Two Wyoming Supreme Court rulings this week affirmed the state's view on where to calculate the value of coal-bed methane gas for taxation purposes.

Wyoming Department of Revenue officials say the decisions will "preserve" some $15 million to $17 million annually in severance and ad valorem revenue from coal-bed methane production.

In separate cases, Kennedy Oil and Williams Production RMT Co. appealed the state's valuation of produced coal-bed methane gas. At issue was where the legal "point of valuation" is in the chain from the well to transportation pipelines.

The companies argued that the point of valuation was upstream of the initial dehydrator and gathering system -- where the ownership of gas was transferred. Essentially, this view would allow the cost of "gathering" the gas to be deducted from the taxable value, resulting in lower severance and ad valorem taxes paid by the producer.

However, the court sided with the Department of Revenue's reading of state statute placing the point of valuation at the outlet of the initial dehydrator, farther downstream where the value of the gas is generally higher.

Industry leaders have complained that this practice results in taxing a producer on revenue he never receives.

According to court documents, Kennedy argued that the state's mineral valuation statutes were structured with conventional gas wells in mind, and didn't contemplate the infrastructure for coal-bed methane where dehydrators can be located several miles downstream from the wellhead.

"While we do not dispute that (coal-bed methane) may differ somewhat from conventional production, our task is limited to determining legislative intent where possible from the language used in the statute," Justice Marilyn Kite wrote for the court.

The statute "clearly and unambiguously provides that the point of valuation for gas is at the outlet of the initial dehydrator," the ruling states. "If the legislature disagrees with that conclusion it is free to amend the statute."

Energy reporter Dustin Bleizeffer can be reached at (307) 577-6069 or dustin.bleizeffer@trib.com.