Cities Service Oil and Gas Corp. v. State
| Citation | 838 P.2d 146 |
| Decision Date | 26 August 1992 |
| Docket Number | Nos. 90-266,90-267,s. 90-266 |
| Parties | CITIES SERVICE OIL AND GAS CORPORATION, now known as Oxy, USA, Inc., Appellant (Defendant), v. The STATE of Wyoming, Mike Sullivan, Jack Sidi, Kathy Karpan, Stan Smith, and Lynn Simons, as members of the Board of Land Commissioners; Howard M. Schrinar, as Commissioner of Public Lands; and Jack Sidi, as State Auditor, Appellees (Plaintiffs). The STATE of Wyoming, Mike Sullivan, Jack Sidi, Kathy Karpan, Stan Smith, and Lynn Simons, as members of the Board of Land Commissioners; Howard M. Schrinar, as Commissioner of Public Lands; and Jack Sidi, as State Auditor, Appellees (Plaintiffs). v. CITIES SERVICE OIL AND GAS CORPORATION, now known as Oxy, USA, Inc., Appellee (Defendant). |
| Court | United States State Supreme Court of Wyoming |
Catherine MacPherson of MacPherson Law Offices, Rawlins and Deborah Bahn Price of Liskow & Lewis, New Orleans, La., for appellant in Case No. 90-266 and appellee in Case No. 90-267.
Joseph B. Meyer, Atty. Gen. and Vicci M. Colgan, Sr. Asst. Atty. Gen., for appellee in Case No. 90-266 and appellant in Case No. 90-267.
Brent R. Kunz of Hathaway, Speight, Kunz, Trautwein & Barrett, Cheyenne and Charles L. Kaiser, Anthony J. Shaheen, and Mary Viviano Laitos of Davis, Graham & Stubbs, Denver, Colo., for Coastal Oil & Gas Corp., Columbia Gas Development Corp., CNG Producing Co., and Enron Oil & Gas Co., as amici curiae.
Before MACY, C.J., and THOMAS, URBIGKIT, * and GOLDEN, JJ. and RYCKMAN, District Judge.
In this case, we decide entitlement of the State of Wyoming (State) to receive royalties on tax reimbursements paid by gas purchasers to Oxy USA, Inc. (Oxy), a natural gas producer previously known as Cities Services Oil and Gas Corporation. We also consider assessment of statutory high rate penalty interest on unpaid and past-due royalties.
With resolution of cross appeals from the trial court decision, we affirm the trial court's ruling that the State is entitled to royalties on ad valorem, severance and conservation tax reimbursements under the "federal floor" provision in the applicable State oil and gas leases. We reverse the trial court's determination that the State is not entitled to royalties on tax reimbursements under the "amount realized" provision in the same leases. We affirm the trial court's imposition of interest on delinquent royalty payments, but we modify the trial court's order which established the date when interest payment obligation accrued.
Oxy raises the following issues as appellant in Case No. 90-266:
I. Are royalties owed on tax reimbursements under the "federal floor" clause contained in State Lease Nos. 73-46293 and 75-82368 based on the State's proof that federal lessees in the same fields paid federal royalties on tax reimbursements?
II. Is the State entitled to a judgment that authorizes it to collect additional royalties for the periods covered by this litigation if, at some future date, other federal lessees pay royalties on tax reimbursements during these periods?
III. Is the State entitled to 18% interest under W.S. § 30-5-303(a) (1977 Repub.Ed.) from June 1, 1982, until the additional royalties due, if any, are paid?
The State, as appellee in Case No. 90-266, identifies three issues:
1. Are royalties due on tax reimbursements under the "federal floor" clause of the state lease?
2. Is the order on summary judgment within the scope of the declaratory judgment action?
3. Is interest due at the statutory rate for late payment of royalties?
In Case No. 90-267, the State raises a single issue as appellant:
Are royalties on tax reimbursements due under the "amount realized" clause of the state lease?
Oxy, as appellee in Case No. 90-267, responds by restating in argument:
A. The plain meaning of the royalty clause in the state lease form precludes the assessment of royalties on tax reimbursements.
1. The plain meaning of the term "amount realized" connotes a "net" rather than a "gross" amount.
2. Tax reimbursements are not payments for "production" within the meaning of state lease royalty provisions.
B. Wyoming jurisprudence and jurisprudence from other jurisdictions uniformly require the deduction of tax payments to compute the "amount realized".
C. The inclusion of tax reimbursements in the "amount realized" would create an unjustified anomaly in the state lease royalty provision.
In its reply brief in Case No. 90-267, the State rephrases the issue as a two-part argument:
I. The plain meaning of the term "amount realized" as used in the lease means the "amount realized" from the sale of all the gas.
II. Wyoming jurisprudence and other jurisdictions do not uniformly require the deduction of tax payments to compute the "amount realized."
Finally, in an amicus brief submitted by various Wyoming oil and gas producers with interests similar to Oxy's interests in state oil and gas leases, the following issues are presented:
I. The State impermissibly seeks to impose federal lease royalty standards on state leases.
II. The district court's federal-floor holding must be rejected because it is administratively infeasible.
These complex issues test the pricing effects for royalty purposes provided by reimbursement clauses emplaced within the federal Natural Gas Policy Act of 1978 (NGPA), 15 U.S.C.A. §§ 3301, et. seq.
For purposes of these cross appeals, we recognize three issues:
1. Was the trial court correct in ruling that royalties to the State were due on tax reimbursements under the "federal floor" provision of the state leases?
2. Was the trial court correct in ruling that royalties to the State were not due on tax reimbursements under the "amount realized" clause of the state leases?
3. Was the trial court correct in ruling that the State was entitled to interest pursuant to Wyo.Stat. § 30-5-303(a) (Supp.1992) for the late payment of royalties?
The essential facts in this case are not in dispute. Under the Wyoming Constitution and statutes, the Board of Land Commissioners is responsible for mineral leasing of state lands. Wyo. Const. art. 18, § 3; Wyo.Stat. § 36-6-101 (Supp.1992). Oxy, as assignee of two state oil and gas leases, holds State Lease No. 73-46293 in Carbon County, Wyoming and State Lease No. 75-82368 in Sweetwater County, Wyoming. Oxy operates a single natural gas producing well on each of the leased sites.
Oxy (then known as Cities Services Oil and Gas Corporation) entered into separate gas purchase contracts with Cities Services Gas Company (CSGC) for gas produced from the two state lease wells. From January 1980 through December 1986 (the relevant period for royalty computation purposes in this case), Oxy produced natural gas from the two wells and sold the gas to CSGC. During this period, natural gas sales were regulated by the NGPA which was passed by Congress to establish a maximum allowable ceiling price for natural gas.
There are federal gas leases with producing wells in the same fields where Oxy's two wells are located. At various times between 1980 and 1986, the United States received royalty payments from those leases. Some but not all of the federal royalty payments were calculated on the basis of the maximum applicable NGPA amount plus tax reimbursements for ad valorem, severance and conservation taxes.
Following a 1987 audit of Oxy gas production and State royalty payment figures for the period from 1980 through 1986, the Wyoming State Auditor concluded that Oxy had failed to pay royalties on ad valorem tax reimbursements it had received from CSGC during a significant portion of the previous six-year period. Because the federal government had received royalties from ad valorem, severance and conservation tax reimbursements during this period, the State Auditor concluded that Wyoming was entitled to the same benefit by receipt of similar royalty payments and demanded that Oxy pay claimed delinquent amounts in the sum of $140,802.31.
When Oxy refused to pay, the State brought a declaratory judgment with a money judgment demand in the District Court, First Judicial District, Laramie County, Wyoming. The State asked the trial court to declare that royalties were owed on tax reimbursements either received or receivable by Oxy from CSGC and to enter judgment for the delinquencies claimed with statutory penalty interest pursuant to Wyo.Stat. § 30-5-303. Oxy not only denied the State's claim for unpaid royalties on ad valorem tax reimbursements and interest, but also counterclaimed seeking reimbursement for royalties Oxy had previously paid to the State based on severance and conservation tax reimbursements pricing. Oxy premised its counterclaims on the argument that the State was not entitled to royalties on severance and conservation tax reimbursements under the royalty provisions in the applicable state leases and, as a result, such portions of previous royalty payments should be repaid by the State.
After a hearing on cross motions for summary judgment, the trial court decided that the State was entitled to retain royalties on severance and conservation tax reimbursements under the "federal floor" provision in the state leases (royalties previously paid by Oxy to the State and contested by Oxy in its counterclaim). The "federal floor" provision also entitled the State to receive additional royalties for ad valorem tax reimbursements (royalties the State sought in its complaint). Further, the trial court ruled that the State was not entitled to royalties on tax reimbursements for ad valorem, severance or conservation taxes under the "amount realized" provision in the state leases. Consequently, the State was ordered to refund or credit royalties previously paid by Oxy on severance and conservation tax reimbursements until such time as federal lessees in the same fields remit royalties on such tax reimbursements. Finally, the trial court ordered that the State was entitled to eighteen percent per annum interest on delinquent...
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