Tax Breaks for Low Producing Wells

Severance Tax Breaks for  Stripper Wells
Severance Tax Breaks for Stripper Wells

The prolonged downturn means tax breaks for some producers.

Related: Eagle Ford School Districts Give Back Millions

In 2005, Texas lawmakers created a tax credit to bring relief to oil producers with low-producing wells. The tax break was set to trigger when oil prices dropped below a certain levels, a move designed to keep marginal wells in production during hard times.

Those hard times are now here and in February, the Texas Comptroller announced that low crude prices have triggered a 50% severance tax exemption on these 'stripper wells.

The Texas Tax Code classifies a ‘qualifying low-producing oil lease’ as an oil well that is part of a lease whose production during a 90-day period is less than 15 barrels of oil per day of production or five percent recoverable oil per barrel of produced water.

The amount of severance tax credit for qualified wells is tied to oil prices:

  • 25% credit: average taxable oil price were above $25 per barrel but not more than $30
  • 50% credit: if the price were above $22 per barrel but not more than $25.
  • 100% credit: tax credit if the price were $22 or less

Currently in Texas, the severance tax for oil production is 4.6% of the oil's market value. According to the Texas Comptroller’s Office, the state took in nearly $2.9 billion in oil production taxes in 2015, down 25.% from 2014.

well exemptions
well exemptions