As the tally of delinquent mineral taxes continues to increase across the state, lawmakers are working overtime to craft legislation to protect Wyoming’s counties from bankruptcies and 10s of millions in unpaid bills.
With 10 days remaining before the start of the 2020 budget session, the Select Committee on Coal and Mineral Bankruptcies advanced a bill that seeks to make county-level production taxes due on a monthly schedule. Currently, county tax bills aren’t due until a year and a half after the minerals are sold – long enough for fortunes and financial solvency to dissolve entirely.
Johnson County Commissioner Bill Novotny and Civil Deputy County Attorney Barry Crago traveled to Cheyenne for the Jan. 31 committee meeting to advocate for legislation they helped draft as part of a working group convened after the committee’s December meeting.
The measure’s potential impact is clear in Johnson County, where over the past three years, US Realm Powder River, formerly owned by Moriah Powder River, has racked up a growing debt of now more than $15.6 million. Moriah/US Realm filed for bankruptcy on Nov. 1 of last year.
According to bankruptcy court agreements, US Realm is authorized to pay taxes while reorganizing but is not legally required to do so. Recent filings show that in November and December, US Realm sold almost $15 million worth of natural gas, accruing $1.3 million in tax obligations to counties and the state of Wyoming.
Despite the sales, once operating and transportation costs were taken into account, the company reported a cumulative $6 million loss over the two months, and the path into the black doesn’t look easy: Since November, natural gas spot prices have fallen an additional 25%.
Over the same time frame, US Realm, under its operator Carbon Creek Energy, was responsible for 91% of natural gas production in Johnson County. That means that if the taxes remain unpaid, the county will receive less than $9 for every $100 it is owed on gas already sent to market through the Powder River Basin’s network of pipelines.
While the proposed legislation can’t force already-delinquent taxpayers to settle up with counties, proponents argue that a monthly collection schedule, as is currently used for state-level severance taxes, will prevent companies from accumulating large debts and offer earlier warning signs of financial distress.
“I realize that this may not solve all of Johnson County’s problems with a certain operator,” Novotny told the committee. Still, he pressed them to move the bill forward, saying a move to monthly collections within the year is critical for a state reliant on robust energy development.
“We want the folks that are sitting behind us in this room to be successful because they employ our citizens, our residents; they are our largest taxpayers,” Novotny said, referring to industry representatives attending the meeting. “We want to work with them, but at the end of the day, we’ve got to move this bill forward and move them to monthly payments.”
The frequency and size of all tax delinquencies accelerated sharply in recent years, but a December report from the Legislative Services Office and the Wyoming County Commissioners Association showed that over the past decade, ad valorem taxes were more than five times more likely than severance taxes to go unpaid, an indication that monthly collections can lead to more compliant taxpayers.
Crago described calling the state to consult on tax debt related to a recent bankruptcy, assuming the state also faced a delinquent tax bill.
“They were current,” Crago said. “We were behind millions and millions and (the operator was) current with the state.”
Industry representatives lobbied the committee for greater leniency during the proposed transition period to monthly payments, when companies would have to begin paying on the new schedule while simultaneously catching up on previous bills from the previous system.
“Any acceleration of ad val(orem) payments over the next two to three years would create, almost certainly, a liquidity crisis for natural gas producers,” Ultra Petroleum’s regulatory director, Kelly Bott, told lawmakers. Citing low prices, Ultra, the state’s largest natural gas producer, shut down its final Wyoming drilling rig in 2019. “That would crystalize concerns and significantly increase the need for companies to consider bankruptcy protection.”
Pete Obermueller, president of the Petroleum Association of Wyoming, said he was not opposed to monthly payments, but recommended Jan. 1, 2023, as a start date, rather than 2021 as written in the current bill draft, in order to allow operators to prepare financially and administratively for the change. He also advocated for zero-interest payment plans, a longer timeline to make the payments and a larger credit for companies that pay early.
Obermueller argued that a rapid transition would overburden companies already under strain from low oil and gas prices and changes in demand for coal.
“If we tried to do that to any other business entity or taxpayer in the state – Walmart, individual homeowners, individual business and property owners – the pitchforks would be out,” he said. “That cash flow impact is not insignificant.”
In past hearings, Obermueller has consistently asked legislators not to punish all companies due to the actions of comparatively few delinquent taxpayers.
“Bankruptcy is an unfortunate and real and legitimate part of doing business,“ he said. “I feel compelled to defend those who are trying to do the right thing. Simply being bankrupt does not automatically put you in the category of a bad actor.”
Ultimately, the committee members voted to retain the Jan. 1, 2021 start date in the bill sent on to the full Legislature but increased the early payment discount offered from 5% to 7% and extended the time for companies to true up past payments from 36 to 72 months.
“It’s really unfortunate that about three years ago in Buffalo at a Revenue Committee meeting, when former Rep. Madden floated this idea, that we didn’t have the foresight at that point to put it into place,” Novotny said, referencing one of two attempts by Buffalo’s Mike Madden, Revenue Committee chairman from 2013 to 2018, to bring monthly ad valorem payments before the Legislature.
In the fall of 2015, as that meeting took place, the Moriah Group was negotiating the purchase of the 7,500 Powder River Basin wells now owned by US Realm. Had that bill passed in the following budget session, it would have gone into effect in January of last year.
“Maybe,” Novotny said, “we would have headed off some of the delinquent taxes that have now accumulated.”