The Hellbender Chronicles

Ryan, Oz Gas is applying for a tax refund after paying a tax that was struck down as illegal by the PA Supreme Court. The tax was applied by municipalities as a real estate tax, but the court recognized that oil and gas fluids are not "real estate" like static surface properties. Oil and gas can and do migrate in the subsurface across surface property boundaries, thus it is very difficult to say how much gas/oil is held within subsurface ownership at any one time or place, especially near ownership boundaries. So it's not that Oz is trying to avoid its legal taxes. It apparently paid this now illegal tax for years. However, where I think that Oz crosses the line is that they are applying for a refund, while the court did not even address the question as to whether refunds for past taxes were due to companies and individuals that paid them. I think this is overly-opportunistic of Oz. I would rather have seen them wait until this part of the Court's order was clarified by the court. Then, if the court agreed that they were owed a refund, they should apply. They have a fiduciary legal duty to their shareholders/investors to do so. Anything less would be malfeasance and neglect. However, if the courts said no refunds for past taxes are due, because those taxes were collected, when the law was thought to be legal, then too bad for Oz and others. They should accept the decision and move on.

Sea,

I agree with some of what you say, particularly about Oz's opportunism. However, they are not "applying" for a refund -- they are suing for a refund, plus 6% interest!

I think the Supreme Court's decision was wrong. If oil and gas operators are going to be occupying the surface through earth disturbance activities that is not on their land, then they should be paying taxes. They want to have their cake and eat it too. First, they virtually have access to any land that isn't theirs where they have mineral rights, public or private. Second, because of the Supreme Court decision, that property is no longer taxable, despite the very real conditions that exist from their disturbance when they drill. They want to be recognized as private property owners but don't want to be treated like other private property owners.

I'm not saying the law that was struck down by the court was perfect -- but to not be taxed, particularly when this industry dramatically alters surface resources that others are paying taxes on (and maybe don't want their land drilled on), is inappropriate. The law certainly could have been amended, not done away with.

Sea,

I think you'll agree with me that the impact to the county has to also be considered here. This lawsuit could be a real blow during tough times.

"They have a fiduciary legal duty to their shareholders/investors to do so."

This is where we might disagree. I think that the problem with corporate america is this notion that their allegiance is to shareholders first, citizens second. It is commonplace but unfortunate. The public interest here is being ignored (in more ways than one).

-jim k

Amending the law probably would have been better. WV has a neat system, where they take the reported production from an operator's wells and compute the decline and eventual total recovery of hydrocarbons and base their tax rate on that, regardless as to how the hydrocarbons move in the subsurface. This is then a production tax, not a real estate tax. PA could use this, but they'd have to get every small operator and well owner to honestly report their annual production with penalties if they didn't. After about 5-7 years, you'd have a database to graph production declines and ultimate recovery and thus have a fair basis for taxation. You should lobby for this, but good luck. As far as fiduciary duty is concerned, this is concern for citizens. It is citizens, not even always rich ones, who own the companies. I'm sure the Sierra Club and Wildlife Federation take some fo their membership monies and investment them somewhere to help fund future operations, lobbying efforts, land purchases, etc. I'm sure these investiments would be in "green" ventures. But, don't you think they'd be morally outraged, and rightly so, if the companies they invested in wasted their money through graft, foolish schemes, and not using the legal avenues open to them to minimize their costs and expenses? This is what is so maddening about the Enrons of the world, that they were so cavalier, for personal greed, with the company assets, which are actually owned by individual and group investors. They failed in their fiduciary duty. Finally, you've got to get over the fact that the subsurface is less important than the surface ownership. If you own minerals, you own most of the physical asset (soil, rocks, fluids, etc. down to the center of the earth) that makes up the land. The surface owner owns the thin veneer, albeit the important interface with the biosphere, over the rest. If I own the subsurface I have as much right to get to my property as the surface owner does as long as the surface owner is consulted, and reasonable damages are agreed to and paid. Imagine if you owned property A and your neighbor property B. If your neighbor completely fences his property in such a way that you no longer could get to and from your property, you'd have cause for action, as the neighbor would be preventing you from using what is legally yours. We have the same problem here, but in a vertical dimension rather than horizontal. To be successful you'll need to find ways to work with subsurface owners to minimize surface disturbances and make them as temporary as possible. Supporting outright bans on access to others property will only back them up against a wall and cause them to fight you. And the courts in PA and most states have long recognized the equality of rights between surface and subsurface ownership . . . as it should be.

i want to discuss crude oil and most importantly on how to lift it

Thanks for signing in, . Now you can comment. (sign out)

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

URL:
Remember me? YesNo

Comments: