SECTION 3.102. Tax Reduction for Incremental Production

(a) Purpose. The purpose of this section is to provide a procedure by which an operator can obtain a 50% severance tax reduction for five years on the incremental oil and casinghead gas production from a qualifying lease.

(b) Definitions. The following terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise:

(1) Oil lease--A commission-designated oil lease to which the commission has assigned an identifying number.

(2) Production--Barrels of oil (including barrels of gas liquids reported as production monthly on the appropriate form) plus casinghead gas, where six thousand cubic feet of gas is the equivalent of one barrel of oil, expressed in barrels of oil equivalent (BOE).

(3) Baseline production--An oil lease's average BOE monthly production during the four highest months of production in the time period from January 1, 1996, through December 31, 1996.

(4) Incremental production--Production from a qualifying lease in excess of baseline production.

(5) Incremental production technique--

(A) any secondary or tertiary production enhancement technique;

(B) any primary production enhancement technique that an operator certifies required an expenditure of at least $5,000 to cause increased production.

(6) Qualifying lease--A lease is a qualifying lease provided that:

(A) the commission has designated the lease as an oil lease and has assigned to it an identifying number;

(B) production from the lease, measured by dividing the sum of lease production during the four-month period used to compute the baseline production by the sum of the number of well-days during the same four-month period, is no more than seven barrels of oil equivalent per day per well, excluding gas flared pursuant to the rules of the commission; and

(C) after the operator performs an incremental production technique, the lease shows incremental production for four of five consecutive months on or after September 1, 1997, and before December 31, 1998.

(7) Incremental ratio--The amount of a qualifying lease's average monthly incremental production during the four-month period used to meet the definition of a qualifying lease divided by its average monthly total production during the same four-month period.

(8) Qualified incremental production--A qualifying lease's total monthly production multiplied by the incremental ratio.

(9) Well-day--One well producing hydrocarbons for one day.

(c) Qualification for the tax reduction. An operator of a qualifying lease is entitled to a 50% tax reduction on that lease's qualified incremental production for five years provided that:

(1) The operator of a qualifying lease applies to the commission for a determination of an incremental ratio before February 11, 1999;

(2) The commission certifies an incremental ratio;

(3) The operator provides to the state comptroller the certified incremental ratio; and

(4) The operator applies to the state comptroller for the tax relief provided by this section not later than one year after the date the commission certifies the incremental ratio for a qualifying lease.

(d) Request for hearing. If the request for certification of an incremental ratio is denied administratively, or if the operator does not agree with the administrative determination of the amount of the incremental ratio, the applicant may request a hearing. The request for a hearing must be filed within 20 days after the date on which notice of the administrative decision is mailed to the operator. The commission shall provide notice of the hearing to the applicant and to any other affected person named by the applicant. After hearing, the examiner shall recommend final action by the commission.

Source Note: The provisions of this §3.102 adopted to be effective June 23, 1998, 23 TexReg 6437.