REDLINE ENERGY LLC v. BENSON (2026)

¶1 Appellant, Redline Energy, LLC (Redline), appeals the trial court's Order denying Redline's Motion for Summary Judgment and granting Appellees, Renetta Benson, Woods County Assessor (Assessor), and Woods County Board of Tax Roll Corrections (Board) (collectively Appellees) Counter-Motion for Summary Judgment. The issue was whether Redline's pipe, known as a flowline, was subject to ad valorem taxation pursuant to 68 O.S.2021, § 2804. The trial court ruled in favor of Appellees, finding that the flowline was not used in the production of oil and gas and was thus subject to ad valorem taxation. After reviewing the record and applicable law, we reverse.

BACKGROUND

¶2 Redline is the operator of the Julian 2-1 well located in Woods County that is subject to a 640-acre spacing unit pursuant to an Order of the Oklahoma Corporation Commission. ONEOK Field Services Company, L.L.C. (ONEOK) purchases gas from Redline under a Gas Purchase Agreement.  ¹ Redline also owns a flowline, which connects the Julian 2-1 well to a meter owned by ONEOK. The flowline runs completely within the 640-acre spacing unit. Attached to the well is a two-phase separator that separates natural gas from any liquids, and the flowline is attached to the separator. The flowline spans 3,100 feet and transports gas from the separator to the sales meter. The meter house is owned by ONEOK and is where ONEOK takes possession of the gas.

¶3 According to Redline's owner, Adam Schilde (Schilde), the flowline was laid for the purpose of transporting the gas to the sale point. No other wells feed into the 3,100-foot flowline. According to Schilde, Redline cannot produce the Julian 2-1 well without using the flowline. As a result, the gas cannot be considered produced until marketed, and it cannot be marketed until it is carried to the ONEOK meter.

¶4 Schilde acknowledged that a very small amount of gas from the Julian 2-1 is used to operate the well prior to the gas entering the 3,100 foot flowline. Although the Julian 2-1 does not have a check meter on it, Schilde testified that it could, and he would, be able to measure the same things that are measured at the ONEOK sales meter. Both parties filed motions for summary judgment. After a hearing, the trial court denied Redline's Motion for Summary Judgment and granted Appellees Counter-Motion for Summary Judgment. Redline appeals.

STANDARD OF REVIEW

¶5 “Summary judgment resolves issues of law” and this Court reviews a trial court's grant of summary judgment de novo. Snow v. Town of Calumet, 2022 OK 63, 5, 512 P.3d 369, 372. “Using the de novo standard, we subject the record to a new and independent examination without regard to the trial court's reasoning or result.” Id. “A trial court should grant summary judgment where there is no dispute as to a material fact and the moving party is entitled to judgment as a matter of law.” Eldridge v. Kavon, LLC, 2019 OK CIV APP 45, 5, 446 P.3d 538, 540. “A fact is ‘material’ if proof of that fact would have the effect of establishing or refuting one of the essential elements of a cause of action or defense asserted by the parties.” Hadnot v. Shaw, 1992 OK 21, 18, 826 P.2d 978, 985. “All material facts set forth in the statement of the movant which are supported by acceptable evidentiary material shall be deemed admitted for the purpose of summary judgment or summary disposition unless specifically controverted by the statement of the adverse party which is supported by acceptable evidentiary material.” R. for Dist. Cts. of Okla. 13(b), 12 O.S.2021, Ch.2, App. (emphasis added).

ANALYSIS

¶6 Redline raises three issues in its Petition in Error. All three issues center around Redline's use of the flowline and whether, based on the facts and the law, Redline's flowline is used in the production of gas. Specifically, Redline argues in its first issue that because the flowline contains the gas upstream from ONEOK's sales meter, the point where gross production tax is determined, the flowline is used for production and not solely transportation. Second, Redline generally asks if flowlines are categorically excluded from gross production tax in lieu of ad valorem tax where gas can theoretically be tested at the wellhead. Third, Redline asks if 68 O.S. § 1001(K) includes flowlines only to the extent they are between the wellhead and a separator. As it pertains to Redline's second and third issues, this Court's resolution of Redline's first claim dispenses with the need for this Court to address those issues.

