Opinion ID: 2458767
Heading Depth: 1
Heading Rank: 8

Heading: Statutes and Regulation

Text: Both parties point to K.S.A. 55-176(a) as providing the statutory authority for the imposition of the conservation fee. That provision states, in relevant part: [T]he [KCC] shall assess operators or their designated agents for all or part of the actual costs and expenses incurred in: (1) The supervision, administration, inspection, investigation; (2) the enforcement of this act and the rules and regulations adopted pursuant to this act; and (3) monitoring and inspecting oil and gas lease salt water and oil storage, disposal and emergency facilities. Elsewhere, the term operator is defined as a person who is responsible for the physical operation and control of a well, gas gathering system or underground porosity storage of natural gas. K.S.A. 55-150(e). Hockett, as a royalty owner, has no responsibility for the physical operation and control of the Hockett well, i.e., Hockett is not an operator. Likewise, Oil Company does not assert that Hockett is its designated agent. Accordingly, Hockett's straightforward argument is that the plain and unambiguous language of K.S.A. 55-176 only authorizes the KCC to assess a conservation fee against Oil Company, the operator of the Hockett well. To implement K.S.A. 55-176, the KCC promulgated K.A.R. § 82-3-307, which provides in relevant part: In order to pay the conservation division expenses and other costs in connection with the administration of the gas conservation regulations not otherwise provided for, an assessment shall be made as follows. (a) A charge of 12.90 mills shall be assessed on each 1,000 cubic feet of gas sold or marketed each month. The assessment shall apply only to the first purchaser of gas. (b) Each month, the first purchaser of the production shall perform the following: (1) Before paying for the production, deduct an amount equal to the assessment for every 1,000 cubic feet of gas produced and removed from the lease; (2) remit the amounts deducted, in a single check if the purchaser desires, to the conservation division when the purchaser makes regular gas payments for this period; and (3) show all deductions on the regular payment statements to producers and royalty owners or other interested parties. Oil Company points out that the regulation assesses the conservation fee against the first purchaser, based on the total production, and requires the first purchaser to give written notice to both the producers and the royalty owners. It suggests that this framework supports its contention that the royalty owners proportionately share in postproduction costs and fees. We disagree. First, the regulation does not explicitly purport to assess the conservation fee against royalty owners. The use of total production to measure the amount of an operator's conservation fee could fulfill the purpose of equally applying the fee to all operators, regardless of the fractional interest being paid as royalty, e.g., 1/8 or 3/16. Assessing the fee against the first purchaser may simply be the most effective, efficient means for the KCC to collect the fees. Likewise, the notice requirement would allow a royalty owner to calculate the proper amount of royalty he/she/it should be receiving, given that the first purchaser's payment to the operator is less than the gross sales price. Next, even if an intent to assess conservation fees against royalty owners could be gleaned from the regulation, the KCC exceeded its statutory authority. See In re Tax Appeal of Alex R. Masson, Inc., 21 Kan.App.2d 863, 867, 909 P.2d 673 (1995) (To be valid, a regulation must come within the authority conferred by statute, and a regulation which goes beyond that which the legislature has authorized or which extends the source of its legislative power is void.). Under its plain language, K.S.A. 55-176 simply does not give the KCC authority to assess conservation fees against royalty owners.