Tax battle at Exxon's Shute Creek facilities

House Revenue Committee clarifies valuation of ExxonMobil's sour gas


The House Revenue Committee Wednesday narrowly approved a bill to clarify the valuation of natural gas produced at ExxonMobil’s LaBarge-Shute Creek operation.

The history of tax disputes with ExxonMobil is long. Back in the late 1980s, Exxon declined to pay taxes on its gas production at Shute Creek, declaring that the gas was worthless – even as the company continued to produce and sell the gas. Exxon held that after it deducted all its expenses, including a large deduction for return on investment, there was no value left to the gas.

Exxon’s action triggered a legislative overhaul of the state’s mineral taxation statutes during the early 1990s.

Taxation of processed natural gas — the “sour” gas produced in western Wyoming that requires processing to remove toxic compounds — continued to be an issue throughout the decade and well into the current century. The 2008 Legislature at long last enacted a bill that appears to have addressed most of the problems.

The measure considered Wednesday, HB 78 Natural gas-taxation, is sponsored by Rep. Tom Lubnau II (R-H31, Gillette — pictured above) and co-sponsored by a bipartisan group of legislators including the Revenue Committee chairman, Rep. Rodney “Pete” Anderson (R-H10, Pine Bluffs), Rep. Jim Roscoe (D-H22, Wilson) and Sen. John Schiffer (R-S22, Kaycee).

The measure addresses another situation peculiar to the ExxonMobil LaBarge-Shute Creek operation: whether a facility located between the wellfield and the Shute Creek plant is a dehydrator or a processing facility. The difference is more than semantic, as it determines the “point of valuation” for the gas and therefore how much ExxonMobil owes in taxes.

In late 2009, the Wyoming Supreme Court held that Wyoming’s tax statutes on this point were ambiguous and that ambiguity must be resolved in favor of the taxpayer, ExxonMobil. HB 78 seeks to remove the ambiguity by adding definitions, thereby restoring the state’s position on the point of valuation.

The change will increase state severance and advalorem tax revenues on ExxonMobil's extraction by about $1.1 million in 2011 and an estimated $2.2 million in 2012 and 2013, according to the fiscal note attached to the bill.

Wyoming Attorney General Bruce Salzburg led off Wednesday morning’s testimony in concert with a lawyer for Sublette County, followed by a lawyer for ExxonMobil. It was a quick education (of sorts, since the third lawyer did not agree with the first two) for several of the committee members who were not involved in the years of legislative work leading up to the 2008 processed gas valuation bill.

Committee members voting for HB 78 were Reps. Amy Edmonds (R-H12, Cheyenne), Ken Esquibel (D-H41, Cheyenne), Patrick Goggles (D-H33, Ethete), Mike Madden (R-H40, Buffalo) and Owen Petersen (R-H19, Mountain View).

Those voting against it included one of the co-sponsors, Chairman Rodney “Pete” Anderson (R-H10, Pine Bluffs) and Reps. David Miller (R-H55, Riverton), Mark Semlek (R-H1, Moorcroft) and Sue Wallis (R-H52, Recluse).

The ESPC supports the bill and has long advocated that the state hire an expert to help with the valuation of the LaBarge-Shute Creek operation, which undeniably is unique, and to boost its investment in the technical and legal teams needed to counteract ExxonMobil’s aggressively litigious approach to tax issues.

Facing down the bust -- thoughtfully

Wyoming faces another bust as lower natural gas prices reduce mineral revenues. The ESPC is out in front offering numerous ideas to help craft sustainable taxing and spending policies that both invest in Wyoming’s people now and save for the future.

In a recently-published guest editorial, we talked about the need for thoughtful budgeting. Rather than taking a meat cleaver to state spending, we said programs should be evaluated to see if they’re still needed and working efficiently. And we suggested the state look at the revenue side of the budget, including tapping its considerable savings, ending some tax exemptions, and increasing severance tax rates. We noted:

“All the things we Wyomingites say we want – a more vibrant and diverse economy, a clean environment and wildlife, and low crime rates – depend on continued investment. Main Street survives on people with jobs and spending money, not laid-off employees. Department of Environmental Quality inspectors are barely covering the ground as it is; cuts will mean regulatory delays and spotty enforcement. When the cuts trickle down to local governments, police and sheriff departments will take a hit just like everyone else.”

It will take a major effort from all of us to convince our legislators that we don’t have to slash budgets and turn away from the progress the state has made with investments in infrastructure and education. Unfortunately, too many state policy-makers, including Gov. Dave Freudenthal, have rushed to cut spending, again subjecting the state to yo-yo budgeting that reduces the ability to deliver services when they are most needed. We need to protect investments in public education, health care and child care.

Cutting programs like KidCare insurance and Medicaid will shove those costs off on the private sector when people show up in doctors' offices and hospital emergency rooms. We've already decided that we're not going to turn sick people away. By cutting those budgets, the state expects private providers to take on the costs.

