Witness for the Oil Companies

Chevron U.S.A., Inc. in its longxxiv dispute of an audit assessment by the Mineral Division of the Department of Revenue, was one of several companies during this period that actually presented Burton as a witness against her own department.

Chevron’s case involved the “proportionate profits formula” used to compute taxes due on natural gas taken from the Painter/East Painter fields in Uinta County in 1996-98. State auditors believed that under a 1990 mineral valuation law, Chevron’s “direct costs” of production should include production taxes and royalties, which would have increased the company’s ad valorem taxable value by over $18 million— $18,270,508.00 to be exact. If, as Chevron argued, the production taxes and royalties were excluded as direct costs, then a natural gas producer-processor could take a processing deduction three to four times the actual costs the company had incurred.

Burton, in a memo dated August 6, 1996, at first agreed with her auditors, basing her decision at least in part on legal advice from a senior assistant attorney general. But the oil and gas industry, as the Board of Equalization observed, “reacted sharply,” and Burton began looking for a way to accept the companies’ view.

During the summer, Burton—who as a Republican state representative from Natrona County had served on the House Revenue Committee with Rep. Cynthia Lummis—consulted Lummis and former state Sen. Dan Sullivan, who were co-chairmen of the legislature’s Joint Interim Revenue Committee that had reported on the 1990 law. Sullivan, the Republican brother of former Democratic Gov. Michael Sullivan, was by 1996 working for Chevron. He assured Burton that Chevron was correct, the production taxes and royalties should be excluded.xxv Burton met with Governor Jim Geringer three times on the subject, and he finally told her, she said, “Do what you think is right.”

What she thought was right (Burton consulted the state attorney general to see if she was about to break the law; he said no) was to accept Chevron’s view of the matter, overrule her auditors and herself, and exclude production taxes and royalties from the direct cost formula. She issued a new memo in October 1996 to “supercede” and “cancel” her previous memo. The Equalization Board later found this October memo to be “contrary to law.”

“The Department is never free to ignore the proper interpretation of the statute simply because the Department’s Director prefers a result other than that required by the statute and the Department’s regulations,” the Board ruled. “Ms. Burton was not free to ignore the statute and regulations because she preferred an alternative result.”

In one of the many interim appeals in the case as it made its way through the administrative process, the Board of Equalization had in 2001 ruled against Burton. The Board noted that she decided not to appeal (the companies tried to insist that she do so) because, after discussing the matter with the governor and his staff, “Ms. Burton felt an appeal would not be appropriate, would not be a politically ‘good thing to do.’”

The oil companies, of course, had no such political qualms and continued the fight in the state court system, at the same time seeking the help of sympathetic lawmakers.

Sen. Robert Peck (R-Riverton) who earlier had sponsored the Senate version of Rep. Eli D. Bebout’s bill to curtail private auditors working for the counties, in 2002 introduced Senate File 69, which would have made into law the valuation formula favored by Chevron, RME (formerly known as Union Pacific Resources, Cynthia Lummis’ client,), Amoco (a client of Lummis’ husband, Alvin Wiederspahn) and other energy companies. SF-69 failed on a tie vote on third reading, in part because, according to a Chevron spokesman, the industry lobbyist stopped pushing the bill because Geringer was “probably going to veto” it if it passed.xxvi

The issue in all these legal and legislative fights, and the issue in the battle over Royalty-in-Kind, is “value,” and how it is to be determined for tax purposes. There are other issues—the reliability of industry self-reporting, for example—but value comes first, and brings with it the hardest feelings and most intense struggles. Value, one could say, is where the money is.

In early 2000, Johnnie Burton as head of Wyoming’s Department of Revenue observed at a meeting of the Select Mineral Taxation and Valuation Committee (co-chaired by Sen. Bill Hawks, her late husband’s business partner) that “the relationship between counties and the state administration has deteriorated over the years due to a conflict of jurisdiction on valuation of minerals.” No one disagreed. State-county relations remained strained through the remainder of the Geringer administration, but the spotlight was shifting now to the players on the federal stage, where soon enough Johnnie Burton would make her entrance.

Laton McCartney

Laton McCartney was born in Denver, Colorado and grew up on cattle ranches in Colorado and Wyoming. He is the author of the national bestseller, Friends in High Places: The Bechtel Story—The Most Secret...

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