Counties Cut Their Losses

At this time Wyoming’s counties didn’t have mineral production auditors on staff, but a pair of private mineral auditing companies had recently appeared on the scene, headed by former state revenue department auditors and ready to take on recalcitrant ad valorem taxpayers. The auditing companies took their fees contingently—that is, upon success. Contingent fee arrangements are popular with tort lawyers and common in personal injury lawsuits, but the idea applied to mineral audits was new and attractive to county government, as the private contractors bore the upfront costs and the risks. Rocky Mountain Auditing Services, founded by Rich Ryan, and Wyoming Royalties, Inc., led by the late Randy Fetterolf, contracted with 18 of 23 Wyoming counties to recover delinquent minerals taxes and interest.

“We were quite successful,” Ryan told WyoFile recently. “Collections exceeded $100 million in delinquent ad valorem and severance taxes, and interest for the counties and the state.”

The energy companies resisted vigorously and tenaciously with legal challenges both before the Board of Equalization and in the courts—one case lasted more than 16 years, according to Ryan.

In 1992, independent auditors Ryan and Fetterolf were witnesses for Uinta County against Union Pacific Resources^xviii, which was suing the county and the state, claiming the county had no right to hire minerals production auditors for contingent fees, and disputing the taxes on the company’s oil and gas production in the county. Ryan told WyoFile that when he and Fetterolf showed up to give their depositions in the case, he was shocked to find that state Senator Cynthia Lummis, a Laramie County Republican, was the company’s lawyer.

“Cynthia, are you here to represent your constituents or Union Pacific?” Ryan says he asked.

“I represented Union Pacific Resources Co. in a declaratory judgment action that went to the Wyoming Supreme Court,” Lummis told WyoFile, adding that the court made no decision on the merits of the case, but sent it back to the Board of Equalization.

Cynthia Lummis, who is now Wyoming’s sole U.S. Representative in Congress, has been a politician for more than 30 years, and a lawyer for nearly a quarter of a century. When she was working for Union Pacific Resources in the 1990s, she was a partner in the Cheyenne firm of Wiederspahn, Lummis & Liepas PC. Her husband and law partner, real estate developer Alvin Wiederspahn, is a former state representative and senator on the Democratic side of the aisle. In the ’90s, the firm’s clients included Amoco Production Company and Union Pacific Resources. Wiederspahn was also a leader of the Wyoming Taxpayers’ Association, a group with a populist-sounding name that is an energy industry lobby.

The companies also sought direct legislative relief from their political allies, of whom they had many. For example, Representative Eli D. Bebout of Riverton, a “hereditary” Democrat who became a Republican in the 1990s, in the 1995 session of the Legislature introduced a bill, HB225, to ban private auditors from working for counties for contingent fees. At the time, Bebout was president of Nucor Oil and Gas, Inc.,^xix and his 1994 campaign had been 60-percent financed by mineral interests. His Senatorial co-sponsor of the bill was one of his business associates in the uranium industry and the radioactive waste disposal business, Riverton newspaper publisher Robert Peck.

Bebout likened the private auditors to “headhunters.”

“Can you imagine the IRS coming in and getting a salary based on what they can get out of you?” he asked. “The IRS would be after all of us.”

Ron Trowbridge, an auditor with Rich Ryan’s Rocky Mountain Energy, told Casper Star-Tribune reporter Joan Barron at the time that “contingent fees are the only practical way to pay for audits, as counties strapped for cash don’t have the money” to pay the private auditors up front.

“Fetterolf acknowledged that he and other private sector mineral auditors are not popular with industry,” Barron wrote in January 1995.

“They call us bounty hunters and mercenaries, but we wear the badge proudly because the beneficiaries of the findings are school kids primarily,” Fetterolf told her.

“We were called everything under the sun, including ‘opportunists,’ ‘odious mercenaries,’ and ‘bounty hunters,’” Rich Ryan recalled recently for WyoFile.

Unpopular as the auditors were with the industry, Bebout’s bill was even less popular with county governments, and was firmly squashed in a committee-of-the-whole vote, 43-14.

