Opinion · Oklaw Oklahoma
HELMERICH PAYNE, INC. v. STATE, 1997 OK 30
HELMERICH PAYNE, INC.; MAGUIRE OIL COMPANY; CARY M. MAGUIRE, STEVENB. KAHN; DANIEL B. STUART; CARY M. MAGUIRE, Tr. Under TrustAgreement Dated January 1, 1983, for the benefit of Cary McIllwaineMaguire, Jr.; CARY M. MAGUIRE, Tr. Under Tr. Agreement DatedJanuary 1, 1983, for the benefit of Melinda Ambler Maguire; & CARYM. MAGUIRE, Tr. Under Tr. Agreement dated May 1, 1984, for thebenefit of Ann Blai
- Type
- Opinion
- Court
- Oklaw Oklahoma
- Jurisdiction
- Oklaw
- Date
- 1997-03-04
- Topic
- general
HELMERICH PAYNE, INC. v. STATE, 1997 OK 30 935 P.2d 1179 HELMERICH PAYNE, INC.; MAGUIRE OIL COMPANY; CARY M. MAGUIRE, STEVENB. KAHN; DANIEL B. STUART; CARY M.
Citator
UpLaw has not yet analyzed HELMERICH PAYNE, INC. v. STATE, 1997 OK 30. The absence of a flag is not a finding that it is good law.
HELMERICH PAYNE, INC. v. STATE,1997 OK 30
935 P.2d 1179
HELMERICH PAYNE, INC.; MAGUIRE OIL COMPANY; CARY M. MAGUIRE, STEVEN
B. KAHN; DANIEL B. STUART; CARY M. MAGUIRE, Trustee Under Trust
Agreement Dated January 1, 1983, for the benefit of Cary McIllwaine
Maguire, Jr.; CARY M. MAGUIRE, Trustee Under Trust Agreement Dated
January 1, 1983, for the benefit of Melinda Ambler Maguire; and CARY
M. MAGUIRE, Trustee Under Trust Agreement dated May 1, 1984, for the
benefit of Ann Blaine Maguire, Plaintiffs, and ANR PRODUCTION COMPANY,
Appellee, v. STATE OF OKLAHOMA, ex rel., COMMISSIONERS OF THE LAND
OFFICE, Appellants.
No. 84,446
Supreme Court of Oklahoma.
March 4, 1997
HONORABLE EUGENE H. MATHEWS, TRIAL JUDGE.
¶ 0 The trial court rendered summary judgment for Plaintiffs-Appellees in action to recover royalty payments due under oil and gas leases. The Court of Civil Appeals Affirmed.
CERTIORARI PREVIOUSLY GRANTED.
COURT OF CIVIL APPEALS OPINION VACATED.
JUDGMENT OF THE TRIAL COURT AFFIRMED.
Perry E. Kaufman, James T. Dupre, Commissioners of the Land Office of the State of Oklahoma, Oklahoma City, Oklahoma, For Appellant.
¶ 2 The material facts are not in dispute. The plaintiffs in the trial court (only one of the plaintiffs, ANR Production Company (ANR), is the appellee in this appeal) own five oil and gas leases issued by the CLO covering Section 10, Township 13 North, Range 24 West, Roger Mills County, Oklahoma. Four of the five leases have identical royalty clauses which provide:
The lessee hereby agrees to deliver or cause to be delivered to the Commissioners of the Land Office of the State of Oklahoma, or their successors, without cost into the pipelines, a royalty of 1/8 part of the oil or gas produced from the leased premises and 1/8 part of all casinghead or drip gas or gasoline or other hydrocarbon substances produced from any well or wells on said premises, or in lieu thereof, pay to the lessor the market value thereof as the Commissioners may elect.
The fifth lease contains the same clause but provides for 1/6 royalty.
¶ 3 A well was drilled on the leased land and produced gas. ANR and the other lessees entered into gas purchase contracts. One article of the contracts provided for an initial price per Mcf and contained terms for calculating the price over the life of the contract. A separate article provided that the purchaser would reimburse the seller for certain taxes imposed on production and that the reimbursement applied to both the royalty and the working interest.
¶ 4 Under Oklahoma law, all gas production, except that belonging to the State of Oklahoma, is subject to gross production and excise taxes. Okla. Const. Art.10§6, 68 O.S. §§ 1001 [68-1001] and 1102. Such taxes are required to be paid by the gas purchaser directly to the Oklahoma Tax Commission. The purchaser is authorized to deduct the amount of taxes paid from payments it makes to the producer or royalty owner. 68 O.S. § 1009[68-1009](d). In the present case however, due to the provisions regarding tax reimbursements in the purchase contracts, the gas purchaser did not deduct the amount of taxes paid from the payments made to any working interest or royalty owner.
¶ 5 Thus, every owner in the well at issue received full payment attributable to that owner's interest at the gas purchase price. Every owner, except the CLO, received the added benefit however, of no deduction for taxes. The CLO did not receive that benefit because its interest is tax exempt. In terms of cash payment, every interest owner received the same — the full payment attributable to its working or royalty interest at the contract price.
¶ 6 The CLO demanded additional royalty payments from its lessees based on the amount paid by the purchaser for state taxes. The lessees denied that they owed any more royalties, and brought an action seeking a declaratory judgment to that effect. The parties all filed motions for summary judgment on this issue. The trial judge granted summary judgment in favor of the lessees. All parties, except ANR, settled. The CLO brought the present appeal and the Court of Civil Appeals affirmed the judgment of the trial court. We vacate the opinion of thePage 1181Court of Civil Appeals and affirm the judgment of the trial court.
