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Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts

taxes

INFORMATION FOR APPROVAL OF REDUCED TAX RATES FOR HIGH COST GAS WELLS

Approval of reduced tax rates for high-cost gas wells certified by Texas Railroad Commission is regulated by Tax Code Section 201.057.

Definition of High-Cost Gas Well

The Texas Railroad Commission's Statewide Rule (SWR) 101 defines high-cost gas as natural gas:

  • produced from any gas well, if production is from a completion located at a depth of more than 15,000 feet;
  • produced from geo-pressured brine;
  • produced from coal seams (occluded natural gas);
  • produced from Devonian shale; or
  • produced from designated tight formations or produced as a result of production enhancement work.
High-Cost Gas Well in a Tight Gas Formation

The Texas Railroad Commission defines tight gas formation as one in which:

  • the in-situ (pre-stimulation) permeability throughout the proposed formation or specific portion thereof is 0.1 millidarcies or fewer, as determined by geometric mean or median analysis of available data from all wells that have either been tested or completed in the proposed formation within the requested area;
  • the geometric mean or median pre-stimulation stabilized production rate against atmospheric pressure for all wells does not exceed the rate listed in the yardstick table within SWR 101; and
  • no well drilled into the formation is expected to produce, without stimulation, more than five barrels of crude oil per day.
Duration of Reduced Tax Rate

Each approved high-cost gas well will receive a reduced tax rate for 10 years or until the well accumulates tax savings of 50 percent of the actual drilling and completion costs for the well, whichever occurs first.

Certification of a High-Cost Gas Well

A certification letter from the Texas Railroad Commission for each high-cost gas well must be obtained by filing the commission's Application for Texas Severance Tax Incentive Certification (Form ST-1).

Comptroller's Application, Form AP-180
  • A completed Form AP-180 (PDF) and copy of the certification letter from the Texas Railroad Commission must be submitted to the Comptroller's office.
  • Actual drilling and completion costs for all certified high-cost gas wells must be included on Form AP-180.
  • The Comptroller's office will send the taxpayer a letter acknowledging approval of the reduced tax rate for the certified high-cost gas well.
  • After a high-cost gas well is approved, detailed information on the well is displayed on the Crude Oil and Natural Gas Web Inquiry System. To view the detailed information:
    1. in the "Public Information Menu," select the link titled "By Lease Number."
    2. enter the lease number, county and lease type. Select the "Search" button.
    3. under the "Exemption" column:
      • if "Yes" is displayed, select the "Yes" link. The beginning and ending periods, Comptroller approval date and Texas Railroad Commission certification date will be displayed. Under the "Exemption" column, select the "05" link. Details of the approved high-cost gas well will be displayed.
      • if "No" is displayed, the well is not approved as a high-cost gas well for the county and lease number entered.
Mailing Address and Contact Information

Mail completed Form AP-180 to the Crude Oil and Natural Gas Tax Section of the Comptroller's Account Maintenance Division in Austin, Texas. The mailing address and telephone number are available online.

Confidentiality of Drilling and Completion Costs

Drilling and completion costs reported on Form AP-180 are confidential and may not be disclosed except when aggregated with other, similar information to produce industry averages.

Recompletion (or Workover)

A recompletion (or workover) involves working over an existing wellbore to complete in a different field/reservoir. This includes plugging the older producing formation with a plug-back plug and completing in a new producing formation that is usually higher in the well.

If a certified high-cost gas well was previously approved for a reduced tax rate and then later recompleted (or worked over), one of the following situations can occur:

  • recompletion (or workover) does not involve a new zone.
    • The Texas Railroad Commission lease identification number remains the same and a new certification of the recompleted high-cost gas well is not issued.
    • The beginning and ending dates and reduced tax rate of the previously approved high-cost gas well will remain the same on the Comptroller's records.
  • recompletion (or workover) involves a new zone.
    • The Texas Railroad Commission assigns a new lease identification number.
    • A new Texas Railroad Commission Application for Texas Severance Tax Incentive Certification (Form ST-1) must be filed to certify the high-cost gas well with a new lease identification number.
    • Form AP-180 must be filed indicating the new lease identification number, with a copy of the new Texas Railroad Commission certification letter attached. Only current and contemporaneous drilling and completion costs associated with the recompletion can be reported on Form AP-180.
Oil Field Cleanup Regulatory Fee

The oil field cleanup regulatory fee is due when items listed below are reported.

