SECTION 3.37. Enhanced Oil Recovery Projects

(a) Enhanced oil recovery projects.

(1) Producers producing crude oil from an enhanced oil recovery project approved and certified by the Texas Railroad Commission may file with the comptroller an application for a reduced tax rate.

(2) An application for taxation at the reduced tax rate must be filed.

(A) The operator shall make application on forms prescribed by the comptroller for the reduced tax rate on qualified oil produced and sold by the operator. The operator shall be responsible for advising the comptroller whenever the status of the enhanced oil recovery project changes in a manner that would affect the imposition of the tax due on the oil produced from the project area.

(B) A nonoperator taking production in-kind from a project area for which the operator has filed an application for tax relief shall also file an application for tax relief on forms prescribed by the comptroller for the qualified oil produced and sold by the nonoperator.

(3) The application for tax relief filed by the operator shall include an approved copy of Texas Railroad Commission Form H-12, Enhanced Oil Recovery Project and Area Designation Approval Application, and a copy of the Certificate of Positive Production Response issued by the Texas Railroad Commission.

(4) The application for tax relief filed by a nonoperator must contain the project name as designated by the operator, and the project number as designated by the Texas Railroad Commission. The application for tax relief filed by a nonoperator will not be granted until the operator has complied with paragraph (3) of this subsection.

(5) When an application for tax relief has been approved by the comptroller, a producer may file amended reports to recover the additional tax paid by the producer on qualified oil for periods after the effective date of the reduced tax rate and prior to the actual date of approval. In order to obtain a refund, the amended reports must be filed within one year after the date the Texas Railroad Commission certifies that a positive production response has occurred.

(6) Producers obtaining an approval for relief from the comptroller shall furnish to any first purchaser required to report a purchase of the enhanced recovery oil a copy of the comptroller's approval. Any first purchaser paying tax on qualified oil for periods after the effective date of the reduced rate and prior to the actual date of approval shall file amended reports to recover the additional tax paid. In order to obtain a refund, the amended reports must be filed within one year after the date the Texas Railroad Commission certifies that a positive production response has occurred.

(7) Producers and purchasers reporting enhanced recovery oil shall designate the oil as being qualified secondary recovery oil, or oil recovered by any other approved enhanced recovery method, according to instructions contained on the crude oil tax reports.

(8) The reduced tax rate does not apply until an amount of oil equal to the oil produced and stored on the lease prior to the effective date of the tax relief is removed from the lease.

(9) Any crude oil produced and stored on the lease during a period in which the reduced tax rate applies, but removed from the lease after the reduced tax rate period has expired, qualifies for the reduced tax rate. The reduced tax rate will apply until the volume of oil removed equals the volume of qualified oil stored.

(10) Producers delivering to a first purchaser oil which contains a volume of qualified secondary recovery oil, and/or a volume of qualified oil produced by any other approved recovery method, and a volume of oil not eligible for the reduced tax, or any combination of these, shall furnish to the first purchaser the volume information necessary to enable the purchaser to file proper reports.

(b) Enhanced oil recovery projects using anthropogenic carbon dioxide.

(1) Entitles producers producing crude oil from an approved enhanced oil recovery project to an additional 50% reduction in the crude oil tax rate stated in Tax Code, §202.052(b), if in the recovery of the oil the enhanced oil recovery project uses carbon dioxide that is captured from an anthropogenic source in this state; which would otherwise be released into the atmosphere as industrial emission; is measurable at the source of capture; and is sequestered in one or more geological formations in this state following the enhanced oil recovery process.

(2) In the event that a portion of the carbon dioxide used in the enhanced oil recovery project is anthropogenic carbon dioxide that satisfies the criteria under paragraph (1) of this subsection and a portion of the carbon dioxide used in the project fails to satisfy the criteria of paragraph (1) of this subsection because it is not anthropogenic, the additional tax reduction provided by paragraph (1) of this subsection, is required to be reduced to reflect the proportion of the carbon dioxide used in the project that satisfies the criteria of paragraph (1) of this subsection.

(3) An application for the additional tax reduction must be filed with the comptroller. The operator shall make application on forms prescribed by the comptroller for the additional tax reduction on qualified oil produced and sold by the operator.

(4) The application for additional tax reduction filed by the operator shall include an approved certification from the agency identified under Tax Code, §202.0545(c)(2).

(5) When an application for additional tax reduction has been approved by the comptroller, a producer must file amended reports to recover the additional tax reduction paid by the producer on qualified oil for periods after the effective date of the additional tax reduction and prior to the actual date of approval. To receive the additional credit, the amendments must be filed with the comptroller for the credit not later than the first anniversary of the date the oil is produced.

(6) Producers obtaining an approval for additional tax reduction from the comptroller shall furnish to any first purchaser required to report a purchase of the enhanced recovery oil, a copy of the comptroller's approval. Any first purchaser paying tax on qualified oil for periods after the effective date of the additional tax reduction and prior to the actual date of approval must file amended reports to recover the additional tax paid. In order to receive the additional credit, the amendments must be filed with the comptroller for the credit not later than the first anniversary of the date the oil is produced.

(7) Producers and purchasers reporting anthropogenic carbon dioxide enhanced recovery oil shall designate the oil as being qualified oil according to instructions contained on the crude oil tax reports.

(8) Any crude oil produced and stored on the lease during a period in which the additional tax reduction applies, but removed from the lease after the additional tax reduction period has expired, qualifies for the additional tax reduction. The reduction in tax rate will apply until the volume of oil removed equals the volume of qualified oil stored.

(9) Producers delivering to a first purchaser, oil which contains a volume of qualified oil, and a volume of oil not eligible for the additional tax reduction, or any combination of these, shall furnish to the first purchaser the volume information necessary to enable the purchaser to file proper reports.

Source Note: The provisions of this §3.37 adopted to be effective October 18, 1990, 15 TexReg 5853; amended to be effective March 9, 2011, 36 TexReg 1565