16 TAC §3.50
The Railroad Commission of Texas proposes an amendment to
§3.50, relating to Enhanced Oil Recovery Projects - Approval and Certification
for Tax Incentive. The proposed amendments conform the rule to Texas Tax Code,
§202.054, as required by Senate Bill 582, 75th Legislature, Regular Session,
which extends the deadline for applying for certification for a tax incentive
for new and expanded enhanced oil recovery (EOR) projects from January 1,
1998, until January 1, 2008.
The proposed amendments to §3.50 amend subsection (c)(5) by adding
a provision to the definition of EOR project to clearly indicate that pressure
maintenance and water disposal projects are excluded from coverage by this
section.
The proposed amendments to subsection (c)(6) delete the unnecessary references
to past active operation commencement deadlines.
The proposed amendments to subsection (c)(13) add a descriptive provision
to the definition of pressure maintenance which states, "wherein fluid injection
volumes are approximately equal to fluid withdrawals and no attempt is made
to refill pre- existing reservoir voidage or to displace in situ hydrocarbons."
Proposed new subsection (c)(20) defines water disposal project as that
term is excluded from coverage in amended subsection (c)(5).
The exclusion from coverage for pressure maintenance operations was previously
contained in §3.50 (commonly referred to as Statewide Rule 50), but was
inadvertently deleted during revisions made in 1991; however, the exclusion
of pressure maintenance operations has always been enforced by the commission.
Likewise, the exclusion of water disposal projects has always been enforced
by the commission and is being included in revised subsection (c)(5) for clarification.
The proposed amendments to subsection (d)(1) delete the unnecessary references
to past active operation commencement deadlines and add the qualification
of "EOR project and area designation" to indicate the appropriate application.
Additionally, the application deadline, extended from January 1, 1998, to
January 1, 2008, by Senate Bill 582, is corrected in subsections (d)(1) and
(i)(1). The proposed amendments add "injection history" to subsection (d)(2)
as an example of relevant information to be included with the application.
The proposed amendments to subsection (e) remove unnecessary language regarding
separate filings and clarify the procedure for filing concurrent applications.
The proposed amendments to subsection (g)(1)(A) delete unnecessary references
to the past active operation commencement deadlines. Subsection (g)(2) is
amended by adding "injection graphs" and "supporting tabular" data as information
required to be submitted with the positive production response certificate
application.
The proposed amendments to subsection (i) require that an application for
reduced or enlarged project area certification be filed prior to the filing
of an application for positive production response certification to ensure
that only one application for positive production response certification per
project will be filed.
Rita E. Percival, planner, Oil and Gas Division, has determined that there
will be no fiscal implications for state or local government as a result of
enforcing or administering the amended rule. The amended rule merely extends
the tax exemption which is currently afforded to qualified EOR projects. There
will be no cost of compliance with the amended rule for small businesses.
In fact, there should be a reduction of the tax burden on all operators establishing
new and expanded EOR projects and increased production from many of Texas'
more mature oilfields resulting from this tax-saving incentive.
Mickey R. Olmstead, hearings examiner, Office of General Counsel, has determined
that, for each year that the amendments are in effect, the public benefit
anticipated as a result of adopting the amendments will be a reduction of
the tax burden as previously stated.
Comments may be submitted to Mickey R. Olmstead, Hearings Examiner, Office
of General Counsel, Railroad Commission of Texas, P.O. Box 12967, Austin,
Texas 78711-2967. Comments will be accepted for 30 days after publication
in the
Texas Register
. All comments should
refer to Oil and Gas Docket Number 20-0217580. For further information, please
call Mickey Olmstead at (512) 463-6923.
The commission proposes the amendments pursuant to Texas Natural
Resources Code, §§81.051, 81.052, 85.042, 85.201, 85.202, 86.041
and 86.042, which authorize the commission to prevent waste of oil and gas
and to protect correlative rights.
Texas Tax Code, §§202.051-202.054, and Texas Natural Resources
Code, §§101.001 - 101.052, are affected by the proposed amendments.
§3.50.Enhanced Oil Recovery Projects-Approval and Certification for Tax Incentive.
(a)-(b)
(No change.)
(c)
Definitions. The following words and terms, when used
in this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)-(4)
(No change.)
(5)
Enhanced oil recovery project (EOR)--The use of any
process for the displacement of oil from the reservoir other than primary
recovery and includes the use of an immiscible, miscible, chemical, thermal,
or biological process.
This term does not include pressure maintenance
or water disposal projects.
(6)
Existing enhanced recovery project--An EOR project
that
has begun
[
began
] active operation [
before
September 1, 1989, or began active operation between September 1, 1989, and
September 1, 1991,
] but was not approved
by the commission
as a new EOR project.
(7)-(12)
(No change.)