  1. "Yes" is marked for the field titled "Are you liable for the tax?";
  2. A volume amount is reported in the "Your Volume" field; and
  3. One or all of the commodities listed below are reported:
    • raw gas,
    • lease use,
    • products or
    • residue reported without a corresponding products commodity for the same lease identification number.

To compute the oil field cleanup regulatory fee:

  • for every transaction where "Yes" is marked for the field titled "Are you liable for the tax?", add the volume amounts reported in the "Your Volume" field for each of the commodities shown above.
  • multiply the sum of the "Your Volume" amount by $0.000667.
Establishing the Median

As soon as practicable after March 1 of each year, the Comptroller's office shall determine from Forms AP-180 filed during the previous state fiscal year the median drilling and completion costs for all approved high-cost gas wells. Those median drilling and completion costs shall be used to compute the reduced tax rate for each high-cost gas well.

Reduced Tax Rate

The reduced tax rate on each well is based on its associated drilling and completion (D&C) costs. This creates the possibility of a different reduced tax rate for each well.

The formula for calculating the reduced tax rate for a well is:

(.075 - (.075 X D&C Costs)) ÷ (2 X median D&C costs for all high-cost gas wells in the previous fiscal year)

Estimating A Reduced Tax Rate for a High-Cost Gas Well

A reduced tax rate for a high-cost gas well can be estimated by entering the applicable information in our online rate calculator.

The median cost for wells completed in the prior fiscal year and the estimated reduced tax rate will be displayed after the calculation is complete.

List of Current Accumulated Savings

A list of current accumulated savings for a high-cost gas well is displayed by using the Crude Oil and Natural Gas Web Inquiry System. To view a current list, follow these steps:

  • log in by entering a taxpayer/representative number and password.
  • in the "Secure Information" menu, select the link titled, "Type 05 Savings."
  • enter the county and lease identification number.
Reporting the Reduced Tax Rate for a High-Cost Gas Well (Exempt Type 05)
  • "Exempt Type" must be reported as "05."
  • Reduced tax rate for "Exempt Type 05" must be reported.
  • "Tax due on Type 05" is calculated by multiplying the "Net Taxable Value" times the "Reduced Tax Rate For Type 05."
Recovery of Taxes Paid
Limitations on Refunds or Credit Transfers for Approved High-Cost Gas Wells

Amended reports filed for approved high-cost gas wells must be postmarked on or before four years from the date the tax is due. The taxpayer also must submit a letter requesting a refund or Form 10-147 to transfer a credit.

To qualify for a refund or credit transfer, approved high-cost gas wells with reduced tax rates must meet four requirements. The tax credit amount corresponding to a high-cost gas well will be disallowed if any of the following requirements are not met.

1. Four-Year Statute of Limitations
The statute of limitations for filing amended natural gas tax reports is four years from the date the tax is due for the report period in question.

2. Two-Year Window Requirement
Taxpayers can claim tax credits for up to 24 consecutive calendar months immediately preceding the month in which the application for certification was filed with Texas Railroad Commission.

3. One-Year Window Requirement
The Comptroller's office issues a letter to the taxpayer acknowledging the approval of the reduced tax rate for a high-cost gas well. This letter indicates an approval date. Amended reports containing approved high-cost gas wells with reduced tax rates that have production periods on or before the Comptroller's approval date must be filed by the first anniversary of the Comptroller's approval date.

4. 10 Percent Penalty
Form AP-180 must be filed by the later of the 180th day after the date of first production, or the 45th day after the date of approval by the Texas Railroad Commission. If Form AP-180 is not filed by the applicable deadline, the tax deduction is reduced by 10 percent for the period beginning on the 180th day after the first day of production and ending on the date on which Form AP-180 is postmarked.

Production Not Eligible For Tax Incentive

Condensate and casinghead gas production are not eligible for the high-cost gas tax incentive.

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