Among the laws enacted by the 89th Texas Legislature was HB 3159, which provides an exemption from oil and gas severance taxes for certain restimulation wells.
Background
Chapter 201 of the Texas Tax Code imposes a tax at rate of 7.5% of the market value of gas produced in the state by a producer. Likewise, Chapter 202 of the Texas Tax Code generally imposes a tax of 4.6% of the market value of oil produced in this state or 4.6 cents for each barrel of 42 standard gallons of oil produced in the state, whichever results in the greater amount of tax. These taxes are commonly known as severance taxes. The Texas Comptroller estimates the total oil severance tax collected in 2024 as being $6.3 billion and the total gas severance tax collected in 2024 as being $2.1 billion.[1]
There are currently a number of exemptions and reductions in tax rate relating to the oil and gas severance taxes including:
- a temporary reduction in tax for oil produced from certain new or expanded enhanced oil recovery projects;[2]
- a 30-year reduction in the tax rate for oil produced from certain enhanced oil recovery projects that use carbon dioxide captured from anthropogenic sources that would otherwise be released into the atmosphere as industrial emissions;[3]
- a 5-year exemption from tax for oil and gas produced from certain wells that were previously inactive;[4]
- a 5-year exemption for certain qualified incremental production;[5] and
- a month-by-month exemption for oil produced on certain qualifying low-producing oil and gas leases.[6]
The New Exemption for Production from Restimulation Wells
HB 3159 adds section 202.062 to the Texas Tax Code. This section exempts “hydrocarbons” produced from a “qualifying well” from oil and gas severance taxes for a limited period.
A “qualifying well” is “a restimulation well that has been certified [by the Texas Railroad Commission (the “RRC”)] . . . as a qualifying well.”[7]A “restimulation well” means “a previously completed oil or gas well that, following production of hydrocarbons, became an inactive well and subsequently received a restimulation treatment.”[8] “Restimulation treatment” is “the treatment of an oil or gas well with an application of fluid under pressure for the purpose of initiating or propagating fractures in a target geologic formation to enhance the production of hydrocarbons from the well.”[9]And “hydrocarbons” mean “the oil, gas, condensate, and other hydrocarbons produced from an oil or gas well.”[10]
The exemption lasts until:
- the last day of the 36th consecutive month following the month in which the well first produces hydrocarbons after a restimulation treatment is completed; or
- the date on which the cumulative amount of taxes exempted equals the lesser or the restimulation costs or $750,000.[11]
The exemption does not apply to an oil or gas well that:
- has less than 60 months of production reported to the RRC before the date a restimulation treatment is performed;
- is part of an enhanced oil recovery project, as defined by section 89.002, Natural Resources Code;
- is drilled but not completed and that does not have a record of hydrocarbon production reported to the RRC; or
- is not an inactive well, as defined by Section 89.002, Natural Resources Code, immediately before the restimulation treatment is performed.[12]
[1] Texas Comptroller of Public Accounts, Annual Cash Report: Revenues and Expenditures of State Funds for the Year Ended August 31, 2024 at 11.
[2] Tex. Tax Code §§ 202.052(b), 202.054.
[3] Tex. Tax Code § 202.0545.
[4] Tex. Tax Code § 202.056.
[5] Tex. Tax Code § 202.057.
[6] See Tex. Tax Code §§ 201.059, 202.058.
[7] Tex. Tax Code § 202.062(a)(5).
[8] Tex. Tax Code § 202.062(a)(8).
[9] Tex. Tax Code § 202.062(a)(7).
[10] Tex. Tax Code § 202.062(a)(3).
[11] Tex. Tax Code § 202.062(d).
[12] Tex. Tax Code § 202.062(b).
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