Texas Administrative Code
Title 16 - ECONOMIC REGULATION
Part 1 - RAILROAD COMMISSION OF TEXAS
Chapter 3 - OIL AND GAS DIVISION
Section 3.101 - Certification for Severance Tax Exemption or Reduction for Gas Produced From High-Cost Gas Wells
Universal Citation: 16 TX Admin Code ยง 3.101
Current through Reg. 49, No. 12; March 22, 2024
(a) Purpose. This section specifies the procedure by which an operator can obtain a Railroad Commission of Texas certification that natural gas from a particular gas well qualifies as high-cost natural gas under the Texas Tax Code, Chapter 201, Subchapter B, §201.057(a)(2)(A) and that such gas is exempt from or eligible for a reduction of the severance tax imposed by the Texas Tax Code, Chapter 201.
(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
(1) Commission--The Railroad Commission of
Texas.
(2) Completion--The act of
making a well capable of producing gas from a particular commission designated
or new field.
(3) Completion
date--The date on which a well is first made capable of producing oil or gas
from a particular commission-designated or new field, as shown on the
completion report filed by the operator with the commission.
(4) Comptroller--The Comptroller of Public
Accounts of the State of Texas.
(5)
Data-point well--A well that has been tested and/or produced in the proposed
tight gas formation; and, from the test results or other data, applicant
provides a measured or calculated in situ permeability and/or a measured or
calculated pre-stimulation stabilized flow rate against atmospheric
pressure.
(6) Director--The
director of the Oil and Gas Division or the director's delegate. Any authority
given to the director in this section is also retained by the commission. Any
action taken by the director pursuant to this section is subject to review by
the commission.
(7) High-cost
gas--Natural gas which the commission finds to be:
(A) produced from any gas well, if production
is from a completion which is located at a depth of more than 15,000
feet;
(B) produced from
geopressured brine;
(C) occluded
natural gas produced from coal seams;
(D) produced from Devonian shale;
or
(E) produced from designated
tight formations or produced as a result of production enhancement
work.
(8) Operator--The
person responsible for the actual physical operation of a gas well.
(9) Spud date--The date of commencement of
drilling operations, as shown on commission records.
(c) Applicability.
(1) A severance tax exemption is available
for high-cost gas produced from a well that is spudded or completed between May
24, 1989, and September 1, 1996. Eligible high-cost gas shall be exempt from
the tax imposed by the Texas Tax Code, Chapter 201, during the period from
September 1, 1991, through August 31, 2001.
(2) A severance tax reduction is available
for high-cost gas produced from a well that is spudded or completed after
August 31, 1996. Eligible high-cost gas shall be entitled to a reduction of the
tax imposed by the Texas Tax Code, Chapter 201, for the first 120 consecutive
calendar months beginning on the first day of production or until the
cumulative value of the tax reduction equals 50% of the drilling and completion
costs incurred for the well, whichever occurs first. The amount of tax
reduction is determined pursuant to the Texas Tax Code, §
RSA
201.057<subdiv>(c)</subdiv>. If
the application for certification is submitted to the Commission after January
1, 2004, the total allowable credit for taxes paid for reporting periods before
the date the application is filed may not exceed the total tax paid on the gas
that otherwise qualified for the exemption or tax reduction and that was
produced during the 24 consecutive calendar months immediately preceding the
month in which the application for certification under this section was filed
with the Commission.
(3) The plug
back or deepening of an existing wellbore qualifies as a completion under this
section. When the plug back or deepening is completed prior to September 1,
1996, the gas produced may qualify for a tax exemption. When the plug back or
deepening is completed after August 31, 1996, the gas produced may qualify for
a tax reduction. The plug back or deepening qualifies as a completion if:
(A) it is the initial completion in a
commission-designated or newly discovered field that has not been previously
produced from that wellbore; or
(B)
the operator can demonstrate that the strata between the former completion and
the new completion contain a minimum of 20 vertical feet of impermeable strata;
or
(C) the operator submits the
results of bottom hole pressure surveys, gas analyses or other methods or
calculations comparing the new completion with previous completions in the
wellbore that were in existence prior to May 24, 1989. The application shall
include an explanation of the engineering principles, calculations, and
reasoning to show that the gas to be produced from the applied-for completion
could not have been produced from any completion in existence prior to May 24,
1989.
(4) If the
operator determines that a gas well previously certified as producing high-cost
gas no longer produces high-cost gas or if the operator takes any action or
discovers any information that affects the eligibility of gas for an exemption
or tax reduction under Texas Tax Code, §
RSA
201.057, the operator shall notify the
Commission in writing within 30 days after such an event occurs.
(5) If the Commission determines that a gas
well previously certified as producing high-cost gas no longer produces
high-cost gas or if the commission takes any action or discovers any
information that affects the eligibility of gas for an exemption or tax
reduction under Texas Tax Code, §
RSA
201.057, the Commission shall notify within
48 hours, in writing, the comptroller and the operator.
(d) Application procedure.
