Citing more than $22 million in unpaid production taxes dating back to 2016, the Johnson County Treasurer filed a suit on Monday requesting the Fourth Judicial District Court of Wyoming issue an order of foreclosure on coalbed methane operator Carbon Creek Energy, LLC, and direct the Johnson County Sheriff to sell the company’s property to allow the county to recover the money it is owed.
“That amount grows every day that they produce,” said Johnson County Commissioner Bill Novotny.
The civil suit is the latest maneuver in the county’s battle to collect the millions owed by the company.
In 2018, the county treasurer filed a lien on Carbon Creek’s unpaid taxes. That means, according to Monday’s filing, that the county has a valid, enforceable lien on all of Carbon Creek’s property in the county, including, “acquired property rights, future production and rights to property,” as well as future production from the company’s leaseholds, regardless of change in ownership.
More than two-thirds of Wyoming’s mineral production taxes go to fund education throughout the state. Locally, the balance enters the county general fund and also funds special districts such as the hospital and fire districts.
“Johnson County has patiently waited for the new owners of Carbon Creek to reach out and negotiate a payment plan for the payment of these taxes,” according to a press release from the county. “However, no attempt has been made to address this issue and the County can no longer stand by while Carbon Creek continues to remove minerals from Johnson County with no payment of taxes.”
The suit also names a number of yet-unknown defendants who purchased minerals and gas produced and severed in Johnson County by Carbon Creek, or individuals who received proceeds of the sales.
In addition to the owed production taxes, the county fought for several years to collect unpaid property taxes from Carbon Creek, finally agreeing to a $3.4 million settlement in February. Since, the company racked up new debt, and according to the filing its unpaid 2019 property taxes amounted to $563,671.
Carbon Creek’s operations provide 180 local jobs, according to bankruptcy court filings from its affiliate company, US Realm Powder River.
“The County is acutely aware of the ramifications this suit may have on many residents of Johnson County,” the press release read. “However, both the Treasurer and Commissioners are ultimately bound to abide by the laws of this state and are fiduciaries of the public’s money. Consequently, we were left with no choice but (to) sue Carbon Creek and stop its irresponsible actions.”
County officials have previously spoken of the challenge of collecting delinquent production taxes.
“When you’re taking a one-time resource and you’re stripping it from the ground and it’s gone, there’s nothing to go back on,” Novotny said in a 2019 interview with the Bulletin. “It’s not like real property. So we’ve got to find something else.”
“If you have a house or a business and you don’t pay your taxes, we can send it to the tax sale,” he added. “We can’t do that with energy companies. In some states they do have energy tax sales. In Wyoming, that’s not an option.”
Novotny and County Deputy Civil Attorney Barry Crago have appeared before a slew of legislative committees to lobby for tax payment laws that would be more favorable to Wyoming counties. “We have no leverage,” Crago told lawmakers in an October 2019 hearing. “Literally, none.”
Carbon Creek is part of a trio of companies anchoring much of the remaining coalbed methane production in the Powder River Basin. In 2015, a Texas-based diversified holding company, the Moriah Group, and Tom Fitzsimmons, at the time, a state oil and gas commissioner from Cody, bet their combined investment capital on the idea that profits lay in the shrapnel of the coalbed methane bust. Together, they purchased roughly 6,800 low and non-producing Powder River Basin wells and their associated infrastructure from Anadarko, WPX Energy and Western Gas Resources .They then crafted a set of limited liability companies to manage the assets: Moriah Powder River to own the leases and the wells; Carbon Creek to own and operate the well production infrastructure; and Powder River Midstream, responsible for the operation’s compressors, pumps, and separators. Under Wyoming statute, the county’s filing this week explains, the company that serves the minerals — Carbon Creek in this case — is considered the delinquent taxpayer.
US Realm filed for bankruptcy last year, after Fort Union Gas Gathering threatened to shut off the company’s access to its pipeline if US Realm did not pay almost $1 million it owed the pipeline company. US Realm recently received its fourth extension to finalize a plan of reorganization, which extends through next summer. As long as that case remains in bankruptcy court, US Realm is protected from attempts from creditors to collect on debts.
“We thought it was important to file this in Johnson County, where the production has taken place, and the impact is most felt,” Novotny said on Tuesday. “We’ve been working through our attorneys on this for months, and they said it was time to go.”