But 1994 had been a watershed year in Wyoming politics, when twenty years of Democratic governorship ended with the election of Republican Jim Geringer, who followed two-term Democrat Michael J. Sullivan. Sullivan, a petroleum engineer by education and an oil-and-gas lawyer by trade, definitely knew the industry well when he took office after more than two decades of law practice in Casper.^xx Although not hostile to the industry, Sullivan vetoed several measures that the oil and gas interests had backed in the legislature. In his campaign, Geringer promised to make Wyoming “friendlier” to operators.

Just a couple of months into his first term, Geringer signed into law four measures lowering taxes on energy companies, including some that Sullivan had vetoed in 1993. Sullivan also signed SB-96, a bill giving mineral companies an environmental “self-audit” privilege that granted the companies immunity from Department of Environmental Quality fines and penalties if they reported their environmental violations and filed cleanup plans.

In a March 1995 article by Nancy Moore, Platt’s Oilgram noted that besides quickly signing the drilling incentives into law, Geringer also scheduled an April 20-21, 1995 meeting in Casper “to get the industry’s ideas.”

Moore wrote that Karen Kennedy, then the executive director of the Wyoming Independent Producers Association,^xxi had observed that “Wyoming’s legislature has always been friendly to the oil and gas industry, but the state’s former Democratic governor had stopped many initiatives in their tracks.”

“Oil and gas producers in Wyoming are saying ‘what a difference an election makes,’” wrote Moore.

One of those differences was Geringer’s cabinet appointment of Rejane Medinger “Johnnie” Burton to head the Wyoming Department of Revenue, where she served from January 1995 through early March 2002. Burton, a staunch Republican, had a background that oil industry lawyer Gale Norton, George W. Bush’s first Secretary of the Interior, described as a “solid mix” of experience in state government and the oil and gas industry.

Born of French parents in colonial Algeria, Burton fled the country during its independence struggle, arriving in the U.S. as a 22-year-old refugee in 1963. She began her career in the petroleum industry as an oil scout in Casper for Rinehart Oil News of San Antonio, Texas, then started her own oil industry news service, Hotline Energy Reports Inc., which later merged with Dwights Energydata Inc. She and her husband, geologist Guy C. Burton, Jr., also owned a Casper-based oil exploration company, TCF Inc. Guy Burton also partnered with Bill Hawks, a Republican politician from Casper, in Burton/Hawks, Inc., an oil and gas exploration and drilling company.^xxii Johnnie Burton served in the Independent Petroleum Association’s Mountain States Speaker’s Bureau from 1977 through 1979, then in the Wyoming state House of Representatives from 1982 to 1988.

Taking up her appointment in 1995, Burton as director of the Wyoming Department of Revenue was supposed to ensure that the department established a “fair market value” for minerals taken from state lands. She also believed, according to transcripts of administrative hearings, the department was supposed to make policy decisions on implementing mineral valuation laws. Inevitably her department clashed with the county governments, because her interpretations of the laws seemed to favor the energy companies. At times, she even surprised her own employees with her pro-industry enthusiasm.

“I recall one informal administrative meeting with an oil company taxpayer to discuss audit findings,” Richard J. Marble, who at the time was Department of Revenue’s Mineral Tax director, told WyoFile. “I was conducting the meeting when Johnnie walked into the room, interrupted the meeting, and told the taxpayer that under her leadership the Department would bend over backwards, within the limits of her fiduciary responsibility, to support the taxpayer [i.e., the oil company]. Everybody in the room just kind of looked at each other.”

The Geringer administration early in its life started hearing complaints from the energy industry about Marble, who was promoting in the Department new auditing practices similar to those employed by Ryan’s and Fetterolf’s private auditing companies, according to the Casper Star-Tribune. The Ryan-Fetterolf method was not a field audit, but a fairly straightforward comparison of reported figures. Instead of just accepting the energy company’s data as fact, however, the auditors compared sales numbers the companies reported to the Wyoming Oil and Gas Conservation Commission with the numbers given to the counties.^xxiii

Johnnie Burton fired Marble within a month of taking office, and Marble told WyoFile he was “kind of expecting it.”

“I always felt it was Geringer’s call,” he said.

The industry “got some help … with the administration of the royalty program when Geringer’s new director of revenue, Johnnie Burton, fired Rich Marble,” Platt’s Oilgram observed at the time.