(1) An application for a state severance tax
exemption or tax reduction for a gas well may be made only by the operator of
that well. The operator shall file one copy of the required application form,
one copy of the required attachments specified in subsection (e)(1)-(6) of this
section and any additional information deemed necessary by the Commission to
clarify, explain and support the required attachments. Submission of legible
copies of required attachments shall comply if the application includes a
statement, signed by the operator, that the attachments are true and correct
copies of the documents originally filed with the Commission. However, the
Commission may require an operator to file certified copies of required
attachments or other documents from Commission files if necessary for a
certification.
(2) Filings and
correspondence on high-cost gas state severance tax applications shall be
addressed to the Railroad Commission of Texas, P.O. Box 12967, Austin, Texas
78711-2967, Attention: High-Cost Gas Severance Tax Section. No filings may be
made at the district offices.
(e) Application requirements for individual well certifications. To qualify for the severance tax exemption or tax reduction, the operator shall prove that the gas produced is high-cost gas by providing the following information:
(1)
Applications for wells producing deep high-cost gas shall include:
(A) the completed applicable commission form;
and
(B) copies of all Gas Well Back
Pressure Test, Completion or Recompletion Reports and Logs ever filed on the
subject well.
(2)
Applications for wells producing geopressured brine shall include:
(A) the completed applicable commission
form;
(B) copies of all Gas Well
Back Pressure Test, Completion or Recompletion Reports and Logs ever filed on
the subject well;
(C) a bottom-hole
pressure test report and other information establishing the initial reservoir
pressure gradient; and
(D) evidence
to establish that, before production, the gas from the well was in solution in
a brine aquifer with at least 10,000 parts of dissolved solids per million
parts of water.
(3)
Applications for wells producing coal seam gas shall include:
(A) the completed applicable commission
form;
(B) copies of all Gas Well
Back Pressure Test, Completion or Recompletion Reports and Logs ever filed on
the subject well if the gas is produced through a wellbore, or a detailed
description of the production process if the gas is not produced through a
wellbore;
(C) a radioactivity,
electric or other log which will define the coal seams or, if such logs are not
reasonably available, a detailed lithologic description of the gas-producing
interval; and
(D) evidence to
establish that the natural gas was produced from coal seams.
(4) Applications for wells
producing Devonian shale gas shall include:
(A) the completed applicable commission
form;
(B) copies of all Gas Well
Back Pressure Test, Completion or Recompletion Reports and Logs ever filed on
the subject well;
(C) an
environmentally corrected, calibrated gamma ray log with values greater than
100 API units over the Devonian age stratigraphic section, or a gamma ray log
with superimposed indications of the shale base line and the gamma ray index of
0.7 over this section or, if the gamma ray log is not reasonably available, a
driller's log or similar report indicating the general characteristics of the
strata penetrated and the corresponding depths at which they are encountered
throughout the Devonian age stratigraphic section;
(D) information which calculates the
percentage of footage of the producing interval which is not Devonian shale as
indicated by the gamma ray log, driller's log, or similar report;
(E) information which demonstrates that the
percentage of potentially disqualifying nonshale footage for the stratigraphic
section selected is equal to or less than 5.0% of the Devonian stratigraphic
age interval; and
(F) reference to
a standard stratigraphic chart or text establishing that the producing interval
is a shale of Devonian age.
(5) Applications for wells producing
designated tight formation gas shall include:
(A) the completed applicable commission
form;
(B) copies of all Gas Well
Back Pressure Test, Completion or Recompletion Reports and Logs ever filed on
the subject well;
(C) specific
reference to the commission docket number assigned to the applicable designated
tight formation area certification along with a copy of the map with the
subject well location shown, which outlines the designated tight formation area
approved by the commission.
(6) Applications for wells producing
production enhancement gas shall include:
(A)
the completed applicable commission form;
(B) copies of all Gas Well Back Pressure
Test, Completion or Recompletion Reports and Logs ever filed on the subject
well;
(C) a description of the
production enhancement work that has been performed on the well, including the
dates the work was commenced and completed, or that will be performed on the
well;
(D) an itemized statement of
costs incurred in performing the production enhancement work, including copies
of invoices and bills for such work, or, if the work has not yet been
completed, estimates of such costs;
(E) a statement estimating, for a five-year
test period beginning from the month in which the application is filed, the
increase in gas production resulting from the application of production
enhancement work;
(F) calculations
showing that the projected increase in revenue does not exceed 200% of the
§103 price;
(G) the
renegotiated price;
(H) a copy of
that portion of the sales contract that authorizes collection of the
renegotiated price; and
(I) the
properly executed statement under oath made by the purchaser of natural gas
which states that there is a reasonable basis for the statements and estimates
made by the applicant.
(f) Application requirements for tight formation area certifications.
(1) If
justification for an individual well application is based on a tight formation
certification and the well is not located within a geographical area that has
been previously certified as a designated tight formation area or the well is
not completed in a formation interval that has been previously certified as a
designated tight formation by the Federal Energy Regulatory Commission under
the Natural Gas Policy Act or by the Railroad Commission of Texas, the operator
shall first apply for a tight formation area designation.
