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2005 General Session
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HB 49 was identical to a bill that was passed by the 2003 Legislature but vetoed by the Governor. The bill would have changed the way the taxable value of producer-processed natural gas is determined.
Producer-processed gas is natural gas that is produced and then processed to remove impurities by the same company before the gas is sold. This situation presents two valuation problems.
First, Wyoming statutes require setting a value on minerals at the point of production, but because sour gas (containing impurities) must be processed before its value can be realized, the valuation method has to work back from the point of sale to the point of production.
Second, when the same company produces and then processes the gas, there is no third-party sale between production and processing that could be used to set a value on the gas.
Currently, most producer-processors use a valuation method called proportionate profits. But according to the Wyoming Department of Revenue, proportionate profits doesn't accurately determine fair market value as required by the Wyoming Constitution. It overvalues gas at low prices and undervalues gas at high prices. Now, with natural gas prices and production at near-record highs, the Department of Revenue estimates that Wyoming is losing significant revenue by undervaluing gas.
HB 49 would have switched from proportionate profits to another method called netback, which would allow the producer to net back, or deduct, certain costs from the sales price of the gas to arrive at the value at the wellhead. (For more details, view the ESPC's report, Wyoming's Wealth for Wyoming's People, Part II.)
The reappearance of netback valuation as proposed in HB 49 resulted from a brief discussion during a Joint Revenue Interim Committee meeting. The Revenue Committees of the 2005 Legislature included several new members, so they were encountering this complex issue for the first time.
The dynamics of the 2005 discussion had changed significantly from 2003. In 2003, the multinational corporations that operate the big gas processing plants lobbied hard for netback valuation. This year, industry lobbyists were cool about HB 49. Prices in 2005 were higher, which made use of the proportionate profits method more attractive to industry (as noted above, the proportionate profits method undervalues gas when prices are higher).
From the state's perspective, the State Board of Equalization recently upheld the Department of Revenue's use of other valuation methods for producer-processed gas. The Department was concerned that definitions in HB 49 might not be precise enough to exclude coalbed methane, and also noted that a different method would be needed to determine return on investment, as the bond rating proposed in HB 49 no longer exists.
The House Revenue Committee passed HB 49 on a 5-4 vote, after changing the effective date to 2006 with the expectation that this deadline would force industry to come to the table with the Department to negotiate amendments to the bill. The bill then died on general file in the House, when it was not scheduled for debate and a vote of the House Committee of the Whole before the deadline for that action passed.
The vote listed below is the House Revenue Committee vote. A YES vote means the representative wanted to change from proportionate profits to netback as the valuation method for producer-processed natural gas. A NO vote means the representative did not want to change valuation methods.
| House Revenue Committee | Bill Date |
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| H 10 | Rodney Anderson (R - Laramie - chairman) | Yes |
| H 47 | Kurt Bucholz (R - Carbon/Albany) | Yes |
| H 36 | Gerald Gay (R - Natrona) | No |
| H 59 | Mary Meyer Gilmore (D - Natrona) | Yes |
| H 37 | Steve Harshman (R - Natrona) | No |
| H 39 | John Hastert (D - Sweetwater) | Yes |
| H 55 | David Miller (R - Fremont) | No |
| H 9 | Bryan Pedersen (R - Laramie) | Yes |
| H 56 | Tom Walsh (R - Natrona) | No |