the Oharley Graham, section 3, 9, 5; the I-tuth Stidham, in section 11, 9, 5; and Oharley Davis, in section 13, 9, 5. Q. Do you know, Mr. Newport, the number of producing wells upon the leases you have named, on January 1, 1928? A. About 20, I believe. Q. About 20 producing wells upon ithose leases at that time? A. About, yes, sir. Q. I will ask you to state whether or not it is necessary to have water for drilling wells, and for the production and pumping of oil from the wells? A. Yes, sir, it is. Q. How many barrels of water per day are required for each producing well? A. About 25 barrels. Q. And that much was required for each of these 20 wells upon the leases you have referred .to? A. That were producing, yes, sir? Q. How are these wells pumped, how is the oil pumped out of them? A. By air lift. Q. Is water required for that purpose? A. Yes, sir. Q. How many air lifts do you use for these particular wells ? Mr. Lewis: I would like for you to state the time of your question. Q. As to January 1, 1928? A. There were four, one on each lease. Q. I will ask you to state whether there was water available on the leases in question on January 1, 1928, for these purposes? A. No, sir; there was not. Q. Is there water available there now? A. No, sir. Q. State what efforts you have made to obtain water to be used in the production of oil from these leases, as of January 1, 1928? Q. (By Mr. France) : State, Mr. Newport, whether or not there is a water supply available for use in producing oil from the wells on these leases in question, and whether or not there was water available for that purpose on January 1, 1928, at a nearer point than the place where this pump station is constructed? A. No, sir ; there wasn't. The supply that we would have to have was not available nearer. Q. As a matter of fact, this pump station involved here was constructed at the nearest available water supply? A. Yes, sir. Q. State generally, Mr. Newport, why it is necessary to have water in the production of the oil from these leases which you have enumerated? A. In an air lift station you have to have water to cool the gas or gas which you might use between the two stages, and in the water jackets of your engine, and the same on a pumping well, or a gas engine used to pull tubing the water jackets require water. Q. Are all of the wells upon the lease in question and were said wells on January 1, 1928, pumped by air lift? A. Yes, sir. Q. Is it possible to pump the wells without the water supply? A. No, sir; you couldn't do it without water; you couldn't run your machinery. Q. This may be a repetition, but how much water per day is required for an air lift station? A. On those stations there, small ones, it will run from 1,500' to 1,700 barrels per station, and on the larger stations it will run into 2,000 barrels per day. Q. What was the type of stations on these leases? A. On the Stidham we had 185 horse-power units. Q. Was that the largest station? A. Yes, sir. Q. What is the required amount of water per day for that station? A. About 2,000 barrels. Q. What were the types of the other stations? A. They were 90 horse power. 0- They used about how much water per day? A. Fifteen hundred to seventeen) hundred barrels. Q. What was the source of those water supplies you used from sections 28 and 13? A. Just ponds. Q. Did you exhaust that supply? A. Yes, sir."
It seems clear to us that this evidence establishes that water is an indispensable agency in the operation of the wells in question, and that a sufficient supply could not be had at a nearer point. In fact there is not a line of evidence in the record to the contrary.
This being true, in our opinion, the property in question was not subject to ad valorem taxation for the year 1928. The judgment is reversed and the cause remanded, with directions to dismiss the proceedings.
RILEY, OULLISON, SWINDALL, ANDREWS, and McNEILL, JJ., concur. KORNEGAY, J., dissents. LESTER, O. J., and CLARK, Y. C. J., absent.