(13)
Pressure maintenance--The injection of fluid into
the reservoir for the purpose of maintaining the reservoir pressure at or
near the bubble point or other critical pressure
wherein fluid injection
volumes are not sufficient to refill existing reservoir voidage and displace
oil that would not be displaced by primary recovery operations
.
(14)-(18)
(No change.)
(19)
Tertiary recovery project--An EOR project using
a tertiary recovery method (as defined in the federal June 1979 energy regulations
referred to in the Internal Revenue Code of 1986, §4993, or approved
by the United States secretary of the treasury for purposes of administering
the Internal Revenue Code of 1986, §4993, without regard to whether that
section remains in effect) including those listed as follows
:
[
.
]
(A)-(I)
(No change.)
(20)
Water disposal project--The
injection of produced water into the reservoir for the purpose of disposing
of the produced water wherein the water injection volumes are not sufficient
to refill existing reservoir voidage and displace oil that would not be displaced
by primary recovery operations.
(d)
Application requirements. To qualify for the recovered
oil tax rate the operator must:
(1)
[
for a new EOR project,
]submit an application
for approval on the appropriate form [
on or after September 1, 1989,
and
] before January 1,
2008
[
1998
]. [
For
an expansion of an existing EOR project, the operator must submit an application
for approval on the appropriate form on or after September 1, 1991, and before
January 1, 1998. An application may be filed on or after the applicable date
(September 1, 1989, or September 1, 1991) in this paragraph, even if a separate
application for approval of the project has already been filed prior to that
date.
] All applications must be filed
at the commission's Austin
office
[
in Austin
]. The form shall be executed and certified
by a person having knowledge of the facts entered on the form. If an application
is already on file under the Natural Resources Code, Chapter 101, Subchapter
B, or for approval as a tertiary recovery project for purposes of the Internal
Revenue Code of 1986, §4993, the operator may file a new
EOR project
and area designation
application if the active operation of the project
does not begin before the application under this section is approved by the
commission;
(2)
submit all necessary forms to the Oil and Gas Division
and provide the commission with any relevant information required to administer
this section such as: area plats showing the proposed project area and all
injection and producing wells within the area, production
and injection
history, planned enhanced oil recovery procedures, and any other pertinent
data;
(3)-(4)
(No change.)
(e)
Concurrent applications. The operator may
file
[
apply
] concurrently[
or separately for
]:
(1)
an application for
approval of a new or expanded
EOR project under this section
, together with
;
(2)
an application for
approval of a unitization
agreement for purposes of carrying out the enhanced oil recovery project under
the Natural Resources Code, §§101.001 et seq.;
or
[
and
]
(3)
an application for
approval [
of an
application
] for certification of the project as a tertiary recovery
project.
(f)
(No change.)
(g)
Approval and certification.
(1)
Project approval. In order to be eligible for the recovered
oil tax rate as provided in the Tax Code, §202.052(b), the operator must
apply for and be granted commission approval of a new EOR project or an expansion
of an existing EOR project, prior to commencing active operation of the new
project or expanded project. For a project to be approved the operator must:
[
(A)
for a new project prove that the project
will begin active operation on or after September 1, 1989, or for the expansion
of an existing project prove that the project will begin active operation
on or after September 1, 1991;
]
(A)
[
(B)
]
prove that it qualifies as
an EOR project;
(B)
[
(C)
]
designate the area to be affected
by the project and obtain commission approval of the designation; and
(C)
[
(D)
]
if production from the wells
within the project area is reported with production from wells not in the
project area, designate the method to account for and report production from
the project area.
(2)
Positive production response certificate.
(A)
(No change.)
(B)
The application for positive response certification shall
include:
(i)
production
and injection
graphs
with supporting
tabular
[
and
] data illustrating a positive production response
and volumes of water or other substances that have been injected on the designated
area since the initiation of the new [
EOR project
] or the expanded
EOR project;
(ii)-(iii)
(No change.)
(C)
(No change.)
(h)
Annual reporting.
(1)
The operator must file an annual report on the appropriate
form with the Oil and Gas Division each year the project remains eligible
for the reduced severance tax rate. This form must be filed within 30 days
of the
first
anniversary of the certification date of positive
production response and annually thereafter.
(2)
(No change.)
(i)
Reduced or enlarged areas. The operator may apply for
reduced or enlarged project area certification if:
(1)
the [
original
] application for
reduction
or enlargement of the
project [
approval
] is received before
January 1,
2008
[
1998
]; and
(2)
the application for reduction or enlargement is received
prior to the filing of an application for positive production response certification
of the original enhanced oil recovery project
[
no later than three
years after the original approval of a secondary recovery project or five
years after the original approval of a tertiary recovery project
].
(j)
(No change.)
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of the Secretary of State, on
January 7, 1998.
TRD-9800210
Mary Ross McDonald
Deputy General Counsel, Office of General Counsel
Railroad Commission of Texas
Earliest possible date of adoption: February 23, 1998
For further information, please call: (512) 463-7008