Bluebird Energy v. State

415 Mont. 48

2024 MT 10

BLUEBIRD ENERGY LLC, Petitioner and Appellant,

v.STATE OF MONTANA, DEPARTMENT OF REVENUE, Respondent and Appellee.

No. DA 23-0280.

Submitted on Briefs November 1, 2023.

Decided January 23, 2024.

2024 MT 10.

415 Mont. 48.

___ P.3d ___.

1. Energy & Utilities Law – Federal Oil & Gas Leases – Extensions & Terminations – Abandonment & Termination – Tax Law – State & Local Taxes – Natural Resource Taxes – Imposition of Tax – Taxation Issues

Mont. Code Ann. § 15-36-304(5)(d)(j), referred to as the New Well Tax Incentive, provides that the first 18 months of qualifying production for an oil or gas well is to be taxed at a reduced rate of 0.5%. Qualifying production is the first 12 months of production of oil or natural gas or the first 18 months of production from a horizontally completed well drilled after December 31, 1998, or from a well that has not produced oil or gas in over five years. Mont. Code Ann. § 15-36-303(21)(a).

2. Civil Procedure – Appeals – Standards of Review – De Novo Review – Summary Judgment – Appellate Review – Questions of Fact & Law

A grant of summary judgment de novo is reviewed under the same Mont. R. Civ. P. 56 standard a district court applies. Interpretation of a statute is a question of law that is reviewed for correctness. Whether an administrative regulation impermissibly conflicts with a statute is a question of law to be decided by the court. A district court’s conclusions of law are reviewed to determine if they are correct.

3. Tax Law – State & Local Taxes – Natural Resource Taxes – Imposition of Tax

Taxes on oil and gas are based upon the value of production in Montana. Mont. Code Ann. § 15-36-304(5).

4. Governments – Legislation – Interpretation

When approaching interpretation of a statute, the role of the judge is to ascertain and declare what is in terms or in substances contained therein, not to insert what has been omitted or to omit what has been inserted. Mont. Code Ann. § 1-2-101. The interpretation should seek to implement the purpose the legislature sought to achieve by the law. If the intent of the Legislature can be determined from the plain meaning of the words used in the statute, the plain meaning controls and the Court need go no further nor apply any other means of interpretation. Statutes should not be considered in a vacuum and must be construed as a whole to give effect to the purpose of the statute and avoid an absurd result. Words and phrases used in a statute are to be construed according to the context in which they are found, and according to their normal usage, unless they have acquired some peculiar or technical meaning. Mont. Code Ann. § 1-2-106. When a statute granting a tax exemption or deduction is capable of multiple interpretations and the legislative intent cannot be determined, the court resolves the doubt in favor of the taxing power.

5. Energy & Utilities Law – Federal Oil & Gas Leases – Extensions & Terminations – Abandonment & Termination – Tax Law – State & Local Taxes – Natural Resource Taxes – Imposition of Tax – Taxation Issues

Mont. Code Ann. § 15-36-304(6)(b)(i) provides that the start of the 18 month period for the reduced tax rate under § 15-36-304(5)(d)(i) begins the last day of the month immediately preceding the month in which oil is pumped or flows if the well has been certified as a horizontally completed well. The triggering event that starts the incentive period is the pumping or flowing of oil when the well has been certified to the Department and has engaged in qualifying production, defined as the first 18 months of production of oil or natural gas from a horizontally completed well drilled after December 31, 1998. Mont. Code Ann. § 15-36-303(21)(a).

6. Energy & Utilities Law – Taxation Issues – Governments – Legislation – Statute of Limitations – Time Limitations

The definition of “qualifying production” contained at Mont. Code Ann. § 15-36-303(21)(a), provides that when production has been interrupted the qualifying production begins only after nonproduction for at least 5 years.

7. Administrative Law – Agency Rulemaking – State Proceedings – Rule Application & Interpretation – Validity

Regulations are valid and effective when they are consistent and not in conflict with the statute and reasonably necessary to effectuate the purpose of the statute. Mont. Code Ann. § 2-4-305(6). Whether an administrative regulation impermissibly conflicts with a statute is a question of law to be decided by the court. Administrative regulations are invalid if they engraft additional and contradictory requirements on the statute or if they engraft additional, noncontradictory requirements on the statute which were not envisioned by the legislature. The same principles governing the interpretation of statutes are applied to construing administrative rules.

8. Administrative Law – Hearings – Evidence – Official Notice – Energy & Utilities Law – Taxation Issues

Mont. Admin. R. 42.25.1814 and 42.25.1816 do not impose additional or contradictory requirements on the oil and gas statutes.

