Wyoming Dor v. Exxon Mobil Corp.
| Decision Date | 18 July 2007 |
| Docket Number | No. 06-41.,No. 06-42.,06-41.,06-42. |
| Citation | 162 P.3d 515,2007 WY 112 |
| Parties | WYOMING DEPARTMENT OF REVENUE, Appellant (Defendant), v. EXXON MOBIL CORPORATION, Appellee (Plaintiff). Board of County Commissioners of the County of Sublette, Appellant (Defendant), v. Exxon Mobil Corporation, Appellee (Plaintiff). |
| Court | Wyoming Supreme Court |
Representing Appellant Wyoming Department of Revenue: Patrick J. Crank, Attorney General; Michael L. Hubbard, Deputy Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General; and William F. Russell, Assistant Attorney General. Argument by Mr. Hardsocg.
Representing Appellant Board of County Commissioners of the County of Sublette: John C. McKinley of Davis & Cannon, Cheyenne, Wyoming.
Representing Appellee Exxon Mobil Corporation: Lawrence J. Wolfe, Patrick R. Day, and Walter F. Eggers, III of Holland & Hart LLP, Cheyenne, Wyoming; and Brent R. Kunz of Hathaway & Kunz, P.C., Cheyenne, Wyoming. Argument by Mr. Day.
Before VOIGT, C.J., and GOLDEN and BURKE, JJ., and SKAVDAHL and PARK, D.JJ.
[¶ 1] In these two consolidated appeals the Department of Revenue ("Department") and the Board of County Commissioners of the County of Sublette ("Sublette County") appeal a declaratory judgment entered by the district court in favor of Exxon Mobil Corporation ("ExxonMobil"), wherein the district court determined that helium produced from federal oil and gas leases in Sublette County is not subject to severance and ad valorem taxation. We will affirm.
[¶ 2] The Department presents the following statement of issues:
I. Did the District Court incorrectly rule that because Exxon does not possess title to helium at the moment of extraction, that Exxon is not liable for severance tax?
II. Does Exxon's production and severance of helium pursuant to a federal lease and "Sale and Disposition" agreement, in which the federal government briefly retains legal title to the helium, relieve Exxon of severance tax liability?
III. Did the District Court incorrectly conclude that Exxon possesses no contractual or other privilege to sever and extract helium?
IV. Did the District Court incorrectly rule that because Exxon does not possess title to helium at the moment of extraction, that Exxon is not liable for ad valorem tax?
V. Does federal law relieve Exxon of state severance or county ad valorem tax liability?
VI. Did the District Court err when it failed to determine that the doctrines of res judicata and collateral estoppel barred Exxon's Declaratory Judgment action against the Department?
[¶ 3] Sublette County identifies a single issue:
I. Whether the helium produced by ExxonMobil Corporation from federal lands located in Sublette County, Wyoming is subject to ad valorem (gross products) tax?
[¶ 4] ExxonMobil identifies two issues:
A. Does ExxonMobil owe severance taxes on federal helium owned exclusively by the federal government?
B. Does ExxonMobil owe ad valorem production taxes to Sublette County on federal helium that ExxonMobil buys from the federal government in Lincoln County?
[¶ 5] We perceive the issues presented and which we address to be as follows:
1. Did the district court correctly conclude that the doctrines of res judicata and collateral estoppel do not bar ExxonMobil from challenging the imposition of ad valorem or severance tax on helium produced from ExxonMobil's federal leases?
2. Did the district court properly conclude that ExxonMobil does not owe ad valorem taxes to Sublette County for helium produced from ExxonMobil's federal leases?
3. Did the district court properly conclude that ExxonMobil does not owe severance taxes on helium produced from ExxonMobil's federal leases?
[¶ 6] ExxonMobil operates deep natural gas wells in Sublette County, referred to as the LaBarge project. A discussion of the complexities surrounding gas production from the LaBarge project was recently detailed by this court in Wyoming Department of Revenue v. Exxon Mobil Corp., 2007 WY 21, 150 P.3d 1216 (Wyo.2007). In addition to being a prolific source of various valuable gasses, the wells in the LaBarge project have also been a prolific source of tax litigation.1 The nature of the taxation issues in this case requires a brief discussion of the factual and legal basis upon which ExxonMobil produces helium from wells in the LaBarge project and the litigation history concerning taxation issues.
