Opinion ID: 2629624
Heading Depth: 3
Heading Rank: 1

Heading: Interpretation in Williams

Text: [¶ 18] The terms initial dehydrator and processing facility are not defined in the statutes. However, we interpreted these terms in Williams Prod. RMT Co. v. Wyoming Dep't of Revenue, 2005 WY 28, ¶ 34, 107 P.3d 179 (Wyo. 2005). That opinion provides guidance in our current efforts to interpret the statutory terms.
[¶ 19] At issue in Williams was the proper point of valuation for coal bed methane [3] that was gathered from separate wellheads and sent through pipelines and compressors to a triethylene glycol (TEG) dehydrator, a fairly typical example of the Type 1 dehydrator discussed by ExxonMobil's expert witness. In Williams, the Department considered the TEG dehydrator to be the initial dehydrator and, under the first sentence of the statute, set the point of valuation at the dehydrator outlet. Williams disagreed, asserting that dehydration also occurred when the gas was gathered and compressed, long before the gas got to the TEG dehydrator. On that basis, Williams denied that the TEG dehydrator was the initial dehydrator, and contended that the correct point of valuation was at the gathering or compression stages where the gas was also dehydrated. Id., ¶ 12, 107 P.3d at 184. After a hearing, the Board affirmed the Department's position, and Williams appealed to this Court. [¶ 20] Because the statutes did not define the term initial dehydrator, we turned to the statutory definition of dehydrator, which is a device which removes water vapor that is commonly associated with raw natural gas. Wyo. Stat. Ann. § 39-14-201(a)(vii) (LexisNexis 2003). Williams asserted that its gathering equipment and compressors removed water vapor from the raw natural gas, and therefore fell within the definition of a dehydrator. Because the gathering equipment and compressors were upstream of the TEG dehydrator, Williams contended that they constituted initial dehydrators. The Court rejected Williams's position and affirmed the Board's decision on this basis: Citing to numerous pieces of technical evidence in the record, the Board found that, unlike the incidental separation of water and CBM in headers and compressors, and in the pipeline, itself, the TEG dehydrator is a specialized dehydrator  a particular piece of equipment. The Board found this significant because of Wyo. Stat. Ann. § 39-14-203(b)(iv)'s location of the point of valuation at the outlet of the initial dehydrator  a piece of equipment  rather than at the initial place that any dehydration  a function  takes place. Once again, we find that the Board's interpretation of the statute to be consistent with legislative intent. Williams, ¶ 22, 107 P.3d at 186. In other words, the gathering equipment and compressors caused some separation of water from the gas, but that was only incidental to their intended functions of gathering and compressing the gas. The TEG dehydrator was the initial dehydrator specified in the statute, because it was the first particular piece of equipment with the specialized and intended purpose of dehydrating the raw natural gas.
[¶ 21] We also rejected Williams's contention that its TEG dehydrator was a processing facility. The term processing facility is not defined by statute, but the term processing is: any activity occurring beyond the inlet to a natural gas processing facility that changes the well stream's physical or chemical characteristics, enhances the marketability of the stream, or enhances the value of the separate components of the stream. Processing includes, but is not limited to fractionation, absorption, adsorption, flashing, refrigeration, cryogenics, sweetening, dehydration within a processing facility, beneficiation, stabilizing, compression (other than production compression such as reinjection, wellhead pressure regulation or the changing of pressures and temperatures in a reservoir) and separation which occurs within a processing facility. Wyo. Stat. Ann. § 39-14-201(a)(xviii). [¶ 22] Williams argued that the TEG dehydrator was a processing facility because it performed at least some of the functions ( e.g. absorption) listed in this statutory definition. The Board rejected that argument: The Board also relied upon the testimony of witnesses . . . as to characteristics of processing facilities and the lack of those characteristics in the [Williams] facilities. The common understanding of these witnesses was that there was an identifiable universe of processing plants, such as Whitney Canyon, Painter, and Carter Creek. Clearly, within the industry, the term processing facility has a specialized meaning beyond a collection of disparate pieces of equipment. Williams, ¶ 17 n.2, 107 P.3d at 185 n.2. We affirmed the Board's decision. Like an initial dehydrator, a processing facility is a particular facility constructed for an intended and specialized purpose. The purpose of a processing facility, in simplified terms, is to remove components such as condensate, natural gas liquids, or sulfur from the gas stream, id., ¶ 19, 107 P.3d at 186, which changes the well stream's physical or chemical characteristics and enhances its marketability. Wyo. Stat. Ann. § 39-14-201(a)(xviii). The TEG dehydrator in Williams did separate some components from the gas stream, but that separation was only incidental to its intended function of dehydration. The TEG dehydrator was not a processing facility because it was not a particular facility with the intended and specialized purpose of removing these components from the gas stream.

