SECTION 3.39. Credits for Qualifying Low Producing Oil Leases

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

(1) Average taxable price of oil--The price of oil, certified by the comptroller, determined by adding the closing price of each market day adjusted to 2005 dollars during the previous three months and dividing the sum by the total market days in the three-month period.

(2) Commission--The Railroad Commission of Texas.

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

(4) Qualifying low-producing lease--An oil lease that produces less than 15 barrels of oil per day of production per well or produces less than 5.0% recoverable oil per barrel of produced water during the three-month period prior to the beginning date of the credit. For purposes of qualifying the lease, the production per day is determined by computing the average daily per well production from the lease using the greater of the monthly production from the lease as reported in the monthly lease production reports made to the commission and the monthly production from the lease as reported in the producer's reports made to the comptroller under Tax Code, §202.201 (Producer's Report), including any amendments to those reports, and dividing the sum of the production reported on the lease by the sum of the number of well days. The calculation will use the three-month period prior to the beginning date of the credit.

(5) Well day--One well producing for one day.

(b) To qualify a lease, the operator of the lease shall provide the following:

(1) a copy of the monthly production report made to the commission for the lease for the three-month period prior to the beginning date of the credit;

(2) a list of the producing wells on the lease and supporting documentation to show the number of days each well was producing during the three-month period;

(3) a completed comptroller Texas Crude Oil Lease Tax Exemption Application (form AP-216) for the lease;

(4) the starting date that the lease met the three-month production limitations qualifying the well as a low-producing well;

(5) a statement as to whether tax has been paid on the crude oil for periods after the effective date of the credit and the name of the party paying the tax; and

(6) when production during a three-month period is less than 5.0% recoverable oil per barrel of produced water, the operator may submit documentation that the well meets this requirement. An example of acceptable documentation is a production record showing the amount of water produced and the amount of oil produced for the three-month period. A taxpayer requesting approval under this paragraph shall also send the $100 filing fee with the application.

(c) The monthly average taxable price of oil will be published in the Texas Register the month following the actual production month. This publication will notify the taxpayer of the availability of the credit prior to the due date of the report. Credits are as follows:

(1) if the monthly average taxable price of oil is more than $30 per barrel, there will be no credit for that reporting month;

(2) if the monthly average taxable price of oil is more than $25 per barrel, but not more than $30 per barrel, there will be a 25% credit for oil sold from a qualified lease for that reporting month;

(3) if the monthly average taxable price of oil is more than $22 per barrel, but not more than $25 per barrel, there will be a 50% credit for oil sold from a qualified lease for that reporting month;

(4) if the monthly average taxable price of oil is $22 per barrel or less, there will be a 100% credit for oil sold from a qualified lease for that reporting month; and

(5) when available, tax credits provided for qualifying leases under this subsection may be combined with Tax Code, §202.054 (Qualification of Oil From New or Expanded Enhanced Recovery Project for Special Tax Rate) or §202.0545 (Tax Exemption for Enhanced Recovery Projects Using Anthropogenic Carbon Dioxide).

(d) If the tax is paid at the full rate provided by Tax Code, Chapter 202 (Oil Production Tax), on oil produced on or after the effective date of the tax credit but before the date the comptroller approves an application for the tax credit, the operator is entitled to a credit on taxes due under Tax Code, Chapters 202 or 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 remitting the tax a copy of the approved comptroller application form that provides that the lease qualifies for the tax credit.

Source Note: The provisions of this §3.39 adopted to be effective December 27, 2006, 31 TexReg 10346; amended to be effective April 27, 2021, 46 TexReg 2828