SB 533 – Severance Tax Relief for Re-Activated Wells SB 533 by Birdwell, Creighton, Paddie and Springer was passed on April 25 and was signed by the governor on May 7, to be effective September 1. It provides severance tax relief for wells that have been returned to active status after two years of more of inactivity. A two-year inactive well is one that has not produced oil or gas in more than one month in the two years preceding the date of application for exemption. Excluded are wells included in an enhanced oil recovery project and drilled but uncompleted wells with no record of hydrocarbon production. If the well qualifies, it is entitled to a five-year exemption from severance tax and applies to both oil and gas wells. One must apply to the Railroad Commission for a two-year inactive well certification and hydrocarbons sold after the date of certification are eligible for the exemption. SB 533 is designed to incentivize operators to reactive inactive wells. SB 925 – Change in Calculating Low-Producing Wells SB 925 by Flores and Bailes was passed on May 8 and was signed by the Governor on May 20, to be effective September 1. Texas Tax Code §201.059 provides a reduction in severance taxes for low producing gas wells. A low producing well is a gas well whose production during a three-month period is no more than 90 mcf per day, excluding gas flared. A low producing oil well is one where for a 90-day period, production is less than (i) 15 bbls/day or (ii) 5% recoverable oil per barrel of produced water. §202.058 Texas Tax Code. If qualified, then the producer gets a credit against severance taxes imposed on production from that well based on a sliding scale (since the credit for oil production is eliminated if the oil price exceeds $30/bbl, only the gas credit is set out):
production qualifies for the 100% credit. The May 2019 crude oil price was $42.91, meaning that no oil production qualifies. Currently the determination of whether a well qualifies for the credit is based on production reports to the RRC. SB 925 changes the qualifying production to the greater of what is reported to the RRC or to the Comptroller. The reference price for natural gas is published by the Comptroller in the Texas Register. Application must be made to the comptroller not later than the end of the applicable period for filing a tax refund under Texas Tax Code §111.104. The net effect of the change should be to reduce the number of qualifying wells but there is no estimate of how many might be affected; the Legislative Budget Board certified that no fiscal implication to the State is anticipated.
About the Author:
Martin Gibson Martin Gibson’s practice
concentrates on energy law, with a particular focus on the exploration and production activities of independent oil and gas companies and individuals, both domestically and internationally. He is Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization and has deep experience in equity and debt financing of oil and gas related entities.
>$3.50/mcf no credit > $3.00 <$3.50 25% >$2.50 <$3.00 50% <$2.50 100%
Each month the Comptroller certifies the average taxable price of gas, adjusted to 2005 dollars during the previous three months. The May 2019 natural gas price was $1.82/Mcf meaning that natural gas
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