¶ 7 The CLO claims that it is entitled to additional royalty because the tax payment is additional value for the gas paid by the purchaser and thus it is entitled to its fractional share, to be collected from the lessees, on the amount of the tax paid by the purchaser
attributable to the lessees' interest
. In support of this argument, the CLO cites several federal cases and cases from other states. The CLO argues that these cases are applicable because a CLO regulation, OAC385:15-1-24(formerly Rule 3-150) (incorporated into clause 12 of the leases at issue) defines the price for computing gas royalties as "value received under the sale contract" or "gross proceeds" received under the sale contract. CLO contends that its Rule385:15-1-24is similar to the federal regulations (now30 C.F.R. § 206.101,30 C.F.R. § 206.151) which also require payment of a royalty on the "gross proceeds" accruing to a lessee from the sale of gas.
¶ 8 Rule 385: 15-1-24 provides in pertinent part as follows:
The price basis for computing gas royalties shall be the value received under the sale contract, or the gross proceeds that would have been received if the gas had been sold under the prevailing contracts in the field which remained at or near the date of the first production from the lease and covered the sale of like kind and quality gas, whichever is greater; . . .
On the other hand,30 C.F.R. § 206.101and30 C.F.R. § 206.151, expressly define "gross proceeds" as including tax reimbursements even though the federal royalty interest may be exempt from taxation.
¶ 9 On the other hand, ANR argues that in Oklahoma, the "market value" required to be paid to the CLO under its lease means market price. Thus, ANR contends, when the CLO received full market price for its share of the production, the royalty clause in the lease was satisfied. ANR states that if it paid royalty on the taxes attributable to its 7/8 interest, then it would receive less than its 7/8 interest and the CLO would receive more that its 1/8 interest, contrary to the lease provisions.
¶ 10 ANR also cites 64 O.S. § 294[64-294], which provides that if a person responsible for paying royalty to the CLO pays taxes
on said
royalty
, the CLO "shall not recover from such person the taxes so paid." This statute is not applicable because it is undisputed that no taxes were paid on the CLO's royalty interest. See 68 O.S. Supp. 1992 § 1008a [68-1008a].
¶ 11 We determine that the CLO is not entitled any additional royalty based upon the purchaser's tax payments because the royalty clauses in the leases, even as augmented by Rule385:15-1-24, does not require it.
¶ 12 The term "market value," as used in the royalty clauses in the leases at issue, means the gas purchase contract price.Woodv. TXO Production Corp.,854 P.2d 880,882(Okla. 1992). InTXOProduction Corp. v. Commissioners of the Land Office,903 P.2d 259(Okla. 1994), we construed the same royalty clause as appears in the leases at issue in this case. The issue inTXO ProductionCorp.was whether the lessee may deduct certain post-production costs from the royalty payment. We held that such costs may not be deducted. We also determined, relying onWood, supra, that "market value" as used in the CLO leases means contract price. The gas purchase contract price, as set forth in the contracts, was stated as a cash payment per Mcf of gas. That is the price upon which the CLO's royalty was calculated.
¶ 13 The existence of Rule385:15-1-24does not change this result. The rule is general and tries to be all encompassing, but cannot be stretched to include royalty on the purchaser's tax payments.
¶ 14 This conclusion is supported by the federal approach. As the CLO points out, several federal cases have held that royalties for oil and gas production on federal lands includes tax reimbursements.Hoover Bracken Energies v. United StatesDepartment of Interior,723 F.2d 1488(10th Cir. 1983),MesaOperating Limited Partnership v. United States Department ofInterior,931 F.2d 318(5th Cir. 1991), andEnron Oil and GasCompany v. Lujan,978 F.2d 212(5th Cir. 1992). These cases are distinguishable from the present case due to the significant difference between the Department of the Interior'sPage 1182longstanding
published
interpretation of its royalty clauses, which
expressly
states that tax reimbursements are included
(Wheless DrillingCo., 13 IBLA 21, 80 I.D. 599 (1973) and after 1987, 20 C.F.R. § 206.101 and 20 C.F.R. § 206.151), and CLO Rule 385: 15-1-24. In these federal cases, the courts relied on the agency's published interpretation of the relevant statutes and regulations.
¶ 15 The CLO did not point out any
published
interpretation of Rule385:15-1-24which expressly stated that royalties were to be paid on tax reimbursements. As the trial court correctly pointed out, internal minutes and memoranda of the CLO do not constitute Rules and Regulations of the CLO because they were not promulgated in accordance with the provisions of the Oklahoma Administrative Procedures Act, 75 O.S. § 251[75-251]et. seq.
¶ 16 The two state cases that have addressed this issue are likewise distinguishable. InEnron Oil and Gas Company v. State,871 P.2d 508(Utah 1994) andCities Service Oil and GasCorporation v. State,838 P.2d 146(Wyo. 1992) the leases contained "federal floor" provisions, which stated that the state may not be paid less royalty than received by the United States in the same field. The Wyoming and Utah Supreme Courts, when faced with these lease provisions, determined that the state should receive royalties on tax reimbursements because the federal lands in the same field received those royalties. The leases at issue in the present case do not contain "federal floor" provisions.
¶ 17 Consequently, because the leases and regulation in question do not provide for royalty on taxes paid by the gas purchaser, the CLO is not entitled to additional royalty. The summary judgment of the district court is AFFIRMED.
¶ 18 KAUGER, C.J., and HODGES, LAVENDER, SIMMS, HARGRAVE, and WATT, JJ., CONCUR.
¶ 19 SUMMERS, V.C.J., and OPALA, J., CONCUR IN JUDGMENT.
¶ 20 WILSON, J., DISSENTS.