SECTION 3.23. Credits for Qualifying Low Producing Wells

(a) 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) Operator--The person responsible under law or commission rules for the physical operation of a wellbore or lease.

(3) Average taxable price of gas--The previous three month average price of gas using a price index listed in Tax Code, §201.059(b). The average will be computed by taking the closing price of gas each market day and dividing it by the total market days in the three-month period. This average price will then be adjusted to 2005 dollars.

(4) Qualifying low-producing well--A gas well that produces no more than 90 mcf of gas per day, excluding gas flared pursuant to the rules of the commission, during the three-month period prior to the beginning date of the exemption. For purposes of qualifying a well, the production per day is determined by computing the average daily production from the well using the greater of the monthly production from the well as reported in the monthly well production reports made to the commission and the monthly production from the well as reported in the producer's reports made to the comptroller under Tax Code, §201.203 (Producer's Report), including any amendments made to those reports.

(b) For each well qualifying under this section, the comptroller will require the following information from the operator of the well.

(1) Copies of the monthly production reports made to the commission for the lease for the three-month period.

(2) If the lease is commingled, the operator must provide copies of the monthly production reports made to the commission for the commingled lease and a production allocation for each lease in the commingling permit with supporting documentation for the three-month period prior to the exemption beginning date. Supporting documentation can include, but is not limited to, the Texas Railroad Commission G-10 Gas Well Status Report for the leases, or an engineering study on the formations in the wellbore, or metering tests done on the leases.

(3) A completed comptroller exemption application for the well.

(4) The date that the lease met the three-month production limitations that qualify the well as a low-producing well.

(5) A statement as to whether tax has been paid on the gas for periods after the effective date of the exemption and the name of the party that paid the tax.

(c) The monthly average taxable price of gas will be published in the Texas Register the month following the actual production month. This publication will notify the taxpayer of the eligibility of the exemption in the month prior to the due date of the report. Tax Code, §201.059(c), (d), and (e) will be used to define the credit applicable for each reporting month.

(1) If the monthly average taxable price of gas is more than $3.50 per mcf, there will be no exemption for that reporting month.

(2) If the monthly average taxable price of gas is more than $3.00 per mcf, but not more than $3.50 per mcf, there will be a 25% credit for gas sold from a qualified well for that reporting month.

(3) If the monthly average taxable price of gas is more than $2.50 per mcf, but not more than $3.00 per mcf, there will be a 50% credit for gas sold from a qualified well for that reporting month.

(4) If the monthly average taxable price of gas is not more than $2.50 per mcf, there will be a 100% credit for gas sold from a qualified well for that reporting month.

(d) If the tax is paid at the full rate provided by Tax Code, Chapter 201, on gas produced on or after the effective date of the tax exemption but before the date the comptroller approves an application for the tax exemption, the operator is entitled to a credit on taxes due under Tax Code, Chapter 201, in an amount equal to the credit approved for that period. To receive a credit, the operator or the party remitting the tax must apply to the comptroller by filing amended reports. If a party other than the operator has remitted the tax, the operator must provide the party that remitted the tax a copy of the approved comptroller application form that qualified the well for the tax exemption.

Source Note: The provisions of this §3.23 adopted to be effective December 27, 2006, 31 TexReg 10346; amended to be effective November 6, 2011, 36 TexReg 7345; amended to be effective February 11, 2020, 45 TexReg 917