9. Administrative Law – Judicial Review – Standards of Review – Deference to Agency Statutory Interpretation – Governments – Legislation – Interpretation

Longstanding and consistent interpretation of a statute by an agency that has produced reasonable reliance on that interpretation by the public is entitled to respectful consideration by the court.

10. Administrative Law – Judicial Review – Standards of Review – Deference to Agency Statutory Interpretation – Governments – Legislation – Interpretation

Where the Legislature acquiesces in long-standing agency interpretation of a statute and takes no action to inform that interpretation, the court will presume that the Department of Revenue has properly interpreted the law.

11. Governments – Legislation – Interpretation

There is no requirement in caselaw that the definition of a term must first be litigated to conclude that the Legislature’s inaction in the face of consistent interpretation is evidence of correct interpretation.

12. Tax Law – State & Local Taxes – Natural Resource Taxes – Imposition of Tax

Once qualifying production begins, the tax incentive runs contiguously for 18 months regardless of whether production is continuous. Further, Mont. Admin. R. 42.25.1814 and 42.25.1816 are consistent with and reasonably necessary to effectuate the purpose of Mont. Code Ann. §§ 15-36-303 and 15-36-304.

Appeal from the District Court of Rosebud County.

Sixteenth Judicial District Court, Cause No. DV-2022-34.

Honorable Nickolas C. Murnion, Judge.

The denial of appellant’s motion for summary judgment was proper because it failed to show it was entitled to the reduced tax rate. Once qualifying production began, the tax incentive ran contiguously for 18 months regardless of whether production was continuous; further, Mont. Admin. R. 42.25.1814 and 42.25.1816 were consistent with and reasonably necessary to effectuate the purpose of Mont. Code Ann. §§ 15-36-303 and 15-36-304.

Affirmed.

For Appellant: Scotti Gray, Gray Law Firm, PC, Billings.

For Appellee: Teresa G. Whitney, Senior Tax Counsel, Montana Department of Revenue, Helena.

JUSTICE McKINNON delivered the Opinion of the Court.

¶1 Bluebird Energy, LLC (Bluebird) appeals an order from the Sixteenth Judicial District, Rosebud County, denying its motion for summary judgment and granting the Montana Department of Revenue’s (Department) motion for summary judgment. The District Court held that Bluebird’s oil production does not qualify for the New Well Tax Incentive rate and that ARMs 42.25.1814 and 42.25.1816 are consistent with and necessary to effectuate the purposes of the Oil and Gas Production Tax statutes. We affirm.

¶2 We address the following issues:

1. Is the 18-month period of reduced taxes on horizontallycompleted wells continuous once it is triggered or is it based on actual production?

2. Are ARMs 42.25.1814 and 42.25.1816 consistent with the Oil and Gas Production Tax statutes?

FACTUAL AND PROCEDURAL BACKGROUND

¶3 Apache Corporation & Subsidiaries (Apache) owned three horizontally completed oil wells in Rosebud County that were subsequently sold to Bluebird in July 2021. The wells are identified as follows:

a. Spider Monkey 1H-API No. 25-087-21744 located in Rosebud County;

b. Golden Monkey 1H-API No. 25-087-21746 located in Rosebud County; and

c. Flying Monkey 1H-API No. 25-087-21748 located in Rosebud County.

¶4 [1] Apache produced oil from Spider Monkey from October of 2018 to December of 2018 and for the month of July 2019. It produced oil from Golden Monkey during October and November of 2019 and from Flying Monkey during November and December 2019. Section 15-36-304(5)(d)(j), MCA, referred to as the New Well Tax Incentive, provides that the first 18 months of qualifying production for an oil or gas well is to be taxed at a reduced rate of 0.5%. Qualifying production is the first 12 months of production of oil or natural gas or the first 18 months of production from a horizontally completed well drilled after December 31, 1998, or from a well that has not produced oil or gas in over five years. Section 15-36-303(21)(a), MCA. Apache received the reduced tax rate on oil production for the three wells and shut in the wells until they were later sold to Bluebird. After Bluebird acquired the wells, they installed permanent production facilities costing approximately $500,000 per well. Bluebird then began producing oil from each well, with production starting in October 2021 for Flying Monkey, in November 2021 for Golden Monkey, and in December 2021 for Spider Monkey. The three wells have produced oil every subsequent month into the present.

¶5 Bluebird submitted New Well applications for all three wells to the Department on December 2, 2021. Bluebird filed taxes for the wells according to the New Well Incentive tax rates in the fourth quarter for 2021. The Department determined the wells did not qualify for the New Well Tax Incentive rate...