Texas stripper wells get severance tax break because of low prices

Stripper well producers receive 25% break from Texas state severance tax

For the first time, in Feb. Texas stripper wells are eligible for a discount on the state severance tax because of low oil prices.

Photo: Statoil.

A marginal oil well is one that produces 15 barrels or less per day or a well that produces 5 per cent or less recoverable oil per barrel of water averaged over the last 90 days.

The production per day is determined by using the monthly lease production report filed with the Texas Railroad Commission and dividing the monthly lease production by the number of well days within the 90 day time frame (a well day is one well producing for one day).

1. 25% tax credit if oil prices are between $25 and $30
2. 50% tax credit if oil prices are between $22 and $25
3. 100% tax credit if oil prices are lower than $22 per barrel

The tax rate is 4.6 per cent of the market value of oil produced, according to the Office of the Texas Comptroller’s website. The tax credit does not apply to casinghead gas produced from an oil well.

Oil producers must file form AP-216 (PDF, 73k) for oil leases meeting the State’s criteria.

“The Legislature implemented this exemption for times exactly like this,” Texas Comptroller Glenn Hegar told the Business Journal. “We hope this provides an incentive for producers to keep marginal wells in production.”

According to data from the Texas Alliance of Energy Producers, in 2014 there were 171,000 marginal oil wells in Texas that might qualify for the severance tax reduction.

Oil prices have risen recently on news that some OPEC producers would join with Russia to implement a production freeze, though not a reduction. American oil production continues to fall as companies slash capital expenditures to conserve cash during the downturn.

American benchmark West Texas Intermediate was trading at $38.50/b Monday morning, while Brent crude oil sold for $40.39.