[¶ 7] ExxonMobil produces natural gas from deep wells completed into the Madison Formation. The composition of the natural gas stream produced from these deep wells is 65% carbon dioxide, 22% methane, 7.4% nitrogen, 5% hydrogen sulfide, and .6% helium. The subject of this appeal is limited to the .6% helium produced from wells located on federal leases.2 Due to the unique components of this gas stream, it is gathered and transported via various pipelines to the Black Canyon dehydration plant in Sublette County. At the Black Canyon plant all but .02% of the water in the gas stream is removed. This dehydration is necessary because the carbon dioxide and hydrogen sulfide, when mixed with water, form highly corrosive acids that would damage the pipeline. This gas stream is then transported via pipeline forty miles to the Shute Creek processing facility, located in Lincoln County.
[¶ 8] At Shute Creek the constituents of the gas stream are separated. This complex process removes the constituents in the following order: hydrogen sulfide, carbon dioxide, methane, nitrogen, and, finally, helium. This separation process results in the helium being liquefied, which is the point at which ExxonMobil purchases the helium from the federal government.
[¶ 9] Pursuant to the Mineral Leasing Act of 1920, 30 U.S.C.A. § 181 (West 2007)3 and 43 C.F.R. 3100.1 (West 2007),4 the United States reserved the ownership and the right to extract helium from all gas produced from mineral leases of federal lands. The reservation of helium was originally motivated by national security interests. See Helium Act of March 3, 1925, c. 426, 43 Stat 1110.5 The federal leases applicable to the wells from which helium and other natural gases are produced were issued prior to 1965 and expressly provide that ExxonMobil "is granted the exclusive right and privilege to drill for, mine, extract, remove, and dispose of all of the oil and gas deposits, except helium gas. . . ." (Emphasis added). These leases reserve to the federal government "the ownership and the right to extract helium from all gas produced under this lease. . . ." The leases reserve to the federal government the right to construct and operate facilities on the leased premise to remove helium from the gas stream produced under the lease:
Section 3(d). Helium. — Pursuant to section 1 of the act, and section 1 of the act of March 3, 1927 (44 Stat. 1387), as amended, the [federal government reserves] ownership and the right to extract helium from all gas produced under this lease, subject to such rules and regulations as shall be prescribed by the Secretary of the Interior. In case the lessor elects to take the helium the lessee shall deliver all gas containing same, or portion thereof desired, to the lessor at any point on the leased premises in the manner required by the lessor, for the extraction of the helium in such plant or reduction works for that purpose as the lessor may provide, whereupon the residue shall be returned to the lessee with no substantial delay in the delivery of gas produced from the well to the purchaser thereof. The lessee shall not suffer a diminution of value of the gas from which the helium has been extracted, or loss otherwise, for which he is not reasonably compensated, save for the value of the helium extracted. The lessor further reserves the right to erect, maintain, and operate any and all reduction works and other equipment necessary for the extraction of helium on the premises leased.
(Emphasis added). Thus, ownership of the helium contained in the gas stream produced from ExxonMobil's wells located on these federal leases remains with the federal government, which also retains the right to extract it from the gas stream.
[¶ 10] At the time ExxonMobil was constructing the Shute Creek processing facilities in the mid-1980s, it contemplated the value in constructing facilities which would allow for the extraction and sale of helium. Thus, due to the federal government's ownership and right of extraction of the helium, ExxonMobil sought to purchase the helium from the federal government. Negotiations were successful and on June 1, 1985, ExxonMobil and the federal government entered into a "Helium Sale and Disposition Agreement" ("Helium Agreement.")
The Helium Agreement provides in pertinent part:
2.1 Seller retains title to and ownership of helium underlying Said Lands, but during the term of this Agreement Buyer shall have the exclusive right and privilege to (i) take possession of the gas stream produced from Said Lands for the purpose of extracting helium from said gas stream to the extent the gas stream is processed in the Shute Creek Gas Processing Plants constructed or to be constructed in Lincoln and Sweetwater Counties, Wyoming and (ii) extract in the form of crude helium, in such gas processing plants, the helium component of not to exceed 511 billion standard cubic feet of raw inlet gas per Contract Year during the term of this Agreement. Seller agrees to sell to Buyer the helium contained in such crude helium so extracted by Buyer during the term of this Agreement, for the consideration set forth hereinbelow. Buyer shall be granted title to such helium purchased by Buyer hereunder at the point where the crude helium is extracted from said gas stream. Both parties agree that this grant does not increase or decrease the rights of lessees under oil and gas leases covering any of Said Lands. Helium to which Buyer obtains title under this Agreement does not...
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