Natural gas-taxation.

WORKING DRAFT
2010
STATE OF
WYOMING
10LSO-0317.E1

HOUSE BILL
NO.
HB0078

Natural gas-taxation.

Sponsored by:
Representative(s) Lubnau, Anderson, R. and Roscoe and Senator(s) Schiffer

A BILL

for

AN ACT relating to taxation and revenue; providing for valuation of natural gas as specified; providing definitions; providing legislative findings;
providing applicability;
and providing for an effective date.

Be It Enacted by the Legislature of the State of
Wyoming
:

Section 1.
W.S. 39
‑
14
‑
201(a)(vii) and by creating a new paragraph (xxxvii) and 39
‑
14
‑
203(b)(iv) are amended to read:

39
‑
14
‑
201.

Definitions.

(a)

As used in this article:

(vii)

"
Dehydrator
"

or
"
dehydration facility
"

means a
facility, specialty equipment or

device which
removes

has as its primary purpose the removal of
water vapor that is commonly associated with raw natural gas
. A dehydration facility shall not be considered a processing facility, regardless of the size or complexity of the facility. The removal of
water vapor from
the raw natural gas stream in a dehydration facility shall not constitute processing
;

(xxxvii)

"
Processing facility
"
means a facility occurring downstream and following completion of all gathering activities and dehydration,
if any, and the primary purpose of which is to perform processing.

39
‑
14
‑
203.

Imposition.

(b)

Basis of tax. The following shall apply:

(iv)

The production process for natural gas is completed after extracting from the well, gathering, separating, injecting and any other activity which occurs before the outlet of the initial dehydrator.
Subject to subparagraph (A) of this paragraph,
w
hen no dehydration is performed, other than within a processing facility, the production process is completed at the inlet to the
processing facility, transportation related compressor or custody transfer meter, whichever occurs first. When neither dehydration nor processing is performed, the production process is completed at the inlet to the

initial transportation related compressor
,

or

custody transfer meter
,

or processing facility
,
whichever occurs first
:
;

(A)

N
otwithstanding the requirement for processing to occur beyond the inlet to a natural gas processing facility
as provided in
W.S. 39
‑
14
‑
201(a)(xviii), if processing occurs within the initial dehydrator

those processing costs occurring between the inlet and outlet of the dehydration facility are deductible in determining taxable value.

Section 2.

(a)

The legislature finds that:

(i)

Under certain unique circumstances, more particularly described in
Exxon Mobil Corporation v. Department of Revenue
, 2009 WY 139 (Wyo. 2009), raw natural gas is produced by oil and gas producers, then gathered to a centralized dehydration facility where the raw natural gas stream is dehydrated by removing water vapor. However, the producer also removes certain heavy hydrocarbons along with a small percentage of certain components of the raw natural gas stream as part of the dehydration process. The dehydrated raw natural gas stream is then transported to a processing facility where the component parts of the gas stream are separated and prepared for sale or disposal. Contrary to the intent of the legislature, the Wyoming Supreme Court determined that an extraordinarily large and complex dehydration facility was actually a processing facility because certain heavy hydrocarbons were removed by processing at the dehydration facility. It was further determined that the terms
"
processing facility
"
and
"
initial dehydrator,
"
as used in the point of valuation statute were ambiguous. It is the intent of the legislature that the point of valuation is the outlet of the initial dehydration facility, notwithstanding the size or complexity of the facility, proximity to the wellhead, unusual need for dehydration, environmental considerations, or that some activities ancillary to dehydration may occur in the dehydration facility;

(ii)

These circumstances occur in cases where there is a sour or sweet gas stream and the dehydration facility is located at a separate location from the processing facility;

(iii)

Where the primary purpose of a facility is dehydration, even if the facility is large and complex, the point of valuation is intended to be the outlet of the dehydration facility, and a dehydration facility cannot also be classified as a processing facility for point of valuation purposes. Where the primary purpose of a facility is processing raw natural gas into its separate component parts for sale, the facility is a processing facility, and a processing facility cannot also be classified as a dehydration facility for point of valuation purposes. The
Wyoming
constitution, article 15, section 3, provides that the minerals which are
"
or may be produced
"
shall be taxed on the
"
gross product thereof, as may be prescribed by law
"
and
"
in proportion to the value thereof
"
.
Under certain unique circumstances, more particularly described in
Exxon Mobil Corporation v. Department of Revenue
, 2009 WY 139 (Wyo. 2009), the point of value was moved upstream of the outlet of the dehydration facility because activities ancillary to dehydration, which could be considered to be
"
processing,
"
occurred within the dehydration facility, which decision does not reflect the intent of the legislature.

Section
3
.
This act shall apply to the natural gas produced on or after J
uly
1, 201
1
.

Section
4
.
This act is effective
July 1, 2011.

(END)

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HB0078