There's a better way. But we've got to look at more options, including putting savings on the table and considering tax hikes if we can't otherwise cover those costs.

Joint Minerals Committee drops tax breaks for coming "Clean Coal" facilities

WASHINGTON, D.C. -- We're here in the nation's chilly capital attending the State Fiscal Policy conference sponsored by the Center on Budget and Policy Priorities, and reading about plans to unveil the rehabilitated Star Spangled Banner tomorrow at the American History Museum.

With all the patriotic feelings stirred by the story behind that flag that flew over Fort McHenry Sept 14, 1814, it somehow was particularly gratifying to get an email message from Wyoming announcing that the Joint Minerals Committee has dropped proposed legislation extending tax breaks worth millions of dollars to the coal industry.

The Powder River Basin Resource Council's Shannon Anderson also represented the ESPC at the meeting. She sent news from the meeting about the committee's decision to pull the bills back. (They still may show up in the Revenue Committee at some point.) We knew these measures could cost the state, but Shannon reports that an official with DKRW, the company with plans to build a coal-to-liquids plant in Carbon County, said the exemptions could reduce the company's tax bill by $125 million.

These tax cuts should be considered equivalent to a state appropriation. The state would, in effect, invest these tax revenues in the plants, socializing a substantial portion of the private risk but, unlike the private investors, with no hope for enjoying a share of the profits the factory eventually will generate.

We know this is only a temporary victory. The taxes will be back, in whole or in part, in some other form. Casper Star-Tribune reporter Dustin Bleizeffer covered the meeting for the newspaper. He reports the idea could come back as an amendment to existing state law that grants property tax exemptions to pollution control equipment installed at power plants operating in the state.

Here's Bleizeffer's report, which you also can read at the trib.com website:


Clean coal tax exemptions stall

By DUSTIN BLEIZEFFER
Star-Tribune energy reporter

The future of several proposed tax breaks for clean coal facilities is uncertain, but the legislation will likely get booted from the Joint Minerals,Business and Economic Development Interim Committee to the Joint Revenue Committee.

One of three bills that, together, would slash virtually all state and local taxes on such facilities could reappear as an amendment to an existing 2005 law that cut sales and use taxes for pollution control equipment added to coal-fired power plants.
Despite the shuffling, it may be too late to settle a number of concerns about the so-called clean coal incentive package in time for the 2009 legislative session.

"I do really want to do anything to help [clean coal development], but our time frame is too short and would do a disservice to the legislative process," said minerals committee co-chairman Sen. Grant Larson, R-Jackson.

The minerals committee heard testimony Wednesday in Casper from DKRW Advanced Fuels chief executive Jon Doyle. His company is developing the $2.5 billion Medicine Bow Fuel coal-to-gasoline plant in Carbon County. In September, the committee asked Doyle to research and draft legislation for possible incentives

Wyoming could offer to all potential clean coal developers in order to remain competitive with other coal-producing states.

In response, DKRW hired a Wyoming tax attorney to draft three bills. One would cut sales and use taxes. Another would cut ad valorem taxes. The third would cut severance taxes. As proposed, the legislature would revisit the tax exemptions no sooner than 15 years after commencement of operations.

Several committee members said that, for fear of losing a clean coal project to another state, they were willing to rush all or part of the package through.

But committee member Rep. Jeb Steward, R-Encampment, said adopting one or all of the tax exemptions would shut off a revenue stream that local communities -- and the developer itself -- would need to provide the public services for such a project.

"I'm from Carbon County, and clearly we're in an area that's depressed economically and looking forward to this project moving forward," Steward told Doyle.

"How is it in the best interest of your company to remove the ability of these local governments and the state to generate revenues to provide the services so you would have thriving communities?"

Steward went on to question whether adopting tax exemptions would not only curtail services but create an inability to provide a work force to sustain the industry 40 or 50 years into the future.

Doyle, and Holland & Hart attorney Larry Wolfe, who authored the bills, both admitted that if the state adopted the tax exemptions it would still have to figure out how to deal with the impacts of such large industrial developments. However, they were instructed to provide incentives that would already fit within Wyoming's constitution, so they looked to tax exemptions that have already been granted to other industries.

Committee member Rep. Debbie Hammons, D-Worland, reiterated the committee's support of clean coal development, but said slashing all potential tax revenue from such facilities may be too much.

"What these bills appear to say to me is that any coal facility, for the next 15 years, the state wouldn't receive taxes on them. And I think that's a tremendous burden to the state," said Hammons.

Shannon Anderson of the Powder River Basin Resource Council said tax breaks do not equal an investment in clean coal development. Her written testimony to the committee suggested that the "value-added" notion of refining coal in Wyoming would be lost if those facilities are not taxed.

Anderson spoke to the committee and said if state and local taxes are a deal-breaker for a $2 billion-plus facility, then it has bigger financial problems than just taxes.

"If the company can't make it with state taxes, then there's a larger economic problem that these bills won't fix," said Anderson.