(2) An applicant requesting a tight formation
area designation shall submit a written request to the High-Cost Gas Severance
Tax Section, at the address given in subsection (d)(2) of this section, for a
certification that a named formation or a specific portion thereof is a tight
formation. The applicant shall supply a list of the names and addresses of all
affected persons. For purposes of this subsection, "affected persons" means all
operators of all wells listed on the current proration schedule for the
applicable field or fields located within the proposed designated area. The
applicant shall mail or deliver a copy of the prescribed, completed notice of
application form to all affected persons, and if required, shall publish the
notice of application in accordance with §
RSA 1.46 of
this title (relating to Notice by Publication in Oil and Gas and Surface Mining
and Reclamation Nonrulemaking Proceedings), as found in the Commission's
General Rules of Practice and Procedure (16 Texas Administrative Code Chapter
1). Notice of application forms may be obtained by contacting the Railroad
Commission of Texas, P.O. Box 12967, Austin, Texas 78711-2967, Attention:
High-Cost Severance Tax Section. Before the application may be approved, the
applicant shall submit a letter certifying that all affected persons were sent
a copy of the notice of application, and the date on which the notice of
application was sent.
(3) In
addition to the written request and list of affected persons, the applicant
shall submit the following information in duplicate:
(A) a geographical and geological description
of the formation, including:
(i) a map with
an outline of the geographical limits of the formation in and around the
requested area, with the proposed designated areal boundaries shown, with
counties, surveys and abstracts identified and with the locations clearly
identified for all wells inside the requested area that have penetrated the
proposed formation; all wells (i.e., those that penetrated the proposed
formation) shown on the map inside the requested area shall include either the
commission's gas well identification number or the API number (if
available);
(ii) a list of the
counties involved, abstract numbers, survey names, geologic formation markers,
and any other descriptive information that will aid in identifying the subject
formation including an estimate of the number of acres within the requested
area; and
(iii) a structure map
contoured on the top of the formation and a cross-section to depict upper and
lower limits of the proposed formation, or specific portion thereof.
(B) engineering and geological
exhibits, including a written explanation of each, to establish the following:
(i) that the in situ permeability throughout
the proposed formation or specific portion thereof is 0.1 millidarcies or less,
as determined by geometric mean or median analysis of available data from all
wells that either have been tested or are completed in the proposed formation
within the requested area. If no in situ permeability estimates are provided
for wells that are in the requested area and have been tested and/or are
completed in the proposed formation, an explanation shall be
provided;
(ii) that the
pre-stimulation stabilized production rate against atmospheric pressure at the
wellhead, as determined by a geometric mean or median analysis of available
data from all wells within the requested area that either have been tested
and/or are completed in the proposed formation or specific portion thereof,
does not exceed the production rate listed in the following table:
(iii)
that no well drilled into the formation is expected to produce, without
stimulation, more than five barrels of crude oil per day; and
(iv) that the requested designated area does
not extend beyond a two and one-half mile radius drawn from any data point
well.
(g) Commission action on applications for individual well certifications and for tight formation area designations.
(1) Each application, for an individual well
certification, shall be assigned a docket number identifying it as a severance
tax application. A notice of receipt shall be sent to the applicant, indicating
the assigned docket number and receipt date. All further correspondence shall
include this docket number.
(2) The
director may administratively approve the individual well certification
applications if the forms and information submitted by the operator establish
that the gas qualifies as high-cost gas eligible for the severance tax
exemption or tax reduction. If the director denies administrative approval, the
applicant shall have the right to a hearing.
(3) If Commission staff finds that the data
submitted with the tight formation area designation applications are complete
and comply with the requirements set out in subsection (f)(3) of this section
and if no protest to the application is filed within 21 days of the notice, the
application shall be presented to the Commission for approval. If Commission
staff finds the data submitted are incomplete, or indicate the area does not
qualify, or if a protest is filed within the 21-day notice period, the
applicant shall request a hearing to have the application considered. If the
applicant does not request such a hearing or if the applicant fails to appear
at a requested hearing, the application shall be dismissed. Any such hearing
shall be held only after at least 10 days' notice by the Commission to all
affected persons as defined in subsection (f)(2) of this section. If no
protestant appears at the hearing, and/or if the application and any evidence
presented at the hearing establishes that the subject formation meets the
requirements for a tight formation certification, the application shall be
presented to the Commission for approval.
(h) Reporting. To qualify for the exemption or tax reduction provided by Texas Tax Code, § RSA 201.057<subdiv>(a)(2)(A)</subdiv>, all persons responsible for paying the tax shall apply with the comptroller after receiving a copy of the Commission's certification letter. The application shall contain the Commission's letter certifying that the well produces or will produce high-cost gas, a completed copy of the Commission's application for certification form and a completed copy of the applicable Comptroller of Public Accounts' form. To obtain the maximum tax exemption or tax reduction, the application shall be filed with the comptroller at the later of the 180th day after the first day of production or the 45th day after the certification by the Commission. If the application is not filed by the applicable deadline, the tax exemption or reduction will be reduced by 10% for the period beginning on the 180th day after the first day of production and ending on the date on which the application is filed with the comptroller.
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