¶7 Pursuant to 68 O.S.2021, § 2804, real and personal property is subject to ad valorem taxes unless the property is specifically exempted by law, or if it is relieved from ad valorem taxes by reason of payment of an in lieu tax. Pertinent here, under 68 O.S.2021, § 1001(K) & (L), gross production tax is assessed in lieu of ad valorem tax on property that is used, and being used, and actually necessary for the production of oil and gas. Here, Redline argued below that its flowline was not subject to ad valorem taxes because it paid gross production tax, and that the flowline is necessary for the actual production of the gas from the Julian 2-1. See 68 O.S.2021, § 2805(5).

¶8 In its Motion for Summary Judgment, Redline argued that the flowline is necessary, and actually used in, the production of gas. Transportation of the gas through the flowline enables the gas to be measured and gross production tax determined at the ONEOK sales meter. Appellees countered that lines merely for transportation did not qualify for the in lieu tax. Appellees argue that the gas was produced at the wellhead, after it was processed through the separator and before it entered the flowline. Appellees rely on In re Home-Stake Production Co., 1969 OK 191, 463 P.2d 983for support. However, this holding appears to rest on the fact that for Home-Stake to transport the gas, it had to purchase a right-of-way from another landowner and that landowner's property was traversed by the pipeline. Id. at 15.

¶9 In the present case, the flowline was within the 640-acre spacing unit and, according to Schilde was being used in the production of the gas. This Court finds this case distinguishable from In re Home-Stake. Unlike In re Home-Stake, Redline's flowline was used for the production of the gas within the 640-acre spacing unit and did not encroach or require Redline to acquire right of way for the purpose of transporting the gas to a sales meter outside of the spacing unit. Instead, the flowline went from the wellhead to ONEOK's sales meter where it was measured and sold. Therefore, this Court is not persuaded that In re Home-Stake is controlling as it relates to the facts of this case.

¶10 Instead, this Court agrees with Redline and finds that Shaffer Oil & Refining Co. v. County Treasurer of Creek County, 1935 OK 1172, 52 P.2d 76supports the position of Appellants. In Shaffer, the Court addressed pipes that performed two distinct functions. Shaffer, 1935 OK 1172, at 15. The first function connected individual wells to a vacuum plant, and the second function was transporting the gas from the vacuum plant to the gas plant. The Court found that the pipe connecting the wells to the vacuum plant increased the production of oil and gas from the wells and were therefore excused from ad valorem taxes. Id. at 16. The facts in this case indicate that without the flowline no gas would be produced from the Julian 2-1 and sold to ONEOK. In other words, without a flowline, Redline could not get its gas from the wellhead to the ONEOK sales meter, the location where gross production tax is determined. Here, the single flowline runs directly from the wellhead to the sales meter and is contained within the 640-acre spacing unit. Under Shaffer this flowline is necessary, and actually used in, the production of gas.

¶11 Based on the applicable law and evidence presented below, 68 O.S. § 1001(K) exempts the flowline from ad valorem tax.  ² The trial court's grant of summary judgment was erroneous.

CONCLUSION

¶12 After reviewing the record and the pertinent law, this Court finds that Appellant successfully demonstrated that Redline's flowline is property that is necessary, and actually used in, the production of gas from the Julian 2-1 well. Thus, 68 O.S.2021, § 1001(K) prevents Redline from being assessed ad valorem taxes on the flowline pursuant to 68 O.S.2021, § 2804. We reverse the trial court's Order denying Redline's Motion for Summary Judgment and granting summary judgment in favor of Appellees.

¶13 REVERSED.

FOOTNOTES

1.   Redline was not the original seller.

2.   Redline filed supplemental authority showing the Legislature amended 68 O.S.2021, § 1001.1. The amendments will go into effect January 1, 2027. Based on the legislative history, it appears the Legislature may have passed the amendment to address the wrongful application of ad valorem tax by counties to flowlines used for production within a spacing unit.

OPINION BY TIMOTHY J. DOWNING, PRESIDING JUDGE:

PRINCE, V.C.J., and MITCHELL, J., concur.