[¶ 23] As interpreted in Williams, the statutory term initial dehydrator is the first device or particular piece of equipment with the intended and specialized purpose of dehydrating natural gas. It is undisputed that the Black Canyon facility dehydrates natural gas, and is intended to do so. It is also undisputed that Black Canyon is the first such equipment in the LaBarge Project gas stream. For these reasons, the Department contends that Black Canyon is an initial dehydrator, falling within the first sentence of the statute. [¶ 24] While ExxonMobil acknowledges that Black Canyon is a dehydrator, it insists that the legislature intended the statutory term initial dehydrator to apply to facilities very different from Black Canyon. Because the legislature did not define the term, ExxonMobil contends that the legislature must have intended to use it in a common and familiar way so it would be readily understood by the petroleum companies that are required to calculate, report, and pay the severance taxes they owe. ExxonMobil further maintains that Type 1 dehydrators are so common and familiar that the legislature must have had Type 1 dehydrators in mind when it used the term initial dehydrator without defining it. ExxonMobil then compares Type 1 dehydrators to the Black Canyon facility, and contends that the contrasts are so significant that the legislature could not have intended the term initial dehydrator to include both types. [¶ 25] As the Board found, Type 1 dehydrators are not significantly larger than a truck. The Black Canyon facility covers more than 2 million square feet, an area described by ExxonMobil's expert witness as equivalent to 30 football fields. Type 1 dehydrators are generally unstaffed, but checked periodically by field personnel. Black Canyon employs 35 full-time workers. Type 1 dehydrators are not individually designed, one-of-a-kind units, but can be ordered prepackaged and shipped to the site. Black Canyon is unique, a facility specifically designed and constructed to meet many unusual conditions encountered in the LaBarge Project. Type 1 dehydrators have historically vented their relatively small emissions directly into the atmosphere. At Black Canyon, both the air emissions and the water outflow are highly toxic, and must be disposed of and managed carefully. Based on these striking differences between Type 1 dehydrators and Black Canyon, ExxonMobil asserts that the legislature could not reasonably have intended the statutory term initial dehydrator to encompass both Type 1 dehydrators and the Black Canyon facility. ExxonMobil therefore contends that Black Canyon is not an initial dehydrator. [¶ 26] We acknowledge that the differences are dramatic, but as a legal matter, it is difficult to say that these differences disqualify Black Canyon as an initial dehydrator. Both Type 1 dehydrators and Black Canyon use a TEG process to remove water vapor from the raw gas stream. Black Canyon is much larger in scale and complexity, which led the Department to characterize Black Canyon as a dehydrator on steroids. In ExxonMobil's favor, we agree that it is a stretch to include both Black Canyon and Type 1 dehydrators within the same statutory classification. Still, we find no support in the statutes or our case law for the proposition that an initial dehydrator becomes something different when it reaches a certain size or complexity. At this point in our analysis, based solely on the interpretation from Williams, we would be inclined to agree with the Board's conclusion that Black Canyon is an initial dehydrator, though we remain troubled by that conclusion because the Black Canyon facility is so significantly different from the Type 1 dehydrators commonly used in the petroleum industry.