TAX CREDIT FOR QUALIFYING LOW-PRODUCING OIL LEASES

Texas law provides a crude oil tax credit for low-producing oil leases.

Qualifications

1. A qualifying low-producing oil lease is a well classified as an oil well by the Texas Railroad Commission that is part of a lease whose production during a 90-day period is less than an average of:
   • 15 barrels of oil per day of production; or
   • 5 percent recoverable oil per barrel of produced water. This requires a $100 filing/application fee.
   Production per well per day is measured by dividing the sum of lease production during the three-month period by the sum of the number of well-days, where a well-day is one well producing for one day. (A lease day is one lease producing for one day.)
2. Production per well per day is determined by computing the average daily well production from the lease using the greater of the monthly production from the well as reported in:
   • the monthly lease production reports filed with the Texas Railroad Commission, including amended reports; and
   • the monthly severance tax reports, including amended reports that are filed by producers and purchasers with the Comptroller’s office and who report as liable for the tax.
   Production reports not filed with the Texas Railroad Commission and the Comptroller’s office for any of the prior three months will cause the lease to be ineligible for the tax credit.
3. Taxpayers must file Form AP-216, Texas Crude Oil Lease Tax Exemption Application (PDF) for approval of the tax credit for a low-producing oil lease, and all the required information must be provided. Any information listed below that is not provided in Form AP-216 will result in a delay in the approval process which could potentially cause a denial of a tax credit.
   
   

   Form AP-216 – Required Information	Description
   Taxpayer number	Texas 11-digit taxpayer number assigned by the Comptroller’s office.
   Lease information from Railroad Commission’s records	Enter all of the following: Lease name County name and Comptroller’s county code; Date of first production, or start date; District number; Lease number; Eight-digit API number only if the lease has one API number assigned. Leave blank if the lease has more than one API number assigned; and Well completion date.
   If the lease produced less than 5 percent of recoverable oil per barrel of produced water: select the amount of production that applies; and include $100 filing fee with Form AP-216.	Select one of the following: Less than 15 barrels of oil per day; or Less than 5 percent of recoverable oil per barrel of produced water.
   Enter the three months that were prior to the beginning date of the tax credit for the qualifying low-producing lease	Example – The report period for the qualifying low-producing lease began June 2020. The three months prior to June 2020 entered in Form AP-216 are March, April, and May 2020.
   Enter two types of sums Refer to the example titled, “Daily Average Calculation Example for Low-Producing Leases (PDF)”	Enter the following: The sum of lease production during the initial three-month period; and The sum of the number of “well days,” where a “well day” means one well producing for one well
   Attached document, if applicable	Form 01-137; Power of Attorney (PDF).
   Information from authorized individual	Enter all of the following: Name and title; Phone number; Email address; and Signature and signature date.

Certified Average Oil Price

• The amount of a tax credit can be 25%, 50%, or 100% and is based upon the Comptroller-certified average oil price posted on this webpage each month.
• The average oil price is based upon daily index prices for the prior three months for each report period.

Four-Year Statute of Limitations

• Four years from the due date of a report period determines the four-year statute of limitation date.
• Form AP-216 and applicable tax reports must be postmarked by the four-year statute of limitation date of the qualifying report period.
• The four-year statute of limitations does not apply to the prior three months listed on Form AP-216.

Tax credits for low-producing leases do not apply to production of casinghead gas.

Price Conditions

Oil from qualified leases becomes eligible for different levels of exemption from crude oil severance tax based upon the Comptroller-certified average price for the reporting month.

Average Taxable Oil Price	Eligibility
More than $30	No credit
Over $25 to $30	25 percent credit
Over $22 to to $25	50 percent credit
$22 or less	100 percent credit

The Comptroller-certified average price of oil to be used in these calculations is posted in the Texas Register and on this webpage. When the average price falls within one of the categories in the table above, oil will be allowed the corresponding level of exemption for that reporting month.

Pricing Schedules and Credit Eligibility by Month

2024

Report Period	Price of Oil	Eligibility
March 2024	$46.56/bbl	Not Eligible for Credit
February 2024	$47.12/bbl	Not Eligible for Credit
January 2024	$49.85/bbl	Not Eligible for Credit

Additional Resources

Tax Credit For Qualifying Low-Producing Gas Wells